The ostensible aim of the Competition Bill - now at Committee stage in the Lords - is to bring United Kingdom law on competition in line with European Law. It is also designed to make the British economy more competitive. This, second, objective is more difficult. It is not at all clear what one has to do to make an industry or economy more competitive. Economists are forever debating the notion of competition. As years go by the techniques we deploy get better. We now have game theory while a previous generation got by with diagrams. Yet competition remains elusive.
It could mean a world in which roughly equal companies slug it out to share the market for their product. Each might try to make its product different from the rivals'. Companies might even vary their prices slightly. Such competition will improve the quality of products and help the consumers. It could drive the price down by making companies more efficient. A large pool of players competing with each other ensures diversity while benefiting the consumers by keeping prices low and quality high.
But there is another, darker definition of competition. As the famous American Robber Baron once said, what I mean by competition is rubbing my rivals out. Dog eats dog, or as the ancient Hindu philosophers put it, it's matsyanyaya - the Justice of the Fish. The big fish bite at the little ones, they use aggressive tactics to undercut and undermine. Companies which have resources to last out a long battle can engage in price wars. Their rivals either have to follow suit and match any cuts in price cut or suffer a loss of market share and go under. After a while, the company with more resources wins the field by driving out the rivals.
If the first mode of competition is a healthy one, the second one is predatory. And it's predatory competition that is before the House of Lords this afternoon. Amendments to the Competition Bill are being moved by Liberal Democrat peer Lord [Tom] MacNally. The gist of them is that predatory pricing gets defined as uncompetitive behaviour.
It is a non-party move. The amendments are co-sponsored not only by Lord Astor, a former Tory Minister, but also Lord [Gordon] Borrie, who is a Labour peer and more than an expert on issues of fair trading and regulation. There will be support from the cross-benches as well.
It is a debate that is bound to generate a lot of heat. If the movers choose to divide the House, it is anybody's guess how the votes will go.
The Government will no doubt corral its support assiduously. But the Labour Party is in a minority in the Upper House. If the Liberal Democrats desert Labour and combine with Conservatives as well as picking up votes from the cross benches [always the most difficult to predict, and rightly so] there could be a defeat looming this afternoon.
Which would also be a defeat for Big Fish Rupert Murdoch and the aggressive price-cutting that he has used to promote sales of The Times.
But how can one prove that there is price cutting? Here there is a great divide between the philosophies of competition on the two sides of the Atlantic. In Britain we have had laissez- faire; we have been traditionally tolerant of monopolies as well as cartels. We have left well enough alone. Until recently that is.
In the United States they not only believe in the market, but they are also prepared to enforce competition. The Justice Department takes an active role in seeing to it that non-competitive behaviour is punished. The state intervenes to make the market work better.
This is why Microsoft is having to battle in the courts. Think back to the case of Freddie Laker, the little fish airline entrepreneur who considered himself a victim of uncompetitive behaviour by his rivals. He nearly proved his point in the American courts by suing various banks involved in funding his rivals. But that was in the days of the Thatcher-Reagan friendship. It proved mighty strong ... I have been reliably informed that miraculously and suddenly the American heat was turned off. This was a rare case of high-level Executive intervention in such matters.
What we need in Britain is a new culture backing the pursuit of non-competitive behaviour, not one in which there is high level intervention to protect predators.
Over to my fellow peers. If the House of Lords were to pass the anti- predatory pricing amendments, the focus would shift to the House of Commons. Ah, it will be said, the amendments passed only thanks to the hereditary peers. Over to the Cabinet. The Labour Party clearly has the power to squash the MacNally amendment if passed. It's vital, however, no one gets distracted by questions about the relationship of Lords and Commons and the powers of the Second Chamber. What matters is the nexus between money and politics.
Should the British political system be bent to suit the predatory behaviour of powerful press barons or should it arm itself with American-style vigilance to ensure fair competition?
The writer is a Professor of Economics at the London School of Economics and a Labour peer.Reuse content