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9 - Product Markets: Enforcing the Price Mechanism

Published online by Cambridge University Press:  12 October 2022

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Summary

In performance competition we trust

In March 2014, the public caught a rare glimpse of a Wilhelm Schreuer painting at an auction in Cologne entitled ‘The Council Meeting of the Hanseatic League’. The painting depicts well-to-do merchants discussing their plans around the table with smiles on their faces. Adam Smith’s comment that when people of the same trade meet, the conversation ends in a conspiracy against the public is perhaps an apt description of Schreuer’s work. The Hanseatic League was, after all, one of the world’s earliest examples of an international cartel.

The central tenet of ordoliberal ideology was for the state to enforce competition. This was required to remove distortions from the price mechanism, thereby protecting individual economic freedom of action. Böhm did not believe in a utilitarian maximization of welfare but instead proposed that the dispersal of economic power should be the goal of antitrust policy based on performance competition. This enabled firms to reap the rewards of innovation through temporary monopolies, but placed significant constraints on firm behaviour from distorting the market. To complement performance competition, the free trade of goods and services was promoted to further reduce the power of domestic vested interests. Röpke, however, was careful to recognize the downside to free trade which had to be managed through policy intervention.

This chapter explores the development of performance competition and how it influenced both German and EU law. It highlights the distinction between consumer welfare as promoted by the US, and the ordo notion of dispersing power in relation to current competition law debates. Ordo ideas on free trade remain prescient to contemporary discussions on the multilateral trading system, which promote trade between like-minded states. This is particularly relevant to the ongoing dispute between liberal democracies and China, which has been able to maintain unequal conditions prior to trade through state subsidies. Although the freedom of movement of capital was not a major topic of discussion, addressing capital flows from authoritarian countries remains a central issue to stabilize the currency and sustain a liberal order.

Competition was understood as an instrument to neutralize power, which required the state to constantly intervene to prevent such build-ups. All abuse of private power was incompatible with the public interest. Perfect competition is, however, an unrealistic scenario, which Eucken had initially proposed.

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All Roads Lead to Serfdom
Confronting Liberalism’s Fatal Flaw
, pp. 164 - 188
Publisher: Bristol University Press
Print publication year: 2022

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