Germany’s Federal Cartel Office – 60 Years of Protecting Competition

Happy birthday to the German Federal Cartel Office! As the Federal Cartel Office turns 60 this year, it can look back on a long history of successes. But now is not the time for the Office to rest on its laurels. The mission of the Federal Cartel Office is to enforce the Act against Restraints of Competition (GWB), which forms the basis of Germany’s antitrust laws, and in doing so protect competition. The GWB sets out rules for the main instruments for protecting competition: anti-cartel enforcement, abuse control, and merger control. However, the GWB was not welcomed from all sides before it was passed. As the leading advocate of legally determined competition regulations back in the 1950s, Ludwig Erhard did not have an easy task facing up to the voices of protest coming from German industry. The GWB was eventually passed in 1957 and came into effect on 1 January 1958.

Since then, the Federal Cartel Office has established itself as the highest body regulating competition in Germany. Today, more than 1,200 corporate mergers are filed in the Cartel Office’s nine different decision divisions each year. As a result of the introduction of the leniency programme, anti-cartel enforcement has grown in importance enormously in recent years, forcing the Cartel Office to add three new decision divisions since 2005. Abuse control to prevent certain companies from dominating the market has also become more prominent thanks to the Cartel Office’s investigations into Facebook on the suspicion that the internet giant was abusing conditions in the collection of data from third parties.

Despite the Federal Cartel Office’s 60 years of experience fighting constraints on competition, things cannot remain business as usual. Radical changes lie ahead, with the digitalisation of the economy presenting new challenges for competition law and its enforcing bodies.

For example, platform markets, a hallmark of the digital economy, tend to get monopolised due to their network effects. Furthermore, the fact that data, the raw material of the digital economy, is disproportionately in the hands of existing dominant companies makes it difficult for new competitors to enter the markets. The new dynamics of these markets also demand completely different reaction times from the authorities. In the internet age, you have to be fast, or at least faster than before.

In the US, there is already a debate over whether competition policy of a completely different calibre is needed.  Behind such concerns is the fact that the contribution of the 100 largest companies to total value added jumped from 30 per cent in the 1990s to 46 per cent in 2013. By comparison, in Germany, where the economy is more strongly shaped by small and medium-sized enterprises, this figure is only 16 per cent. Furthermore, since the end of the financial crisis, the US companies have been reporting sharp increases in profit margins in almost all sectors, which can be explained by the increased market power of these companies. This observation can also be made of Germany, albeit to a somewhat lesser extent. In other European countries only just beginning to recover from the crisis, the growth of company profit margins is currently even less alarming.

It is debatable whether it is technological progress that is primarily responsible for the increases in these companies’ market power – often referred to as “winner-takes-all” technologies – or lax merger control making it easier for companies to eliminate the competition by buying out their competitors.

Whatever the cause, what is certain is that merger control as well as abuse control targeted at dominant companies must continue to develop and adapt to deal with new market structures. The 9th Amendment to the Act against Restraints of Competition approved last year represents a first step in the right direction. In the meantime, the Federal Cartel Office has plenty of work to get on with for the next sixty years.