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Topic 1 – Competition and the law:Background:
• Competition law has always been among the most prominent areas of EU law – and most jurisdictions are quickly adopting competition law regimes
• Competition law is articulated around succinct and open textured provisions that are worded as a very general prohibitions
• This field of law is studied and practised by reflecting on the fundamental principles that underlie or should underlying intervention
Competition law: features and preconditions à
Scope of application:
• Scope of competition law is virtually limitless
• The relevant provisions in competition law are worded in broad and vague terms which means they are uniquely adaptable to novel practices and circumstances
There are three main scenarios in which competition law provisions are triggered:
1. Agreements between firms à
a. Independent firms may collude in a way that amounts to a restriction of competition for example they might agree not to compete with each other
b. Article 101 of the Treaty on the Functioning of the European Union (TFEU), Chapter I of the UK Competition Act (CA) and Section 1 of the US Sherman Act apply to
agreements and similar arrangements between firms
c. Potential to do good -
i. Better customer service because more streamlines
ii. Pooling resources = cheaper
iii. Less money spent on R&D
iv. Faster – so better for consumers + reduced uncertainty for consumers too
d. Potential to do bad -
i. Missed innovation opportunities – monoculture, lack of innovation
ii. Lack of opportunity for others to enter the market – lock in effect
iii. Prices may be set unreasonably high
e. Selective distribution agreements for example
2. Unilateral conduct by dominant firms à
a. Some firms which have a lot of power have the ability to influence market outcomes and competition law applies to prevent market conditions being further
deteriorated by the behaviour of the dominant firm
b. Article 102 TFEU, Chapter II of the CA 98 and Section 2 of the Sherman Act are triggered when unilateral practices put in place by dominant firms are at stake.
c. Potential to do good -
i. As a consumer everything is in one place
d. Potential to do bad –
i. Could drive rivals out of the market
, 3. Mergers and acquisitions à
a. Corporate transactions may detrimental to competition e.g. if two competitors in a given market decide to form a monopoly. Therefore, competition law regimes
generally have a system for the control of operations leading to a permanent change in market structures.
b. At the European Union level, such a system is to be found in Regulation 139/2004 and, in the case of the UK, in the Enterprise Act 2002. The so-called Clayton Act
provides for a comparable regime in the US.
c. Horizontal mergers – same industry
d. Potential to do good –
i. Economies of scale, lower costs
e. Potential to do bad –
i. Can affect quality due to lack of competitive pressure
• The above three areas tend to be found in the vast majority of competition law regimes and depending on the needs of a specific regime, other provisions may be added.
• Provisions added in the EU:
o At the level of the European Union, for instance, it is indispensable to include a system (currently enshrined in Articles 107 and 108 TFEU) for the control of State aid –
that is, subsidies and other similar measures aimed to provide State support to firms
• Provisions added in the UK:
o In the UK, there is a sui generis mechanism for the control of the functioning of markets that is not triggered by an agreement, a unilateral practice or a merger. The
mere fact that the market is dysfunctional (say, the high prices and/or the low quality of a product) suffices to take remedial action
• Given the rise of the digital economy, many jurisdictions around the world are contemplating the adoption of ad hoc regimes for large online platforms such as Google and
Meta
Role and purpose of competition law regimes:
• Competition law regimes are not there to regulate industries and competition law provisions are conceived as a reactive tools rather than proactive ones i.e. their application
depends on an external trigger e.g. Article 101 TFEU provides for the prohibition of agreements that restrict competition
• Competition law is a legal regime that aims to preserve firms’ ability and incentive to rival one another in the marketplace and competition law wants to ensure that the
markets that exist can deliver the best possible outcomes for consumers in terms of price, quality and innovation
• Firms’ ability to compete effectively in the marketplace may be jeopardised if their position is weakened
• The role of competition law is to preserve and, where necessary, to alter firms’ incentives so that they have more to lose than to gain from restrictions of competition
• Desire to preserve the ability and incentives of firms to compete in the market
Context and preconditions for competition law to exist:
• th
Competition law originated in the late 19 century in North America where the Sherman Act was adopted in 1980
• Competition law arrived in Europe following World War II and Germany was the first country to adopt a meaningful regime
• The competition law discipline has been shaped by largely the European commission which has emerged as the most influential authority on the continent
• In the UK competition law can only be said to have properly come to force with the adoption of the Competition Act in 1998
,Why was competition law so important to the EU?
o Competition law was a necessary element in the process of European integration. The creation of a space without borders can only be meaningfully achieved if the vast
majority of economic sectors are open to competition
o The rules on competition (including those on State aid) are a necessary complement to the so-called fundamental freedoms providing, in particular, for the free
movement of goods or the free provision of services.
Certain conditions have to exist in order for a system of competition law to flourish:
o It is necessary for the State to be committed to an open market economy whereby prices are determined by the play of supply and demand (and not through
governmental intervention) and whereby firms’ fates depend on their ability to offer the products and services that consumers want.
o These conditions don’t exist then a system of competition law will have little impact in reality
2 reasons can be used to explain the ‘rise to the mainstream’ of competition law from the 1990s onwards:
o In the Western world, many industries (telecommunications, postal services, energy) were, for a long time, shielded from competition as a result of the award of
exclusive and special rights. When these industries were liberalised, the material scope for the application of competition rules was greatly expanded
o In other areas of the world, the adoption and/or implementation of competition rules followed the abandonment of centrally-planned economies in favour of the
market system.
The substantive challenge in competition law:
Converting broad and vague provisions into practicable legal principles:
• Competition law provisions are too broad to provide a ready-made answer to concrete problems.
Advantages of the broadness of competition law provisions:
o Lots of flexibility and adaptability – it is not necessary to amend legislation constantly to incorporate new or more refined ideas about how competition should be
preserved
o The same competition law provisions can be applied to lots of different industries
Disadvantages of the broadness of competition law provisions:
o Vague and open textured language may contribute to legal uncertainty
• The general and abstract provisions must be given a precise meaning so that they can apply to specific sectors and to concrete scenarios
• There is not one way to define the vague concepts found in competition law provisions and as such it is necessary for courts and competition authorities to make several
choices and to advance a particular understanding of the idea of ‘competition’ and of the rest of the concepts that make up the provisions
Examples of the vague provisions:
Article 101(1) TFEU: Article 2(2) of the EU Merger Regulation:
, • ‘The following shall be prohibited as incompatible with • ‘A concentration which would significantly impede effective competition, in the common market or in a
the internal market: all agreements between substantial part of it, in particular as a result of the creation or strengthening of a dominant position, shall be
undertakings, decisions by associations of undertakings declared incompatible with the common market’.
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 internal market [...]’
Legal tests in competition law:
• The legal test defines the conditions under which a given practice amounts to an infringement or to an incompatible transaction
• The fundamental question for courts and authorities is à should a given practice be made unlawful always or only in certain circumstances?
The first question, a one step or two step approach to the determination of legality?
The authority shaping the rules needs to 1st address whether the legality of competition law provisions needs to be structured along one or two steps
One step approach à Two step approach à
• The analysis revolves around a single question, which determines whether the • The determination of the lawfulness of a practice revolves around two layers, a
practice, once established, is lawful or unlawful first layer, the purpose of which is to establish whether a practice is prima facie
• The US system follows this approach. Section 1 of the Sherman act which deals with (in principle) unlawful; and a second one to determine whether the said prima
agreements and other forms of cooperation between firms is whether the practice at facie infringement can be justified insofar as the pro-competitive gains resulting
stake amounts to an ‘unreasonable restraint of trade’. If it is established that it does, from it outweigh any presumed or established anticompetitive effects
then the behaviour is prohibited. The analysis may reveal, for instance, that a practice • The EU regime upon which the UK system and other regimes around the world
under consideration amounts to a per se restraint of trade (per se restraints are the are based follows a two-step approach. First there is prima facie finding that the
most egregious violations of competition law). practice amounts to an infringement, after which the firm(s) involved in it are
• Once this conclusion is reached, it is not possible for the firms involved in it to argue presented with the chance to offer a justification for their conduct. This is how
that there are grounds to justify the conduct Article 101 TFEU is structured. Under Article 101(1), the question is whether the
agreement under consideration amounts to a prima facie restriction (whether by
object or effect). Under Article 101(3) TFEU, in turn, the firms involved in the
practice have the chance to show that it is on the whole pro-competitive
The second question, how to treat the practice?
• Not all practices are given the same treatment in competition law. One can identify three main categories of tests along a spectrum:
o (i) practices that are deemed unlawful irrespective of their effects;
o (ii) practices that may be lawful or unlawful depending on a case-by-case assessment of their effects; and
o (iii) practices that are deemed lawful irrespective of their effects
• Under a system that follows a one-step approach:
o The finding of an infringement that follows the above assessment is definitive
• Under a system that follows a two-step approach:
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