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Super summary Competition Law (only available in bundle)
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Economies of scale result where efficiency in production is achieved as output is increased. However,there comes a point when the average cost ceases to fall and economies of scale can no longer be reaped.
This is called the minimum efficient scale (MES). In a perfectly competitive market there are a large
number of buyers and sellers, the product is homogenous, all the buyers and sellers have perfect
information, there are no barriers to entry/exit for sellers to come on to and leave the market freely, no
transaction costs and no externalities. In such case each seller has no influence on the product’s price.
There the prices does not exceed the marginal costs (the costs of producing one unit extra). When the
market price equals the marginal cost this will lead to
Allocative efficiency; goods are produced in the quantities valued by the society. This results to a
market in equilibrium (pareto optimal).
Productive efficiency; goods are produced to the lowest possible cost. If a firm does not produce at
minimum costs it loses from the other firms and has to eventually leave the market.
Dynamic efficiency is how well a market delivers innovation and technological progress.
The deadweight loss is the loss of consumer surplus which is not turned into profit for the producer.
The main difference between a monopoly and perfect competition is that the price in a monopoly
exceeds the marginal cost, while the price on a perfectly competitive market equals marginal cost. The
monopoly is inefficient as consumers who would have bought the product at the competitive price now
don’t and welfare is not maximised as allocative inefficiency occurs.
Schrumpeter considered that a monopolist may be more willing to bear the risk and costs of invention
and technical development. He says competition in innovation is more important than price competition,
because it is a more effective means of obtaining an advantage over one’s competitors. Schumpeterian
rivalry: firms compete in a constant race to bring new products on the market. Short-term positions of
substantial market power may arise, but that is not necessarily inimical to consumer welfare (especially
important for digital markets).
According to the S → C → P paradigm the structure of the market determines the firm’s conduct and
that conduct determines market performance. Because of critics the foundation of antitrust analysis and
mainstream economics no longer holds that structure dictates performance. However, it is accepted
that structure may be important to the ability of firms to behave anticompetitively. Chicago antitrust
holds that people are rational, that markets work and are self-correcting and that in most situations
intervention in markets makes matters worse instead of better. The pursuit of efficiency should be the
sole goal of competition law and therefore the test is whether the practice reduces output and leads to
higher prices. Transaction costs are the costs a firm incurs by trading with other parties.
Ordoliberalism was nurtured during the Nazi era. It advocates an economic constitution whereby
competition and economic freedom are embedded into the law so that there is neither unconstrained
private power nor discretionary government intervention in the economy. The main distinction in
approaches of what competition laws should achieve is between the pursuit of solely economic goals
(economic efficiency; the welfare approach) and the pursuit of a wider range of policy objectives. In
the welfare approach the goal is to maximise welfare. Most systems of competition law which adopt
this approach give more weight to consumer welfare rather than total welfare. Ordoliberals mandate the
state to protect the process of competition as part of the protection of economic freedom. The dispersal
of economic power is also seen as upholding liberal democracy, because it is claimed that economic
power can lead to political power and undermine democratic institutions. The EU Commission talks
about the objective of EU competition law as being to protect competition on the market as a means of
enhancing consumer welfare. Protecting competition instead of protecting the competitive process
focusses on the outcome rather than the process and emphasise that protecting competition is not an
end in itself. The current position of the US anti-trust is that it is normally concerned only with cartels
involving anticompetitive horizontal price-fixing and market division and with horizontal merges which
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,lead to monopoly or duopoly, but is not concerned by price discrimination and exclusionary conduct
or by vertical mergers. The guiding principle is whether the practice or transaction harms consumer
welfare, meaning that there should be antitrust intervention only where there is clear evidence of such
harm in the form of reduced output or higher consumer prices. Section 2 of the Sherman Act forbids
monopolization and attempts to monopolize. It is thus crucially different from the corresponding art.
102 TFEU which forbids abuse of a dominant position. So in the US anti-competitive conduct by which
market power is acquired is an offence, whereas article 102 can be applied only against the conduct of
firms which are already in a dominant position. In the US consumer welfare mainly focuses on low
prices, whereas in the EU it is expressly conceptualised as also encompassing greater output, greater
choice, higher quality, and more innovation. In 2004 there was modernisation. Since 1990 the
Commission began a move towards a realignment of competition law in line with the economic
thinking on efficiency and welfare as previously discussed. This is often called the more economic
approach. The Commission’s 2004 Guidelines on Article 101(3) state that the objective of article 101
is to protect competition on the market as a means of enhancing consumer welfare and of ensuring an
efficient allocation of resources. In adopting the consumer welfare standard the Commission rejected
not only broader objectives such as economic freedom and the protection of competitors, but also the
total welfare standard. In the EU Courts have not expressly embraced the consumer welfare standard in
the same way as the Commission.
The CJ has now made absolutely clear in both Post Danmark I and in Intel that the EU competition
rules do not protect competitors from the proper workings of the market in that they do not save
less efficient competitors from the results of competition on the merits which leads to their departure
from, or marginalisation on, the market because they are less attractive to consumers.
In MEO the CJ held that a practice on the part of a dominant firm which puts a competitor at a
competitive disadvantage does not thereby necessarily constitute an abuse contrary to article 102
because competitive disadvantage does not automatically amount to an anti-competitive effect. The
application of competition rules prohibiting agreements, conduct, or merges should require the party
alleging that the competition rules have been infringed to spell out a convincing theory of harm. This
means explaining in exactly what way the agreement, practice, or merger is, or will be, anti-competitive
Adopting a consumer welfare objective and following an effects-based approach are not synonymous
It is possible to apply a consumer welfare standard while using form-based rules. One reason for using
effects-based analysis is to achieve an optimal level of enforcement of the competition rules. EU law
should avoid over- and underenforcement.
• Overenforcement: prohibiting agreements, conduct or mergers where there is no actual or
likely competitive harm → type 1 errors (false positives) ▪
o This can actually be more harmful, as it chills pro-competitive activity and stunts
innovation.
• Underenforcement: failing to prohibit such thing where there is anti-competitive harm → type
2 errors (false negatives)
Businesses enabled by platform connections (platforms: intermediaries, digital infrastructures that
connect two or more groups and enable them to interact) are known as the sharing community. In a
transaction market the platform brings together users from each side and enables them to enter into
transactions with each other. In a non-transaction market the different sides do not transact with each
other: on a social media site the users on one side interact between themselves, but there is no (direct)
transaction between them and the site’s customers on the other side, the advertisers who make use of
their data. Some of the basic test and concepts in competition law are difficult to apply to the digital
economy. These include the definition of the relevant market and the HMT/SNNIP test. Under-
enforcement may be a problem in digital markets, and therefore advocates rethinking the standard of
proof so that certain strategies are forbidden unless consumer welfare gains are clearly documented.
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,Deutsche Telekom and Telefónica in which the EU Courts held that an undertaking could infringe
article 102 by applying a pricing policy which constituted an abusive ‘margin squeeze’ even though
the prices had been approved by the national telecommunications regulator. Regulatory approval does
not remove an undertaking’s liability for infringing the competition rules unless the restrictive effects
of its conduct are caused wholly by the national law and the undertaking has no room for manoeuvre.
The national competition authorities (NCAs) as well as the national courts share with the Commission
the responsibility for the application and enforcement of the EU competition rules. Two main
provisions, article 101 and 102 TFEU, contain the antitrust rules. Merger control is provided for in
Regulation 139/2004 (The European Merger Regulation; EUMR). The Commission plays the centre
role in developing the law and enforcing the competition rules. The EU Courts CJEU formed of the CJ
and the GC (General Court). Two main types of action:
• Judicial review: ex art. 263 TFEU the Courts can review the legality of acts adopted by the EU
institutions.
o Art. 261, 265, and 340 TFEU: unlimited jurisdiction to review fines/periodic penalties
that are imposed by the commission, action for failure to act, and damages for
noncontractual liability.
• Preliminary ruling: national courts apply articles 101 and 102 ex art. 267 TFEU these national
courts can request the CJ to give a preliminary ruling on a question on the interpretation or
validity of EU law.
The EU Courts do not operate under a system of binding precedent like that in common law jurisdictions
Ex article 3(1)(b) TFEU the establishing of competition rules is an area of exclusive Union competence.
The rules only apply to agreements and practices when they affect trade between Member States or to
merges that have a EU dimension. Matters that do not have such effect or dimension are of national
concern only as they do not concern the functioning of the internal market.
In article 3(1)(g) it was stated that the function of the competition rules are that the internal
market must not be distorted. Now these words stand in Protocol 27 and they must always be
borne in mind when looking at the provisions which set out the competition rules in greater detail.
Article 101 TFEU:
• Section 1: prohibits agreements, decisions of associations of undertakings, and concerted
practises which have as their object or effect the prevention, restriction, or distortion of
competition and which may affect trade between Member States.
• Section 2: such agreements are void.
• Section 3: section 1 may be declared inapplicable in respect of agreements, decisions, or
concerted practices or of categories of such agreements which are on balance beneficial as they
satisfy the criteria set out in that provision. The Commission has the exclusive power to exempt
agreements from the prohibition article 101(1)
Article 102 TFEU Prohibits an undertaking which holds a dominant position in the internal market, or
a substantial part of it, from abusing that position insofar as it may affect inter-Member State trade.
Contains no express provision for exception/exemption. The Commission issues Communications and
Notices. The Notices do not have legislative force and are sometimes referred to as soft law. However,
the CJ has held that they may form rules of practice from which the Commission cannot depart in an
individual case without giving reasons that are compatible with the principles of equal treatment and
legitimate expectation. The Notices are not binding on the courts or NCAs of the Member States. There
are two methods to asses market power: direct and indirect method. EU competition law has
traditionally employed the indirect method. This method involves:
1. Identifying the relevant market.
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, o Market definition important: which goods/services are such close substitutes that they exert
competitive pressure on the behaviour of the suppliers of those goods/services.
Substitutability two forms:
o Demand substitutability
o Supply substitutability
o Potential competition is also important but normally taken into account at a later
stage of the analysis.
o The relevant market has two aspects:
o Product aspect
o Geographical aspect
o (may also have a temporal aspect)
2. Identifying what entry/exit barriers exist on that market.
Marginal customers: customers who will change in the event of a price rise. Market power is usually
defined at the ability to price above short-run marginal cost and, in the long run, above average total
cost. Market definition and barriers to entry are central to the assessment of market power in EU
competition law. There are two ways of measuring a firm’s market power:
Direct: estimate the market power by using econometric methods (the residual demand curve)
Indirect: structural approach (most used by competition law authorities; the Commission).
o Define relevant market
o What is the power on that market of the undertaking?
▪ Market share
• Absolut, and
• Relative
Sometimes market share stands proxy for market power (e.g. in the
block exemption regulations); to be more practical.
▪ Barriers to entry
The purpose of defying the relevant market is to identify which products are such close substitutes for
one another that they exert competitive pressure on the behaviour of the suppliers of those products
(substitutability/interchangeability). CJ’s definition of relevant market: the market as consisting of
products which are interchangeable with each other but not (or only to a limited extent) interchangeable
with those outside. This interchangeability may be with other products (vodka as substitute for
sambuca) or with the same products from elsewhere (vodka from Russia and vodka from America).
The relevant market has therefore two aspects:
o Product aspects: the product market United Brands: 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.
o Geographical aspect: the geographic market United Brands: the geographic area in which the
product is marketed and where the conditions of competition are sufficiently homogeneous for
the effect of the economic power of the undertaking and which can be distinguished from
neighbouring areas because the conditions of competition are appreciably different in those
areas
In some cases also temporal aspect: but usually considered as a feature of the product and therefore
part of the delineation of the product market. If a product has perfect substitutes the sole producer of
such a product has no market power, because if that supplier tries to exploit his monopoly by raising
the price his customers will turn to the substitutes. two aspects of substitutability:
• Demand substitution: the ability of users of the product to switch to substitute products.
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