Summary
Summary Competition Law Revision Notes
- Module
- Competition Law
- Institution
- Kings College London (KCL)
Revision notes for Competition Law including case law and analysis of the relevant European legislation.
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COMPETITION REVISION NOTESCompetition law = protects competition in a free market economy to ensure that the conduct of
firms operating in the market place does not prevent market from functioning optimally and harm
competition.
- Free competition does not mean unregulated competition. Regulation controls via
interfering with the freedom of conduct of firms so as to promote free competition.
Overview of the practices controlled by competition law:
- Anti-competitive agreements: agreements that aim to restrict competition are
unlawful unless they have some redeeming virtue such as enhancement of economic
efficiency eg some cartels.
- Abusive behaviour: monopolistic practices which restrict competition.
- Mergers: eg a firm acquiring its main competition would reduce competition
dramatically.
- Public restrictions of competition: through the state -> restrictions by legislation,
regulations, licensing rules or subsidies.
- Horizontal arrangements (between competitors) – Article 101 TFEU
o Price fixing
o Market sharing
o Collusive tendering
- Vertical arrangements (between two different levels,) – Article 101 TFEU
o Resale price maintenance
o Exclusive distribution agreements
o Selective distribution agreements
- Abuse of a dominant position – Article 102 TFEU
o Exploitatively high prices
o Predatory low prices
o Refusals to supply
o Price discrimination
- Mergers – EU Merger Regulation 139/2004 (ECMR)
o Horizontal mergers
o Vertical mergers
o Conglomerate mergers
What is/ are (or should be?) the objective(s) of the EU competition laws? Is it all/ any of the
following and why does this matter?
- Most competition law that operates to prevent competition from being distorted stand on
at least, 3 main pillars:
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, o Provisions prohibiting restrictive agreements between independent firms
o Provisions prohibiting certain unilateral conduct of single dominant firms
o Provisions prohibiting mergers which will substantially lessen or significantly
impede effective competition in a market
1. Consumer welfare and efficient allocation of resources
2. The creation of an internal market and the monetary union -> removal of internal
barriers to trade within the EU. Complete freedom of movement of goods, workers and
capital, expansion of firms to other countries, economies of scale et
3. The protection of small and medium sized firms from the strength of larger competitors
4. To protect the right of firms to operate freely on the market
5. To ensure fair competition on the market
6. Redistribution -> dispersal of economic power and redistribution of wealth. Promotes
economic equity, individual freedom of choice and economic opportunity.
- ECJ takes into consideration various goals not only consumer welfare:
o Help ensure the achievement of other EU or national objectives – e.g,
environmental, cultural, health, safety, regional policy, unemployment
- Who decides policy/goals?
o TFEU framework Treaty
o CJEU – responsible for interpreting the Treaties
o Commission
- Goals of competition law according to instruments:
o Treaty articles -> do not explicitly say what the goals are as various policy
objectives are taken into account, but main ones that are mentioned are:
consumer welfare, efficient allocation of resources.
o Ordoliberalism:
State market economy -> must keep economic and political powers
separate -> state and firms must have very different roles.
The state must aim to create a market place where all firms are free
to join and participate in the market. The role of the state is not to
interfere with competition or the functioning of the market
Should stay out of the market but must provide the foundations of
the fair and economically free market place. This means that the state
must make sure that there aren’t any dominant firms that abuse their
powers.
o ECJ and General Court -> ensuring the efficient functioning of the single
market ie free trade. ECJ highlights the goals in their judgements
Post Danmark case (Article 102) -> Grand Chamber (highest
authority) of the CJEU -> focus on effects of conduct on consumers.
Since 2000, there’s been kind of a war about the goals of EU
competition law. Courts are not very clear about the goals, but they
seem to focus on consumers and the effects on them.
Consumer welfare test
2
, Spanish Glaxo (Article 101) -> focus on market integration -> similar
to Consten v Grundig. ECJ overturned the General Court’s decision
where the GC argued in favour of consumer welfare as the sole goal
of Article 101.
Teliasonera (Article 102) -> prevent competition distortion to the
detriment of the public interest, undertakings and consumers.
Continental Can (Article 102) -> economic freedom
Facts: a company owns the only mine in the world for a
specific substance meaning that it has a dominant position. It
supplies this substance to several firms. This substance is also
used to make anti-malaria drugs and it stops to sell it to the
other firm (Zoya) developing this cure. It decides to produce it
itself and Zoya complains to the Commission on the basis that
this is abusive behaviour on part of the dominant undertaking.
The commission rules that it is abusive to stop supplying to the
firm you’ve been supplying to for ages, who does not have any
other alternative. It is abusive of dominant position to stop the
already existing commercial relationship.
Meca Madina -> public health – long distance swimmers who took
drugs.
Wouters -> administration of justice – untrustworthy accountants.
o Commission
Modernisation: a consumer welfare objective which is supported by
the Commission. grounded in economics and ensures the benefits of a
competitive dynamic market economy
Reflected in Commission Guidelines – Notice on Article 101(3) –> goal
is to protect consumer welfare and ensure efficient allocation of
resources
Note that Commission decision are not binding, only binding for
whom they are addressed
o Academics
Whish and Bailey -> consumer welfare sole goal (economic)
Odudu -> consumer welfare sole goal, explains from a legal
perspective
Townley -> much wider public interest, not only consumer welfare
Motta (chief economist of DG Comp) -> not consumer welfare but
producer/ total welfare. Enforcement priorities: Will the case have an
impact beyond the case itself? Will the case improve people’s lives?
Will it make a particular sector function better?
Lyons (economist) -> consumer welfare good enough
Schools of thought of Competition Law and Economics
- The Harvard Structural School
o Structure-conduct-performance model
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, o Focus is on process as opposed to outcome
o Plurality of goals and legal certainty
- The Chicago School
o Neoclassical price theory is guiding tool
o Markets are self-correcting
o Focus on outcome
o Pursuit of economic efficiency is the exclusive goal of antitrust ->
maximisation of consumer welfare and economic efficiency
- The Post-Chicago School
o The Chicago School relied on too many simplified assumptions and models
o Advances in industrial organisation theory
o Exclusionary conduct is more of a concern – emphasis is on dynamics
- Ordoliberalism
o Social market economy
o Informed by humanist values rather than efficiency
o Concerned with the concentration of power
o Main aim is the protection of individual economic freedom of action
MARKET DEFINITION
- Definition of the relevant market:
o Commission Notice para2 market definition is a tool to identify and define
the boundaries of competition between firms. It serves to establish the
framework within which competition policy is applied by the Commission.
o The objective of defining a market in both its products and geographic
dimension is to identify those actual competitors of the undertakings
involved that are capable of constraining those undertakings’ behaviour and
of preventing them from behaving independently of effective competitive
pressure.
o It is from this perspective that the market definition makes it possible inter
alia to calculate market shares that would convey meaningful information
regarding market power for the purposes of assessing dominance or for the
purposes of applying A101.
How do you define a market? 2 considerations:
- Dimensions of assessment
o Relevant product market
o Relevant geographic market
- Competitive constraints
o Demand substitutability – SSNIP test
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, o Supply substitutability
o Potential competition
Relevant market:
- The market in which a particular product of service is sold. It is an intersection of
relevant product market and a relevant geographic market
o It defines the products and undertakings which are directly competing in a
business = the market where competition takes place
Collection of products such that a single supplier of that product
would be able to increase prices profitably
o The relevant market contains all the substitute products and geographic
areas which provide a significant constraint on the products and regions of
interest
o Closely linked to the policy objectives of the commission
- The extent of firms’ ability to increase prices above the competitive price
depends on the availability of substitutes and the consumer’s possibility to
switch to those substitutes = elasticity of demand
- Therefore, it is necessary to define the relevant market which involves the
products, substitutes, other suppliers (other regions), so as to successfully
implement competition provisions to avoid abuse of power.
Difference between the relevant product market and the relevant geographic market
- ‘The relevant product market comprises all those products and/or services which
are regarded as interchangeable or substitutable by the consumer, by reason of the
products' characteristics, their prices and their intended use’
- ‘The relevant geographic market comprises the area in which the undertakings
concerned are involved in the supply and demand of products or services, in which
the conditions of competition are sufficiently homogeneous, and which can be
distinguished from neighbouring areas because the conditions of competition are
appreciably different in those area’.
- Product market
o Demand-side: the products consumers choose to switch to in
response to a change in the relative price
o Supply side: the suppliers that would be able to switch production at
short notice to make the product in response to a change in relative
prices
- Geographic market
o Conditions of competition applying to the product concerned are the
same for all traders.
o The elements to be taken into consideration when defining the
relevant geographic market include the nature and characteristics of
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, the concerned products, the existence of entry barriers, consumer
preferences, differences among the market shares of undertakings in
the neighbouring geographic areas, as well as significant differences
between suppliers’ prices and transport costs level
o Distinguish between demand and supply side?
Hypothetical Monopolist Test SSNIP Test:
- Defines the relevant market before assessing the market power
- Hypothetical: small but significant non-transitory increase in price of 5-10%
- Calculates the elasticity of demand given an increase in price to see whether
it would be profitable for the firm for a period of time -> if consumers choose
to switch then the market is considered not to be a relevant market
regulation or litigation.
- The SSNIP test seeks to identify the smallest relevant market within which a
hypothetical monopolist or cartel could impose a profitable significant
increase in price.
- The relevant market consists of a "catalogue" of goods and/or services which
are considered substitutes by the customer. Such a catalogue is considered
"worth monopolising" if should only one single supplier provided it, that
supplier could profitably increase its price without its customers turning away
and choosing other goods and services from other suppliers.
- The application of the SSNIP test involves interviewing consumers regarding
buying decisions and determining whether a hypothetical monopolist or
cartel could profit from a price increase of 5% for at least one year (ceteris
paribus).
o If sufficient numbers of buyers are likely to switch to alternative
products and the lost sales would make such price increase
unprofitable, then the hypothetical market should not be considered
a relevant market for the basis of litigation or regulation.
o If not profitable: can enlarge the basket of products by adding
substitutes (ie other brands) and their prices. Keep expanding the
basket of goods until it becomes profitable
- Consumer group must be identified:
o Some might switch
o Some might not even notice
o Some might decide to stay loyal
- Supply side substitutability:
o Ability of other suppliers to switch production to the relevant
products without incurring significant additional costs or other risks in
response to small and permanent changes in relative prices in the
short term -> when such considerations are met, the additional
production that is put on the market will have a disciplinary effect on
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