In 2019, a French economist based in New York published a statistical demonstration that many initially refused to believe: American markets had become less competitive than European markets. Not in a niche sector. In telecommunications, air transport, financial services, healthcare. Entire sectors where prices had fallen in Europe for twenty years while they stagnated or rose in the United States. Thomas Philippon, professor at the Stern School of Business, had put figures to a silent reversal that neither editorial writers nor European policymakers had seen coming.

Europe has a reputation as the continent of bureaucracy, technological backwardness, and paralyzing regulation. This reputation coexists with a documented fact: its retail markets are today more competitive than those of the economy that presents itself as the model of free trade. This paradox is not incidental. It says something essential about what intelligent regulation can produce, and about what the capture of regulators by large companies can destroy.

The Essentials

  • Since the 1990s, the share of profits in American GDP has increased by nearly 50% without a corresponding increase in productive investment, a sign of position rents rather than value creation, according to data compiled by Thomas Philippon in The Great Reversal (Harvard University Press, 2019).
  • Mobile phone service prices fell 40% in Europe between 2008 and 2018, while remaining among the highest in OECD countries in the United States, according to OECD and ARCEP data.
  • The concentration of American markets was facilitated by a relaxation of antitrust enforcement beginning in the 1980s and by lobbying whose annual cost exceeds $3 billion, according to Center for Responsive Politics data.
  • The concentration gap continues to widen: the net margins of large American companies have continued to grow since the pandemic, while Europe maintains stronger competitive pressure through the Competition Directorate of the European Commission.

The Great Reversal No One Saw Coming

In the 1990s, American markets were indeed more competitive than European markets. Airline ticket prices, phone plans, and financial services had fallen faster in the United States than in Europe following Reaganomics deregulation. This was the received narrative, and it was accurate at the time.

Philippon shows that this narrative became false in the first two decades of the twenty-first century. The shift occurred gradually, sector by sector, without any major event signaling it. In the United States, major mergers were approved, barriers to entry strengthened, and competition policy progressively lost its substance. In Europe, competition commissioners continued to block concentrations and impose network access obligations. The result, twenty years later, is striking.

A mobile plan costs on average two to three times more in the United States than in France or Germany for comparable services, according to OECD comparisons from 2015-2020. A domestic American airline ticket, measured per distance traveled, regularly exceeds its European equivalent on routes of comparable density. This is not a question of labor costs or geography: it is a question of market structure.

The mechanics are documented. When a market is dominated by two or three actors that don’t really compete on price, consumers pay more and companies capture the difference as profit. Philippon measures this rent: between 1980 and 2016, the share of profits in American national income increased by roughly one-third, without productive investment increasing correspondingly. This is the sign of a rentier economy, not an innovation economy.

How Europe Regulated Without Stifling

Europe did not produce this result by accident. The European Commission’s competition policy, embodied for years by commissioners like Mario Monti, then Neelie Kroes and Margrethe Vestager, maintained constant pressure on mergers and abuses of dominant position. This pressure is not always popular: it has often been presented as an obstacle to building “European champions” capable of rivaling American or Chinese giants.

This debate is legitimate and the tension it describes is real. Creating players of global scale sometimes requires accepting national or regional concentration. The argument for national champions has been heard in industry, in energy, sometimes in finance. But in retail services — telecommunications, air transport, personal banking services — the Commission maintained a firmer line, and the data vindicate this firmness.

The European method rests on a few concrete principles. The obligation of access to infrastructure: an operator that builds a telephone or railway network must allow its competitors to access it on regulated terms, which prevents the construction of de facto monopolies. Prior control of mergers: large concentrations are examined before being authorized, not after the damage is done. And a practice of competition law that applies equally to European and foreign companies, which has led to fines imposed on Google, Apple, Amazon, or Meta for anticompetitive practices.

This model is not without flaws. European sectoral regulation can be slow, fragmented across member states, and sometimes captured by established actors it is supposed to discipline. The overall result is nonetheless positive: retail markets have remained more contestable in Europe than in the United States.

Regulatory Capture: The American Mechanism

On the other side of the Atlantic, the inverse mechanism set in. The economic theory of the Chicago School, dominant in American antitrust thinking from the 1980s onward, refocused competitive analysis on “consumer welfare” measured in the short term by prices. As long as prices did not rise immediately, mergers were tolerated. This doctrine allowed durable dominant positions to be built in entire sectors.

Lobbying did the rest. The Center for Responsive Politics estimates that lobbying spending in the United States exceeds $3 billion per year, with notable concentration in the least competitive sectors: healthcare, finance, telecommunications, energy. These expenditures purchase legislative and regulatory influence, not innovation. They raise barriers to entry for new competitors and maintain established actors in their positions of rent.

Philippon establishes a direct link between this regulatory capture and the weakness of American investment. Companies that capture profits without facing serious competition have no incentive to invest further. The result is an economy where the margins of large companies reach record levels while productive investment stagnates and median wages progress slowly.

This diagnosis converges, by a different path, with an observation Luigi Zingales has been making for years about the relationship between capitalism and democracy: when large companies become powerful enough to shape the rules of the game to their advantage, they cease to be an engine of progress and become a brake. The market stops functioning as a mechanism for efficient allocation and becomes an instrument for redistribution upward.

The analogy with Mexican nearshoring is instructive: when institutions don’t follow apparent competitive advantages, gains remain captive. The United States has the world’s best technology companies and the least efficient consumer markets of developed countries. These two realities coexist because large companies have arranged not to be competed away where they earn the most.

The Champions Objection: A Real Tension, Not a Refutation

The competing reading deserves to be taken seriously. Philippe Aghion, whose work on Schumpeterian growth analyzes creative destruction as the engine of progress, points to a tension in Philippon’s argument: intense competition in retail markets does not guarantee competition in innovation sectors, where economies of scale and the need for massive investments can justify temporary concentration.

Amazon, Google, or Microsoft are not rentier companies in the traditional sense: they have invested massively in technologies that have transformed entire sectors and created genuine productivity gains. The fact that their markets are today highly concentrated is partly a consequence of this investment. The pertinent question is not “is there concentration?” but “does this concentration result from rent or innovation?”

Philippon takes this objection into account. His response is empirical: if American concentration primarily resulted from superior innovation, we should observe a corresponding increase in productive investment and overall productivity. This is not what the data show. Total factor productivity progressed more slowly in the United States in the 2000-2015 period than the concentration of profits would lead us to expect. The gap between profits and investment is the signal of rent, not a return on innovation.

Europe faces, for its part, a symmetric challenge: its markets are more competitive, but it struggles to produce companies of global scale in technology-intensive sectors. This is not necessarily a direct consequence of competition policy — the factors involved include fragmentation of capital markets, relative weakness of venture capital, and cultural differences toward entrepreneurial risk. But the tension exists and it would be dishonest to deny it.

The intellectually correct answer therefore is not to choose between competition and champions, but to distinguish by sector. In retail services, competition produces lower prices without sacrificing innovation. In sectors with high R&D intensity, temporary concentration can be justified if it is conditioned on investment obligations and subject to ex post control of abuses of dominant position. Europe has been able to do the first part; it still struggles with the second.

What Europe Does Not Value

The political paradox is here. Europe has a favorable data point supporting its vision of the world — intelligent regulation produces more efficient markets and lower prices for consumers — and it hardly exploits it at all. European debate on competitiveness is dominated by inferiority complexes vis-à-vis the United States and China, and by rhetoric of technological backwardness that erases domains where Europe has performed better.

This silence has consequences. When the European Commission imposes obligations on large digital platforms or blocks a telecommunications merger, the dominant narrative is that of a regulator braking innovation and handicapping European companies in global competition. The alternative narrative — that of an institution protecting competition and guaranteeing low prices for consumers — is rarely heard with the same force.

This is all the more damaging because the United States has begun to rediscover its own antitrust tradition. The Biden administration appointed Lina Khan to head the Federal Trade Commission with an explicit mandate to strengthen merger control, notably in technology. Economists like Zingales or legal scholars like Tim Wu have contributed to intellectual rehabilitation of more active antitrust. This movement has encountered political and judicial resistance, and its record remains partial, but it signals recognition of the problem Philippon had documented.

The irony is that Europe could learn from America to value what it is already doing, at the very moment when America is questioning whether it should learn from Europe.

The Long Arc: A Divergence Taking Hold

Philippon’s data cover primarily the 1990-2015 period. What happened afterward reinforces his argument. The 2020-2021 pandemic produced, in the United States, a wave of exceptional profits in concentrated sectors — healthcare, logistics, energy, technology — which fueled inflation, part of which was structural rather than monetary in origin. The Federal Reserve had to raise rates aggressively to control inflation that was also explained by rising margins in uncompetitive markets.

In Europe, post-pandemic inflation had its own causes, notably energy-related, but the more competitive market structure in services limited the scale of second-round effects. Eurostat data on consumer prices excluding energy and food show a notable divergence between the two zones in 2022-2023.

The stakes are not merely economic. Market concentration has effects on democratic resilience, a thread Zingales has been pulling for a long time and that recent events have made more visible. When a few companies control information, payments, communications, and logistics infrastructure in an economy, they acquire political influence that exceeds their economic role. The debate on stablecoins and dollarization of emerging economies illustrates exactly this mechanism: the concentration of financial power in a few hands produces effects that far exceed the economic realm.

The long trajectory points toward a risk of tipping point. Once monopolistic positions are established in infrastructure sectors — networks, data, payments — dismantling them is considerably more difficult than preventing them from forming. Europe chose to prevent rather than to cure. This strategy has a short-term cost, in terms of the size of actors produced, and a long-term benefit, in terms of contestable markets and low prices for consumers.

The question Europe should ask itself is not “how do we catch up with the United States in the race for technological champions?” but “how do we preserve the competitive advantage we have, while equipping ourselves with actors capable of investing massively in innovation?” The two objectives are not incompatible. They require a competition policy that distinguishes network sectors, where concentration is always suspect, from high-R&D sectors, where it can be temporarily justified under conditions. This is precisely the type of intelligent regulation that Philippon shows, with data to back it up, that Europe knows how to produce when it has the will. Recognizing it would already be a beginning.

Sources

  1. Thomas Philippon, The Great Reversal: How America Gave Up on Free Markets, Harvard University Press, 2019. https://www.hup.harvard.edu/catalog.php?isbn=9780674976885
  2. OECD, Communications Outlook, editions 2015-2019 (comparative data on mobile telecommunications prices by country).
  3. ARCEP, Observatory of the Electronic Communications Market in France, annual reports 2010-2020.
  4. Center for Responsive Politics / OpenSecrets, data on lobbying spending in the United States. https://www.opensecrets.org/federal-lobbying
  5. Eurostat, Harmonized Consumer Price Indices, comparative data EU/United States 2020-2023.
  6. Luigi Zingales, A Capitalism for the People, Basic Books, 2012.
  7. Philippe Aghion, Céline Antonin, Simon Bunel, The Power of Creative Destruction, Basic Books, 2021.