Introductory course on Competition and Regulation

Pál Belényesi

University of Verona

October 2006

Concepts

Competition Law – (Contrary to freedom to

contract) Competition Policy

EU Competition Policy

Generally about EU Comp. Law

Article 2 of the EC Treaty Article 3 (g) of the EC Treaty For these objectives the common market is

not an end but a “means” to achieve the goals in Article 2

How to achieve these goals?

Prevent agreements restrictive of competition– Vertical (Different level of the distribution chain)– Horizontal (Amongst competitors)

Control market power (actually, its abuse) Control oligopolistic markets (Very important for

Telecom) Prevent mergers that lead to concentration in

market power, and ultimately: to the detriment of the consumers

How does this appear in the EU Law?

Mergers (Regulation 139/2004/EC)– Control of mergers, joint ventures, acquisitions

State Aid (Article 86 of EC Treaty)– Control of direct or indirect aid given by Member States to

undertakings

Antitrust (Article 81 and 82 of the EC Treaty)– Control of collusion and other anticompetitive behaviors

(agreements in restraint of trade – abusive behaviors of dominant undertakings)

National laws v. EU Competition rules

Articles 81 and 82 of the EC Treaty are only applicable if there may be an appreciable, direct or indirect, actual or potential influence on the flow or pattern of trade between at least two Member States of the EU. (effect on trade between Member States)

See Art. 3 of Regulation 1/2003

History of Competition Law

438. Emperor Zenon: Not possible to reinforce the excessive price if the undertaking is in monopoly position

1890: Sherman Act (USA) – Chicago School German antitrust laws – Treaty of Rome

(1957) 1962: Regulation no 17.

Sources of Competition Law today

The Treaty Articles (81-89, plus 31 for special cases) Regulations

– Merger regulation– Block exemptions

Judgements– European Court of Justice– Court of First Instance

Commission notices and guidelines Commission decisions Annual reports from the Commission National level playing field!!!

Objectives of EU Competition Law

– Market integration – Protecting competition– Fairness and equity– Protecting economic freedom– Public policy, social-political-environmental

reasons (promoting small and medium sized firms)

– Strategic reasons (trade, industrial policy)

Competition Law by „sub-fields”

Mergers State Aid Antitrust

– Article 81: Anticompetitive agreements Art. 81. (1): prohibition Art. 81 (2): Nullity Art. 81 (3): exemption

– Article 82: Abuse of dominant position One or more undertakings; having a dominant position; in the EU or a substantial part of it; abusive conduct; and the abuse must affect trade between Member States.

Important definitions in Competition Law

Collusion– Such „agreements” allow firms to exercise market power they

would not otherwise have. – Types of collusion

Tacit Collusion Explicit Collusion “It is contrary to the rules on competition for a producer to

co-operate with his competitors, in any way whatsoever, in order to determine a co-operated way of action or to ensure its success by prior elimination of all uncertainty as to each others conduct regarding the essential elements of that action” (ECJ Case 48/69, ICI v Commission)

Important definitions in Competition Law II.

Allocative Efficiency (Demand defines Supply)– Main indicator is the price of the goods or/and services

Market power: the ability that a firm has to raise prices over marginal costs. In other way, market power presents undertakings with the possibility of limiting output and raising price, which are clearly harmful to consumer welfare.

Important definitions in Competition Law III.

Dominance: is defined by the ECJ as the ability of a firm to behave independently of competitors, buyers and ultimately the consumers. (ECJ, United Brands Case 27/76 and case Hoffman La Roche, Case 85/76)

Dominance refers to a situation where a firm has a lot of market power

Single Dominance – Collective Dominance

Important definitions in Competition Law IV.

Monopoly (as opposed to perfect competition)

Public Policy and Incentives to Innovate Essential Facilities Doctrine Price Controls: under EU competition

rules, but NOT in the US, there is a provision -in Art. 82- that allows intervention if a firm charges excessive prices

Important definitions in Competition Law V.

Market definition– Relevant market

GeographicProduct

– Legal instrument: Commission’s Notice on the Definition of the Relevant Market

Important definitions in Competition Law VI.

Barriers to entry Barriers to entry hinder the emergence of

potential competition. Crucial when determining market power because a firm may have high market shares but no market power if there are no barriers to entry.

ExamplesExamples: Capital requirement, Patents, Sunk costs, etc.

Thank you for your attention