The EU is overhauling its competition policies, but a big-is-best credo is no gift to consumers

The European Union has long lamented its inability to produce world-scale companies that push the technology envelope, create vast shareholder wealth and reshape entire industries. Its biggest tech player is ASML, the world’s top maker of photolithography machines required to make microchips. It has a market value of US$560-billion and registers approximately zero on the public awareness scale. Apple’s value is US$3.9-trillion – more than the GDP of France – and is a household name.

In the EU, there is no equivalent of, or even wannabe competitor to, Apple or the other U.S. and Chinese tech heavyweights, among them Alphabet (Google), Meta (Facebook), Microsoft and Alibaba. There is no equivalent to Tesla or BYD, the Chinese electric-vehicle company that is taking on the world.

The EU does have the world’s top luxury product companies (LVMH, for instance), but stitching pieces of leather together is not the same as creating AI and semiconductor giants, and nuclear-powered aircraft carriers. It has a few big oil and mining companies and one world-class aircraft maker, Airbus.

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The competition gnomes in Brussels are well aware that even the biggest and the best EU companies struggle to make a splash in the global market, that the tech research and development race is being won by the Americans and the Chinese, and that the true risk-takers live in faraway lands. In spite of the wealth of the EU’s 27 member states, their superb universities and the sheer size of the market – population 450 million – the world’s biggest trading bloc is an innovation and creativity backwater.

The EU is about to overhaul its competition and takeover rules to allow the big to get bigger – “scaling up,” to use the argot of the investment bankers – so they can create unassailable tech “platforms” and powerhouses in various other industries.

Beware what you wish for. The last round of EU competition policy changes, about 20 years ago, was mostly focused on protecting consumers from competition-busting oligopolies and their potential to raise prices. If the consumer gets tossed aside in the revamped takeover rules, society loses. Consumers don’t care about creating national champions capable of competing overseas if they have to pay for it while shareholders and executives get rich.

Mario Draghi, the former Italian prime minister and European Central Bank president who published the landmark 2024 report, “The Future of European Competitiveness,” was bang-on right in a lot of his EU market criticisms.

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Regulations are excessive, especially on startup and small companies, hindering their growth; spending on R&D at the EU level is tiny compared with the U.S.; the lack of a true single market deters companies in one country from expanding in another (think Canada’s interprovincial trade barriers, which Prime Minister Mark Carney is trying to dismantle); and the hidebound European penchant to stick with technologies that worked in the past, such as gasoline and diesel autos, means that investment flows are not redirected into new technologies with greater potential for growth and job creation.

All true. At the same time, Mr. Draghi called for scale over fragmentation, that is, creating more flexible merger policies so that bigger, more competitive companies could enter the boxing ring with foreign companies and not get knocked out.

Sure, but at what cost to the consumer?

He cited cellphone network operators. In the EU, he counted 34 of them, none of them big enough to invest the fortunes required to ensure ubiquitous, lightning-fast 5G coverage. In the U.S. and Canada, the networks are dominated by just a few players. But the upside for Europeans is that prices are far lower than they are on the other side of the Atlantic.

Ditto airlines. In the U.S., the big four airlines (Delta, American, Southwest and United) control three-quarters of the market; in the 1980s, there were at least 12 major carriers. In Europe, it takes more than two dozen airlines to control a similar market share. Flying anywhere in Europe is far cheaper than in the U.S. and Canada.

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And Big Tech? The sheer size of Apple, Amazon, Meta, Alphabet and a few others have turned them into fortresses. They use their phenomenal access to market data, such as consumer behaviour, to keep expanding, making them virtually immune to upstarts – the barriers to entry are intimidating.

Companies that don’t face intense competition can raise prices and profit margins without fear of losing customers. Doing so allows them to boost profits and funnel their profits into share buybacks, not R&D budgets. “If markets were competitive, companies would keep their prices down to prevent competitors from grabbing away customers,” Robert Reich, who was the Labor Secretary during the Bill Clinton presidency, has said in Congressional testimony. “It is far easier to take big markups when there aren’t major competitors to undercut you.”

Mr. Draghi had legitimate reasons to urge a revamp of EU competition policy. But there are ways to break out of the innovation rut without gutting antitrust policy and depriving consumers of choice and affordable prices. The EU risks creating a U.S.-style, winner-takes-all market if it decides that big is best.