EU Competition Policy

• History of Competition Law

• National Laws v. EU Competition Law

History of Competition Law

• Sherman Act, USA (1890)

• German laws – Treaty of Rome, Arts. 81-87 (1957)

• Regulation No. 17/1962 (replaced by No. 1/2003)

Internal Market

One of the activities of the Community:

• “an internal market characterised by the abolition, as between member States, of obstacles to the free movement of goods, persons, services and capital”

(Art. 3(1)(c))

• “The internal market shall comprise an area without internal frontiers…”

(Art. 14(2))

Competition Policy

• Community’s task: “to promote … a high degree of competitiveness”(Art. 2)

Another activity of the Community:

• “a system ensuring that competition in the internal market is not distorted”

(Art. 3(1)(g))

• “the adoption of an economic policy … conducted in accordance with the principle of an open market economy with free competition”

(Art. 4(1))

Objectives of EU Competition Law

• Market integration

• Promotion of economic efficiency • Fairness and equity

• Consumer welfare

• Protection of economic freedom; diffusion of economic power

• Public policy, social-political-environmental reasons

• Strategic reasons (trade, industrial policy)

• The best product at the best price: 1. Quality2. Choice3. Price4. Innovation and development• Short/long term effect

1. Prevention of dominance by large firms

2. Promotion of small and medium sized firms

1. Consumer protection2. Environment protection3. Technological innovation etc.

How to achieve these goals

• Prevent agreements restrictive of competition– Vertical (Different level of the distribution

chain)– Horizontal (Among competitors)

• Control market power and its abuse; control oligopolistic markets

• Prevent mergers that lead to concentration in market power

How does this appear in EU law

• Antitrust (Articles 81-82 and 86 EC Treaty)– Control of collusion and other anticompetitive

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

• State Aid (Article 87-89 EC Treaty)– Control of direct or indirect aid given by Member

States to undertakings

• Mergers (Regulation No. 4064/1989, replaced by No. 139/2004/EC)– Control of mergers, joint ventures, acquisitions

EU Competition Law by sub-fields

• AntitrustArticles 81-82; 86

• MergersRegulation No. 139/2004)

• State AidsArt. 87-89

ex post analysisDirect applicability of Arts.

81 and 82 by national judges, NCAs and private and public undertakings

ex ante analysisStandstill principle

ex ante analysisStandstill principle / Block

exemptions

Sources of EU Competition Law

• EC Treaty Articles (81-89)• Regulations

– Council – Commission

• Commission decisions • Judgments

– European Court of Justice– Court of First Instance

• Commission notices and guidelines• Commission Annual reports• National level playing field!

Effect on trade between Member States

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

See Art. 3 of Regulation No. 1/2003

Cont.d

The same principle applies in relation to the prohibition of State aid

The same principle defines the scope of mergers regulations

State Aid

Art. 87, par. 1, declares incompatible with the common market

“any aid granted by a Member State … in so far as it affects trade between Member States”

Mergers

Regulation No. 139/2004 only applies in relation to mergers with a EU dimension

Thresholds: Art. 1(2) “The combined aggregate worldwide turnover is

more than 5 billion and the aggregate Community-wide turnover is more than 250 million, unless each of the undertakings achieve more than 2/3 of its aggregate Community-wide turnover within one and the same Member State”

Law 10 October 1990 No. 287

Art. 1

Ambito di applicazione e rapporti con l'ordinamento comunitario 1. Le disposizioni della presente legge in attuazione dell'articolo 41

della Costituzione a tutela e garanzia del diritto di iniziativa economica, si applicano alle intese, agli abusi di posizione dominante e alle concentrazioni di imprese che non ricadono nell'ambito di applicazione degli articoli 65 e/o 66 del Trattato istitutivo della Comunità europea del carbone e dell'acciaio, degli articoli 85 e/o 86 del Trattato istitutivo della Comunità economica europea (CEE), dei regolamenti della CEE o di atti comunitari con efficacia normativa equiparata.

4. L'interpretazione delle norme contenute nel presente titolo è effettuata in base ai principi dell'ordinamento delle Comunità europee in materia di disciplina della concorrenza.

Italian NCA

Autorità garante della concorrenza e del mercato

http:\\www.agcm.it

Law 10 October 1990 No. 287 (as amended by Law 6 February 1996 No. 52, art. 54(5))

• Commission

DG Comp

• ECJ - TFI

• NCAs

• ECN: “European Competition Network”

• National courts

Important definitions /Common notions

• “Effect on trade” concept

• Distortion of competition within the common market; effect doctrine

• Notion of “Undertaking”

• Definition of Relevant market

• Commission Notice (2004)

• Economic notion; irrelevance of property

• Commission Notice (1997)

Definition of “Relevant market”

Defining the relevant market means determining the scope of the competition rules in respect of restrictive practices and abuses of a dominant position as well as the scope of mergers regulations

• Product (interchangeability/substitutability)

• Geographic (homogenous market conditions)

SSNIP Test

Whether the customers of the undertaking(s) concerned would switch to readily available substitutes or to suppliers located elsewhere to such an extent that it would be unprofitable to implement a small but significant (normally in the range 5%-10%), non-transitory increase in relative prices for the products and the areas being considered.

Art. 81Anticompetitive Agreements

“1. The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market, and in particular those which:

• (a) directly or indirectly fix purchase or selling prices or any other trading conditions;• (b) limit or control production, markets, technical development, or investment;• (c) share markets or sources of supply;• (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a

competitive disadvantage;• (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations

which, by their nature or according to commercial usage, have no connection with the subject of such contract

2. Any agreements or decisions prohibited pursuant to this article shall be automatically void.

3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of:— any agreement or category of agreements between undertakings,— any decision or category of decisions by associations of undertakings,— any concerted practice or category of concerted practices,which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not:

• (a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;

• (b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.”

Cont.d

• Art. 81 (1): general prohibition (not absolute)- Collusion- Effect on trade between members States- Restriction of competition

• Art. 81 (2): consequences of a violation- Nullity- Pecuniary sanctions- Reparation of damages

• Art. 81 (3): exemptions

Collusion

• Such “agreements” allow firms to exercise market power they would not otherwise have.

e.g. fixing prices and sharing markets• 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 ICI v. Commission, Case 48/69)

Article 82Abuse of dominant position

“Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market in so far as it may affect trade between Member States.

Such abuse may, in particular, consist in:• (a) directly or indirectly imposing unfair purchase or selling prices or other

unfair trading conditions;• (b) limiting production, markets or technical development to the prejudice of

consumers;• (c) applying dissimilar conditions to equivalent transactions with other

trading parties, thereby placing them at a competitive disadvantage;• (d) making the conclusion of contracts subject to acceptance by the other

parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.”

Cont.d

• Absolute prohibition

- One or more undertakings having a dominant position in the EU or a substantial part of it

- Abusive conduct - Effect on trade between Member States.

• Consequences of a violation

- Nullity- Pecuniary sanctions- Reparation of damages

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

power

• Market power: the ability that a firm has to raise prices over marginal costs (Above competitive level and earning supra-normal profits). In other way, market power presents undertakings with the possibility of limiting output and raising price, which are clearly harmful to consumer welfare.

• Types of dominance• Single Dominance• Collective Dominance

• “the ability of a firm to behave independently of competitors, buyers and ultimately, the consumers”. (ECJ, United Brands, Case 27/76 and Hoffman La Roche, Case 85/76)

Article 86“1. In the case of public undertakings and undertakings to which Member States grant special or exclusive rights, Member States shall neither enact nor maintain in force any measure contrary to the rules contained in this Treaty, in particular to those rules provided for in Article 12 and Articles 81 to 89.2. Undertakings entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly shall be subject to the rules contained in this Treaty, in particular to the rules on competition, in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must not be affected to such an extent as would be contrary to the interests of the Community.3. The Commission shall ensure the application of the provisions of this Article and shall, where necessary, address appropriate directives or decisions to Member States.”

• Article 86(1) “public undertakings” and “undertakings to which member States grant special or exclusive rights”

• Article 86(2) “undertakings entrusted with the operation of services of general economic interest”

• Article 86(3)

• Prohibition to member States to enact or mantain in force measures contrary to the Treaty, in particular to rules on competition

• Subject to rules on competition only in so far as their application is compatible with the performance of the tasks assigned to them

• Commission surveillance

“Services of general economic interest”

• Article 16“given the place occupied by the services of general economic interest in the shared values of the Union as well as their role in promoting social and territorial cohesion”

• Article 86(2) - Expection to the application of rules of the Treaty where

the latter would obstruct the provision of “services of general economic interest”.

- However, even where such exception applies, special rights must not go beyond what is necessary for the performance of that service.

Liberalisation under Art. 86(3)

Since 1985, the Commission has adopted decisions covering most of the areas where member States granted special and exclusive rights (posts, mobile telecomunications, airports, ports and maritime transport, insurance, broadcasting / energy and railways)