Let’s start with a few anecdotes, a no-no in scholarly writing. Walk into a German big-city discount supermarket and check out a bagful of groceries—it will cost about one-half of the equivalent at Safeway’s, let alone Gristede’s in New York. U.S. consumers pay $80 per month for their cellphone; that is $50 more than the average in Britain. In Germany you can get a mobile flat rate for $17, and cable/landline for as low as $28. In America, the price for cable averages out at $85.

A bizarre world. Isn’t the United States the beacon of free and competitive markets—and the EU a bureaucratic monster that regulates everything down to the curvature of cucumbers? Let’s skip the shoppers’ tales and look at the facts and figures, as assembled by New York University’s Thomas Philippon in his forthcoming book, The Great Reversal: How America Gave Up on Free Markets. For a sneak preview, see an earlier paper, How America Lost Its Competitive Edge: A Study of Institutional Drift, co-authored with German Gutierrez.

The beacon was erected more than a century ago. In the Gilded Age, monopolies and cartels had run rampant; recall the Rockefellers, Vanderbilts and Carnegies, then known as “robber barons”. Mercilessly, they wiped out competition, raising prices and entry barriers. Untrammeled capitalism ended with the Sherman Act of 1890. The law was successively tightened all the way to the Celler-Kefauver Act of 1950. Even better, U.S. antitrust legislation became the model for European countries, particularly in postwar Germany, which had been the most cartelized economy of the Continent. (It helped to have the United States as an occupier.) France and Italy, hide-bound to the core, lagged behind for three decades. 

“The American antitrust doctrine had spread globally,” relate Philippon and Gutierrez, “and, by the 1990’s, a broad international consensus had emerged among policy makers in favor of US-style regulations. . . .particularly in Europe. The U.S. retained a head-start, and it had a longer history of independent enforcement.” To simplify, the philosophical difference between America  and Europe used to be wide. European customs and legislation tended to favor producers, giving them a long leash. U.S. competition policy would come down on the side of consumers, which drove down prices and raised real incomes. Such was the Golden Age of American prosperity in the postwar era.

Given these different points of departure, U.S. markets should have “remained more competitive,” the authors aver. So why have America and Europe traded places, as they argue? The quick answer is “because of the EU.” In the 1980s, the EU Commission began to dismantle the old dispensation, deregulating airlines, railroads, utilities, telecoms, energy, and postal services. Coddled “national champions” were exposed to EU-wide competition and prices dropped.

Why this counter-intuitive outcome? Why did those “faceless bureaucrats” succeed? First, they did the dirty work national politicians dared not touch. Elected officials could point to Brussels as the master and culprit, which could do in the name of Europe what entrenched interests and their political allies would block at home.

Second, they had an easier time cracking the problem of “regulatory capture.” On the national level, it is a short step from, say, the farm lobby to the Ministry/Department of Agriculture. Not so in Brussels where the Agri-Commissioner is beholden to 28 governments. National politicians are caught in a squeeze. Though they dearly want to capture the agency for their nation’s benefit, they don’t want any other EU member to grab it in a counter-move; so better to keep their hands off. 

Third, given its multinational construction, the EU could raise the barriers to political influence in Brussels, hemming in stratagems that convert cash into clout. At home, a trade association can harness parties and politicos to its self-serving purposes by feeding them with funds. Such time-honored strategy has proven quite profitable in the halls of Congress. Once elected or re-elected, favored politicos are expected to return the favor by weighing down on national watchdogs. But how do you buy influence in a European-wide election? The relatively powerless EU parliament cannot match the centrality of national legislatures. When parliamentary leverage is low, the money game does not generate too many winnings. To boot, paying off 28 caucuses, or even a majority, would mean spreading lots of money far and wide. In the United States, a lobby need only zero in on key Congresspersons or a single party.

All this, rather than unbounded free market ideology, has served to insulate Europe’s watch dogs from outside intrusion. “The E.U.’s Directorate-General for Competition is more independent than the Department of Justice or the Federal Trade Commission,” argue the authors, adding that in the U.S., “political expenditures have decreased enforcement and increased regulatory barriers to entry.” To exaggerate wildly, it is back to the Gilded Age.

Take the airline sector, which is dominated by four big players. In the EU, there are six heavy-weights, plus five middle-weights like SAS and four smaller companies like Finair (which still has a global network). The level of concentration, which has been rising relentlessly, is about three times higher in the United States than in the EU. Naturally, the profit margin of U.S. airlines is significantly higher: 9 vs. 2.5 percent.

Mergers are a lot easier in the U.S. than on the other side of the Atlantic. According to figures presented by the authors, the “Top-8 Concentration” in manufacturing shows a steep rise since 1990, whereas in the EU it has plummeted at the same pace. Intuitively, the lay person does not need any fancy mathematics, as arrayed in the paper. Looking at the digital world of Google et al., the untutored see concentration soaring before their own eyes—with Google, Facebook, Apple, and Microsoft buying up companies as if there were no tomorrow. And, of course, Amazon, which is conquering the universe of retail day by day.The above graph, taken from Philippon and Gutierrez, shows the dramatic difference between the United States and EU when it comes to antitrust enforcement in terms of fines. In the period from 1995-99, the U.S. was still far ahead on the penalty front. Then the EU sped forward. Ten years later (2005-9), the EU imposed fines worth nine billion euros, whereas the U.S. clocked in at three billion. In the most recent period (2015-17), the EU left the “Land of the Free” in the dust, imposing fines six times higher than those levied in the United States. And so it goes, graph after graph. 

Now, let’s make a pitch for the United States. Is “evil capitalism” at work here? It is more correct to invoke yet another philosophical difference. The EU focuses on the number of players, which it tries to keep high in order to strengthen competition. In U.S. antitrust law, the focus is on prices rather than concentration. So, Amazon is semi-okay. It wipes out competitors left and right, but it conquers markets with rock-bottom prices. Too bad for the competition, but wonderful for the consumer. Let’s add the case of Volkswagen, which does not highlight antitrust enforcement, but vigilance. The systematic prettification of Diesel emissions was exposed by U.S., not German, authorities.

That said, concentration is soaring in the United States while profit margins and prices are generally rising—not what the trustbusters around the turn of the 20^th century had in mind. Airlines and telecoms are among the most dramatic examples of concentration, hurting America consumers. Yet a hundred years ago, the Claytons and Kefauvers had no inkling of Facebook and the like. Why carp about such monopolists if they don’t charge us for their wares? “It’s not about price, stupid!,” to borrow from Bill Clinton once more. It is about the unchecked, nay, invisible power that suffuses not only the market, but also society as a whole.

How do you cut such giants down to size in the way the government dealt with Standard Oil? Social networks don’t restrict output to raise prices as in the olden days. They offer more and more, yet monopolize our minds, not to put too fine a point on it. Classical antitrust theory runs up against its limits here; still,  the Europeans moved first, highlighting the “Great Reversal.” They may be animated by a bias against Almighty America, but that does not delegitimize the overall impetus. 

Since 2017, EU antitrust authorities have hit Google with a total of $9.5 billion in fines for abusing the dominance of its search engine. Facebook and Apple are looking at investigations. The House Judiciary Committee started one of its own in June. The outcome could be legislation to amend or supplant the laws laid down between 1890 and 1950. Given the accelerating tech-revolution and the snail-like pace of legislation, the task is as hard as it is urgent. 

The breakup of a previous tech-giant, ATT, took eight years. In 1992, the Government went after Microsoft for abusing its Windows monopoly. In 2000, a Federal judge ordered the “deconstruction” of the company. Microsoft is still around—and bigger than ever.