On July 3, 2001, Europe declared anti-trust independence. By a vote of 20 to 0, the European Commission denied General Electric’s proposed $42 billion acquisition of Honeywell. For the first time, a merger between two American companies had been blocked entirely by regulators outside the United States.

Few had expected this outcome. “This is the cleanest deal you’ll ever see,” said GE chairman Jack Welch, who delayed his retirement to see it through, and the U.S. Department of Justice quickly signed off on the arrangement.

But across the Atlantic representatives from fifteen airlines and GE rivals Rolls Royce and United Technology depicted the combination as an inevitable competition crusher. The European Commission agreed. Its core conclusion: If GE controlled the entire aviation industry, nothing would stop it from reducing services or raising prices. Without approval from Europe—where revenues for GE alone exceeded $25 billion—the deal was off.

“What would have been one of the largest corporate transactions in history,” quipped one of the players, “instead became the largest transaction ever to be stopped.”

President Bush expressed “concern.” Charles James, head of antitrust enforcement at the Justice Department, was more blunt. “We appear to have reached different results from similar assessments of competitive conditions,” he said, calling the reasoning of European regulators a “significant point of diversion” from U.S. counterparts. Nonetheless, no one disputed the European Commission’s authority. Since 1990, the European Union had empowered its executive arm to render judgment on any merger of firms with combined revenues of $4.2 billion.

The GE-Honeywell decision sounded a global wakeup call that that power could cross continents. Henceforth, nominally-American companies would answer to foreign authorities.

In 2001, a dozen independent antitrust authorities launched the International Competition Network (ICN) to recommend cross-national competition. At the same time, leading US and EU anti-trust officials together developed best practices for coordinating future merger reviews. Late last year, Federal Trade Commission Chairman Deborah Platt Majoras applauded half a decade of progress. Yet Majoras, who saw the collapse of the GE-Honeywell merger her first week on the job, knows better than anyone that considerable differences remain in economic thinking. She cites the conclusions of fellow FTC Commissioner Tom Rosch: “Tom sees the US as heavily influenced by the Chicago School and its efforts to ground anti-trust enforcement in price theory and efficiencies, while the EC tilts more toward the post-Chicago School and its focus on strategic game theory,” Majoras has said. “The result, as Tom sees it, is a greater tendency to enforcement in Europe.”

In short, strategic game theory values ‘unknowns’ as much as ‘knowns’ in judging ‘fair play’ between businesses. Differing views of predatory pricing illustrate the distinction. The Chicago view on predatory pricing is that pricing below costs almost never works because companies lose money in the short-term for an unknown long-term pay-off. A post-Chicago view, however, would consider likely responses of market competitors. Say a dominant firm in multiple geographic markets lost money against a rival in one market to gain a cutthroat reputation. Then, in other markets, it might save money because rivals believe it will spend whatever resources are necessary to destroy them. Rather than stand and fight, competitors may well just give up and go away.

So Europeans feared of GE-Honeywell.

“It’s only been ten to fifteen years that the Europeans have really been our equals in anti-trust enforcement and we have changed our minds over so much in that time,” says law professor Bob Lande, an expert in the field. He cites the example of vertical price-fixing, where manufacturers dictate to retailers what price to charge for certain goods. The practice was out-and-out illegal for close to a century, but last year the Supreme Court instead subjected it to “the rule of reason,” a far less stringent standard for enforcement.

“If this were a science, why are our positions today so different from where they were fifteen years ago?” Lande asks. “Isn’t this good to have an intellectual rivalry in terms of anti-trust thinking? We’ll all get smarter. Competition is good.” wt