Competition Law

Introduction & Economic Analysis of Competition Law

Competition law

• Competition law is a set of rules, and judicial decisions maintained by governments relating either to – agreements between firms that restrict

competition, or (RKHK 4054 m.4) – abuse of market power on the part of

private firms, or (RKHK 4054 m.6) – -the concentration (RKHK 4054 m.7)

Competition creates efficiencies in the market place.

• Productive efficiency: ensuring that any time a good or service is produced, it is done by using the smallest number of resources. Thus, if a man uses a tree to make 4 cricket bats, and another man uses a tree to make 5 cricket bats, then the latter’s productive efficiency is better than the former’s.

• Allocative efficiency: ensuring that the available resources are used in a satisfactory manner. That is, we want to produce those things most desired by the community first

• Dynamic efficiency: In the modern world it is important that firms are able to respond quickly to changing economic circumstances. To be dynamically efficient means that firms are aware of the changing circumstances, and they are able to adapt to meet those new needs, such as searching for and adopting new technologies and ways of doing things better.

• competition is not an end in itself, but rather is the means by which society can attain those efficiencies.

• competition is good and thus ought to be protected, does not mean that in a free market economy every sector is left to unbridled competition. Areas such as health services or the provision of basic utilities may, for example, be subject to governmental intervention or government controls. 118 18

• In the EU, for example, agriculture is controlled by the common agricultural policy, which employs subsidies, grants, and intervention buying to manipulate the market and is the absolute antithesis to a competitive system.

• In the European Union (EU), single market integration is a major goal of competition law, often overriding the goal of market efficiency.

Political Economy

• An economist’s restricted vision :– the habit of viewing "everything in relation to

the economy and in terms of material productivity, making material and economic interests the center of things by deducing everything from them and subordinating everything to them as mere means to an end.

– It would not be productive if economists largely ignored the complexity of the world in which economic choices and policies operate

– Economism invariably led economists into the trap, the tendency to regard market mechanisms as value-neutral methods applicable to any economic or social order.

– - economists should seek to avoid segmenting economic inquiry from the complex character of human nature.

– -The ordinary man is not such a homo ceconomicus .... The motives which drive people toward economic success are as varied as the human soul itself.

–

• ADAM SMITH, AN INQUIRY INTO THE NATURE AND CAUSES OF THE WEALTH OF NATIONS (1776).

• a larger intended work on "the cultural history of mankind" in which "economics was viewed as an organic part of the larger whole of the intellectual, moral, and historical life of society.

• Smith's political economy also involves the study of the interrelationship between economic theory and the political ideas and movements of a given time.

• Wealth of Nations began not as a book on economics but as an essay in conjectural history, "the systematic study of the effects of legal, institutional and general environmental conditions upon human progress.”

• In late nineteenth century, the term "political economy" was generally replaced by the term economics, used by those seeking to place the study of economy upon mathematical and axiomatic bases, rather than the structural relationships of production and consumption

• The language of aggregates and mathematics also reflected his worry that economics would gradually become unintelligible to non- economists and of decreased usefulness to policymakers.

• A radically empirical, positive approach to economics is inadequate because it simply leaves out too much. A London street directory will not show us the distance between Buenos Aires and London.

• Smith, also preferred market-oriented economies to previous economic arrangements on the basis not only of their greater efficiency, but also of the greater liberty provided by market economies to ever-widening numbers of people.

• Smith, also preferred market-oriented economies to previous economic arrangements on the basis not only of their greater efficiency, but also of the greater liberty provided by market economies to ever-widening numbers of people. Emma Rothschild reminded us that Smith saw economic liberty as something to be supported partly becapeople from many forms of subjugation.

Law & Economics Perspective

The University of Chicago is the epicenter of the first modern (twentieth century) movement in law and economics.

Efficiency

– However, the goal of the law cannot solely be "efficiency" without any social aim. While waste must be combated and resources marshaled, there is no reason to believe that because efficiency is a desirable effect of good lawmaking that it should be the paramount goal of lawmaking generally.

Subsidy in Law and Economics

Subsidy in Law and Economics

Bank Bailouts and Nouveau-Interventionism

Competition law and consumer protection law

• These are different concepts, though quite related since they seek to ensure that markets can function for the maximum benefit of consumers.

• The common goal of both competition law and consumer protection is to provide consumers with access to an array of competitively priced goods and services in the market place. The distinctions are as follows:

• while the role of competition law is to ensure that the marketplace remains competit ive, so that a meaningful range of options is made available to consumers,, the role of consumer protection law is to protect consumers’ ability to choose freely and effectively among the options.

• while  competition  law  requires  that  consumers  find  a  reasonable  range  of  options  in  the  market place, undiminished by artificial constraints  like price fixing or anti competitive  mergers, consumer protection law  requires  that  consumers  are  able  to  make  a  reasonably  free  and  rational  selection  from  among  those  options,  unimpeded  by  artificial  constraints  like  deception  or the withholding of material information. Consumer protection analysis  focuses on  the  question  of  whether actual purchasers have been  misled. 

• It must also be noted that though both competition law and consumer protection law are aimed at improving the position of the consumer, there are some business practices which may be beneficial to consumers, at least for as long as they last, but which may be deemed to be offensive of the competition laws. An example here is the concept of predatory pricing. As long as the price is brought low by the predatory pricer, consumers enjoy a windfall since they have the product very cheap. One could say, therefore, from t he point of view of consumer protection that this is a good and welcome phenomenon. However, such a phenomenon is usually disapproved of by competition law,

Competition law  and anti dumping law 

• While competit ion law is concerned with ensuring t hat the activit ies of business undertakings do not damage the competitive process, ant idumping laws target allegedly ‘unfair’ trading practices of foreign companies accused of exporting (or ‘dumping’) products into ot her countries at prices below the cost of production, or below the price charged in domestic or third markets.

• Despite these underlying differences between compet ition and antidumping laws, ther e are types of dumping which if they occur, could definitely be dealt with under the competition laws because they have the characteristics of anti competitive behaviour like: predatory dumping

• It should also be noted here that sometimes, antidumping measures could actually though unintendedly, be employed in a way that they would go contrary to the rules of competition.