Why EU Commission dumped Google's favourite consultant

This should be a wake-up call to ensure that consultancy firms with a vested interest are once-and-for-all excluded from public tenders. The close relationship between the EU's competition authority and economic consultants poses a serious risk to its independence as a regulator.

Earlier this year, Corporate Europe Observatory and LobbyControl uncovered a shocking conflict of interest: the consultancy firm RBB Economics, which has been instrumental in pushing through Big Tech mergers and acquisitions, was hired by the European Commission' Directorate for Competition (DG COMP) to evaluate one of its merger control tools.

RBB has been involved in many of the most controversial high profile mergers in recent history, but the firm has an especially close and longstanding relationship with Google.

It has represented the company in three major antitrust investigations in which the commission has imposed fines for a total of €8.2bn. Clearly, such a firm cannot act as a consultant on mergers.

In July, commissioner Margarethe Vestager did decide to cancel the contract with RBB Economics, but only after a complaint was filed to the ombudsman.

Instead of only acting after a public outcry, the EU institutions should have procedures in place that at an early stage exclude consultants with a vested interest from public tenders. And if all goes well, and if EU politicians put their heart to it, this could happen soon.

The fox guarding the hen house

The tendered study aimed to assess if the commission had adequately enforced past mergers taking into account future market developments such as entry, expansion and import substitution.

While this might sound technical, it is key to Big Tech's monopoly power.

Due to network effects, the tech sector is rife with monopolies, with extremely high barriers to entry for new competitors. In addition, tech companies have used their position to buy out any potential competitors in order to further entrench their market power.

As Peter Thiel, venture capitalist and co-founder of the tech companies PayPal and Palantir, wrote in 2014: "Competition is for losers. If you want to create and capture lasting value, look to build a monopoly."

RBB Economics had a clear financial interest to steer the study in a direction that would be beneficial to its own future work, and that of its many tech clients. Internal documents show that DG COMP was well aware of this risk. One commission document even sums up no less than five critical areas of the study in which conflicts of interest could play a role.

Despite the many red flags, the commission still decided to press ahead with the contract. It was only when the European Ombudsman opened an inquiry into the contract, that commissioner Vestager decided this summer to drop RBB Economics citing "perceived bias".

A familiar pattern

As the academics Mariana Mazzucato and Rosie Collington describe in their recent book The Big Con, governments' reliance on consultancy firms has a long and problematic history. The commission in particular has a hard-to-shake habit of hiring consultancies to conduct politically sensitive work.

Over the years, several of these cases have been uncovered, for example when big consultancies advising companies on dodging taxes were hired to help design the EU's approach to tax havens.

Or when the commission hired a Danish based consultancy, Copenhagen Economics, to investigate pricing of pharmaceutical products while the same company worked for the pharmaceutical industry.

A major scandal erupted in 2020 when the commission hired BlackRock, the biggest asset manager in the world with major investments in fossil fuel companies, to advise it on sustainable investment policies. Following a complaint from Corporate Europe Observatory (CEO) and the Change Finance coalition, the European Ombudsman demanded a revision of the commission's conflict of interests rules when issuing tenders.

Kicking old habits

A revision of the Financial Regulation is now on the table. The European Council and European Parliament are currently considering proposals to strengthen the rules on conflicts of interest that would underline the commission's obligation to exclude bidders with a vested interest at an early stage.

This would be a most welcome step for the commission.

In the RBB case, the commission was intransigent for a very long time. As late as June, Vestager argued in a written reply to MEPs, that discarding bidders could lead to a narrower field of competitors. It was not until the ombudsman stepped in that she had a change of heart.

It would be so much simpler if the commission and other EU institutions were under an obligation to exclude consultants once a professional conflicting interest is established. In the wake of the RBB case, it is time for the European Parliament to up their game and make sure consultancies with a vested interest are excluded from conning the public interest.