EU Competition Policy

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 Protecting competition Fairness and equity Protecting economic freedom Public policy, social-political-environmental reasons (promoting small and medium sized firms) Strategic reasons (trade, industrial policy)

History of Competition Law National Laws v. EU Competition Law

History of Competition Law Sherman Act, USA (1890) German laws – Treaty of Rome (1957) Regulation no. 17/1962 (replaced by no. 1/2003)

Sources of EU Competition Law

EC Treaty Articles (81-89) Regulations –Council –Commission Commission decisions Judgements –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 1/2003

Competition Law by “sub-fields” Antitrust Articles 81-82; 86 (ex post analysis) Mergers Regulation no. 4064/89, replaced by 139/2004) (ex ante analysis) State Aids Art (ex ante analysis) Control of collusion and other anticompetitive behaviors (agreements in restraint of trade – abusive behaviors of dominant undertakings) Control of mergers, joint ventures, acquisitions Control of direct or indirect aid given by member States to undertakings

Treaty provisions Articles Articles 31 and 86 Articles 10 and Undertakings States and undertakings States

Important definitions / Common notions Notion of “Undertaking” “Effect on trade” concept Distortion of competition within the common market Market Definition Economic notion; irrelevance of property Commission Notice (2004) Effect doctrine 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)

Art. 81 Anticompetitive 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.”

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. 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 82 Abuse 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.”

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 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 Article 86(3) -Since 1985, the Commission 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)