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Summary Regulating Competition
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Summary of course Regulating Competition
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Own summaryHC 1 introductionary case study and basic principles
Original intent of the Sherman Act unclear:
‘Consumer welfare’ (Bork, The Antitrust Paradox, 1978)
Protect consumers versus efficiency (Kirkwood and Lande, The Fundamental Goal of
Antitrust: Protecting Consumers, Not Increasing Efficiency 2008 Notre Dame Law Review)
Opportunities for firms to compete (https://openmarketsinstitute.org/)
Protect democracy Weber Waller ‘Antitrust and Democracy’ Florida State University Law
review, Vol. 45, 2019
Rent-seeking by weak businesses (https://www.cato.org/research/antitrust)
EEC treaty forbids cartels and monopolies for firms and undertakings (not for mergers)
EU COMPETITION LAW LANDMARKS
1962: first procedural regulation
•empowers the Commission to apply competition law (Regulation 17/62)
•1962-1980: constructing the EU competition Law framework
•Commission acts with significant independence from Member States
•ECJ largely confirms Commission’s wide interpretation of the rules of competition
1980s-1990s: Single European Act (1986)
•Commission starts to apply competition law against anticompetitive Member State action
(state-owned industries, state subsidies)
•Merger Regulation (1990)
•Commission antitrust enforcement style challenged by the US – from Freiburg to Chicago,
please!
2000s: resettling
•Procedures: Regulation 1/2003, National Competition Authorities apply EU competition law
•Substance: the more economic approach
2015 or so:
• Competition Policy for the Digital Era: still fit for purpose?
MARKET STRUCTURE AND ECONOMIC PERFORMANCE
Perfect competition
•Many sellers and many buyers, homogeneous goods, freely available information, ease of
entry.
•Welfare effects: allocative efficiency (P = MC); possibly also productive efficiency
Monopoly (other side)
, •One firm, high entry barriers.
•Welfare effects: allocative inefficiency (P>MC); no incentives to reduce costs or to innovate
CHICAGO SCHOOL
Conduct affects structure
•A monopolist raising prices will invite new entrants
•A badly working search engine (Firefox) will invite a better one (Google)
Entry barriers are low in capitalist countries
•Capital markets will invest in good ideas
•State is the biggest entry barrier (e.g. licensing laws limiting the number of players,
consumer protection laws making entry more costly)
The sole performance indicator for antitrust law is efficiency
•Fairness, distributive justice are for other laws to deliver
THE IMPACT OF ECONOMICS ON EU COMPETITION POLICY
Ordo-liberalism at the root of competition law
•Liberal economy with rules
•Competition as a process of discovery: firms compete to learn how to satisfy consumer
demand. Focus on the competitive process, not its outcomes.
Criticism of EU competition law from many practitioners (and some academics):
• too concerned with the competitive process at the expense of competitive outcomes.
Today
•Commission’s ‘more economic approach’
•Court’s ambivalent stance
The Commission investigates and issues a decision--> unfair?
Merger 3 step approach
1. What is the relevant market?
a. Product
b. Geographical scope
2. Effects on the market
a. Negative effects (by consumer authority)
b. Positive effects (by merging parties)
3. Entry of a new rival possible? (2 year period)
HC 2 procedure and policy
Full function Joint Ventures under the EUMR: Art 3(4)EUMR
, 1.Does the JV harm competition? Art 2 (1-3)
2.Does the JV create risks of collusion between the parents? Art 2(4-5)
Turnover is used because it is difficult to cheat with
Not about negative effects but about how it fits
Principle of subsidiarity justifies thresholds (article 1 regulation)
HC 3 theories of harm
Two theories of harm in horizontal merger cases
Unilateral effects
Resulting from the creation of dominance
Resulting from the elimination of the closest or significant rival
Coordinated effects
Merged entity facilitates coordination among it and other rivals
EUMR OLD AND NEW
Old ECMR 1990 Dominance test (art. 2)
1.Does the merger create or strengthen a dominant position?
2.Does the merger cause a substantial lessening of competition?
New EUMR 2004 SIEC test (art. 2)
1.Does the merger cause a substantial impediment of effective competition?
In particular as a result of the creation or strengthening of a dominant position
(= other ways to SIEC possible)
Horizontal overlaps
For defining the relevant product market, look at
Demand substitutability and supply substitutability
Relevant geographical market
The more product substitutability, the likelier it is to have unilateral effects
Unilateral effects, also known as non-coordinated effects, arise where, as a result of the merger,
competition between the products of the merging firms is eliminated, allowing the merged entity to
unilaterally exercise market power, for instance by profitably raising the price of one or both
merging parties’ products, thus harming consumers.
Entry barriers: “the mere ‘threat’ of an entry, on which the applicant relies, is not sufficient… What
counts is the prospect of an entrant which offsets the anti-competitive effects specifically
established in the contested decision at that stage of the assessment.” [239, ryanair]
, Coordinated effects
Can the two rivals coordinate prices?
Can they monitor deviations from agreed price?
Can one retaliate if the other cheats?
Can anyone else enter this market?
HC 4 Defences and remedies
Efficiencies must ‘counteract’ competitive harm identified
Mirror between theory of harm and efficiencies needed
only when the merger comes through, these positive effects apply
Three/four criteria:
Benefit consumers
Merger-specific
Timely
AND the efficiencies counteract the competitive harm
o i.e. efficiency > harm
NB no single decision I am aware of where the efficiencies met all criteria & merger was cleared as a
result
On the ryanair case:
Advantadges ryanair has (technological), can be applied to airlingus
Bigger scale --> cost saving
Court says --> ryainair business model, quality goes down (para. 416)
There is no incentive to passing on cost savings to consumer (monopoly)
Para 431/4 --> minimal standard, the market conditions may not worsen (on every aspect)
Efficiencies in coordinated effects
Test for harm: see coordinated effects (4 step)
Possible efficiency
3 to 2 merger, and the merged entity has significantly lower costs ost-merger
Does this impact on the likelihood of coordinated effects post-merger?
Dolce and Gabbana
2 to 1 merger
Efficiencies:
Reduce marginal costs by 20%
Acknowledge that prices may rise by 10%
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