chapter five european competition policy. role of competition policy promote economic efficiency to...

Chapter Five

EUROPEAN COMPETITION POLICY

Role of Competition Policy

• Promote economic efficiency

• To control intensity of competition within economy

• Some areas it is promoted

• In others, it is limited

• Consumer protection

Business Strategy and Competition Policy

• Provides legal framework

• Guides commercial activities

• Offers check upon corporate power

Requirements of Business

Business requires:

• Credibility of enforcement

• Certainty of application

• Consistency of policy outcomes

• Effective sanctions

Why a policy for competition ?

Competition is seen as a socio-economic good due to:

• improved quality

• stimulates innovation

• lower prices

• economic efficiency

• choice

Theory and Real World

• Theory expressed in policy

• Perfect Competition traditional basis for policy

• Monopoly is bad

• But theory is often ambiguous vis-a-vis real world

THE CORE PARADIGM

STRUCTURE

CONDUCT

PERFORMANCE

EU Competition Policy

• Applies to trade between member states

• Aim to sustain free and fair trade

• Rising in importance and influence as integration deepens

Economic Integration and Competition Policy

• Pro-active and re-active to policy

• Interdependence between different national systems

• Need for common rules and principles between states

• Allow consolidation and intensification of competition

Article 81

• Cartels etc.

• Restrictions on distribution, production, technological development

• Price discrimination

• Unfair prices

• Predatory pricing

Article 81(3) of Treaty of Rome

An agreement or arrangement could be exempted if allof the following are satisfied:

1. It contributes to improving the production or distribution of goods or promotes technical or economic progress.

2. Consumers are allowed a fair share of the benefit.

3. It does not involve any restrictions which are not absolutely essential in order to attain these two objectives.

4. Competition is not eliminated.

Article 81 • Car industry -exclusive dealerships

• Steel Industry - Crisis cartels

• Airbus - Global market place

• Telecommunications Sector - Mergers alliances

• Telecoms and Cable Concerns

Article 82• Abuse of dominant position

• Single enterprise exert influence over market

• Note: dominance not bad per se: only abuse

Article 86• Applies Articles 81 and 82 to state-

owned or protected enterprises

• Used for telecoms, energy and other network or protected industries

Article 87• State Aids (subsidies, low interest rates

loans etc.)

• Market Investor Principle

• Airlines - struggle with EC

• Some aid allowed

1999 - Reform of EU Policy

• Decentralise investigations

• Joint responsibility between EU and States

• Limit exemptions from EU Law

• Free up EU resources is aim of reform

• EU merely target biggest competitive distortions

• Enterprise focus on Member states

Reforms of 1999 (2)• Less time-wasting on small cases

• Become effective trust buster

• Result of excessive case load from SEM Programme

• Also inflation had lowered value of thresholds

• Further tightening of state aids

• Exempt agreements between enterprises that have > 30% of market

Future of EU Policy• Integration deepens - increase salience

of Competition policy

• EU-wide cartel body

• Convergence of national laws

• Single body inevitable - will aid business strategy formation

• seek international agreement

Future of EU Policy

• Business increasingly concerned of intervention

• Feel too tough on big business