The theory of the firm, as a form of organisation of resources distinct from the market, has a central but often neglected role in competition law. The firm determines the scope of competition law, insofar as United States (US) and European Union (EU) rules apply to either “persons” or “undertakings” considered as a single economic entity. However, competition law is generally understood to govern the external dimension of firms—the interactions with other firms and consumers—and to leave their internal dimension to other fields of law dealing with “corporate governance”—notably, the organisation of corporate groups, the direction of legal entities, and the management of labour relationships. In a neoclassical economic point of view, firms would operate as the “black box” of this book’s title : only the allocation of inputs between firms and their production of outputs would matter for competition law, not what goes on inside them.
Thépot’s book sets out to challenge this view, applying an original approach to great theoretical and practical interest. The title may be somewhat misleading : competition law does naturally consider an internal dimension when defining a firm, as well as when attributing liability to particular legal persons ; neither are these normative choices neutral, with healthy discussions about the function of competition law and the deterrence of anti-competitive behaviour. The black box is thus already open but not ajar ; as on the book’s cover, its contents still obscured. What this book does is to shine the light of corporate governance on the box, notably the use of agency theory to consider the separation of ownership and control of the firm. The results are reinvigorated policy calls for individual sanctions and valuing compliance programmes, a solid argument for responsibility within corporate groups along negligence, and an in-depth view of the emerging problems of structural links in minority shareholding and interlocking directorates.
The first part is dedicated to boundaries set by the single entity doctrine, starting with vertical relationships. The main issue is the mixing of the substantive reach of competition law with the attribution of liability in the EU. Thus, while it makes sense to exempt agreements between parent and subsidiary companies from the prohibition of collusion, this same relationship establishes a presumption of liability of the parent for collusive acts of the subsidiary (with other undertakings) which is very seldom rebutted. This exception to the limited liability of legal personhood is nominally based on deterrence, but the book contends that it confuses the incentives of the parent’s ownership with the actual ability to control the subsidiary’s commercial conduct. In another application of agency theory, this time literally, the single entity doctrine is also found to over-apply to companies making use of agencies. The book’s approach acknowledges deterrence but improves on the broad leeway that these arguments are given in competition law. Hence, it shows that the sanctioning of parent companies may be ineffective and that it should be subject to a standard of negligence. Sanctioning already requires negligence or intent, so this can certainly be developed judicially.
The first part also examines horizontal relationships—namely, the structural links between competitors which are not captured by a single economic entity. This builds on the US debate about the anti-competitive effects of common ownership by institutional investors and on the EU review of merger control of minority shareholding after Ryanair/Aer Lingus. The book also raises the problem of interlocking directorates, prohibited in the US but common in Europe. It identifies a possible gap in the EU regime between collusion and merger control, due to their varying degree of reliance on the notion of control. It further examines national regimes that try to address this, as well as the legal constraints imposed by corporate governance. It therefore provides very useful elements for discussing an EU-wide solution that overcomes the notion of control, which the book nonetheless leaves open due to the European Commission’s reluctance to pursue the extension of merger control to minority shareholding. However, the novel interpretation of industry cross-participations in Dow/DuPont is also mentioned, which hints at greater adaptability of EU law (that, in line with the spirit of the book, could also come by harmonising corporate governance too).
The second part applies the insights of corporate governance to cartel enforcement, namely, understanding collusion as an agency problem : the interests of shareholders, who suffer from devaluation if infringements are found, differ from those of management, who may benefit from the cartel’s overcharge. This not only aligns collusion with other risks that corporate governance mechanisms seek to address, it also opens a rich vein of inquiry of the effectiveness of cartel enforcement. The book provides added impetus to the long-standing calls to sanction individuals, further arguing for the possibility of leniency and bounties. It also advances that sanctioning could be improved by corporate governance tools that allow shareholders to react to infringements and by giving credit corporate compliance programmes when establishing such sanctions. All of this is again backed up by a comparison of national regimes and an approach which allows tackling arguments that this would harm deterrence. A trenchant counter-argument is the difference between competition and anti-corruption law, letting the (supposed) overriding importance given to deterrence in competition law speak for itself.
Thépot’s book is therefore an important contribution to a promising line of research and practice. It is not only in relation to the single entity doctrine, attribution of liability, and cartel enforcement that competition law has had difficulties in dealing with the internal dimension of firms. The neoclassical view, where firms are only differentiated by their market power, may also explain the limited role of efficiency defences (particularly in the EU) or the new theories of harm needed for innovation competition which depend on organising resources within firms. A broader understanding of the competitive consequences of firm specificity is needed, and the book recognises the limitations of its analysis of rational incentives and ability—it further mentions or touches upon behavioural, organisational, financial, and criminological avenues. This does not harm its consequential analysis of the intersection with corporate governance, but more remains (as with all pioneering works) to be explored within the black box.
