1. State Aid and Competition Policy
Giacomo Smaldone
Francisco Cappelle
Matteo Lostia
Course of Economics of the European Union, 2012

2. INTRODUCTION
The progressive Deeping of European economic integration, has put European firms under a great deal of pressure.
New competitive pressures new fewer, bigger and more efficient firms
Firms may be tempted to collude in order to avoid or postpone industrial restructuring
To guard against these pressures, in the Treaty of Rome writers to enforce fair play in the internal market provided special institutional arrangements.

3. European Commission has the exclusive power to regulate European’s competition policy.
Commission continuously consults with Member State competition authorities, but it has the final word. Only the European Court could overturn the commission’s decisions.
Competition policy area was transferred from a sovereignty to a SUPRANATIONAL LEVEL.

4. Competition has forced a massive industrial restructuring, an increase in the size of firms with the result of a massive reduction in the price of services and in the number of firms.

5. The key point is that deeper European integration is accompaigned by a long run reduction of number of firms. So Europe must watch over to ensure that the lower bigger firms do not collude, and the firms do not engage in anti competitive practice to avoid or delay industrial restructuring.

6. STATE AID
The reduction of number of firms may involve job losses or a reorganization that may require workers to change jobs.
Governments seek to prevent them:
Public company Private company
government continues to government provides
shore-up the money losing enterprise SUBSIDIES

7. EU –WIDE SUBSIDIES
Both governments provide subsidies that prevent restructuring.
Annual payment to all firms equal to their losses. So all firms stay in business even with inefficiency.
After the integration consumers paid for the inefficiency, with free trade liberalization governments pays for inefficiency.
Result in the short term is that policy increases output and this tend to improve consumers’ welfare.
In the long term this policy is a bad idea because subsidies prevent changes and improvements.

8. WELFARE EFFECTS OF THE LIBERALIZE AND SUBSIDIZE POLICY
Net effect is : [A+D-(A-C)] ,( A-C because we pay the subsidy), which equals D+C.

9. ONLY SOME SUBSIDIZE: UNFAIR COMPETITION
When only some governments subsidize their firms, the outcome of the restructuring may be unfair.
In fact the firms subsidized stay all in the market, instead most of firms get out from business.
This is a good idea from an economic perspective but not from a political one (unemployment).
The result could be the stop of integration process, the Europe establishes very strict rules forbidding such unfair competition.

10. What is Competition? It is like a game in which: Play field  Market
Players  Companies, individuals and undertakings in general
Goal  Meet the major level of demand of consumers
In economic terms, competition is the situation in which two, or more, undertakers compete in the same market offering same goods or services, in order to satisfy the demand of a common third part, the consumer.

11. Importance can be found analyzing benefits that competition provides
Why is it so important?
Importance can be found analyzing benefits that competition provides
Lower Prices
Greater Choice
Greater Quality
Innovation
Economic stability

12. European Union’s Competition Policy
The Commission has power to apply the rules of fair competitions to all State Members
The Commission’s manager in this matter is the Directorate General Competition
The DG can intervene against manky kinds of anti-competition activities

13. The Commission’s Power
Back in 1956, the Spaak Report (Treaty of Rome) made clear that:
European integration process
Restructuring of the Market

14. This would have consequences:
Risk of public / private actors to resist the consolidation;
Fear that the “distrust” between nations would make the process difficult.

15. Treaty of Rome European leaders wanted to avoid monetary policies
Central Bank Independence
Power of competition policy goes to the Commission

16. Powers of the European Commission
To fight anti-competitive behavior:
Start investigation over abuses of the law
Force companies to hand over documents
Make inspections without prior notice
Inspect the homes of company personnel

17. Power to say “No” to anti-competitive activity
Impose fines on firms found guilty
Force firms to repay subsidies
The decisions are independent from the Council of Ministers
The only way to appeal is through the European Parliament.

18. Unfair competition
However, companies do not always play a fairly match.
When it happens, we say that the company is adopting an anti-competitive behavior by using anti-competitive practices.
A practice is anti-competitive when it prevents, limits or distorts competition inside the market.

19. Ensuring a fair match
Due to anti-competitive behaviors, the business game requires a regulation that guarantees fair performance of the match, ensuring a proper level of competitiveness between all players.
This task belongs to the Common competition Policy

20. The Competition Policy
With the term competition policy we refer to “all laws and regulations aimed to ensure a fair competition in a market”
Its enforcement
Prevents or corrects anti-competitive practices
Protects interests of consumers
Ensures the well functioning of the market

21. Objectives of Competition Policy
Objectives of the common competition policy are:
Promote and guarantee competition
Contribute to achieve an efficient internal market
Generally, we can say that competition policy has a market integration objective

22. The three pillars Competition is based on three principal pillars:
ANTITRUST
MERGER CONTROL
STATE AID CONTROL
Which are also the three sectors in which competition policy acts.
The regulation over competition is in constant motion in order to meet the present market conditions.

23. ANTITRUST
Also known as Competition law, Antitrust is the set of rules that governs agreements between undertakings and their practices which may restrict competition.
Covers two main areas
Anti-competitive agreements between firms
Abuse of dominant position

24. Anti-competitive agreements
Share market or sources of supply; limit or control production, investments, tech. development, markets; apply dissimilar conditions to the same transaction with different trading parties.
Promote technical or economic progress, while allowing consumers a fair share of the resulting benefits.
Basic regulation lays down in art. 101 TEU.
Declares as incompatible agreements which affect trade between Member States and prevent, restrict and distort the competition within the internal market.
Allows the Commission to grant exemptions to provision of paragraph 1.

25. Abuse of dominant position
This second class of anti-competitive behavior is covered by the art. 102 of TEU:
“Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market insofar as it may affect trade between Member States.”
Typical practices of a dominant player are
Charging unfair prices and conditions
Predatory pricing
Exclusive dealing requirements

26. MERGER CONTROL
Merger are regulated by “The Merger Regulation” since 1989, and constantly improved. “A concentration which would impede effective competition should be declared incompatible with the internal market.” Purposes are: Avoid creation and strengthening of dominant players Protect interests of consumers Because of the increasing number of merger cases and in order to simplify investigations, since 2004 national authorities have more responsibility in merger control.

27. STATE AID CONTROL
When a firm receives public resources, obtaining an advantage over its competitors, we say that the Member State is granting a State Aid. Not all state aids are prohibited, indeed, remains the essential tool for a good governance. The task to supervise which state aids are genuine for competition and which not, belongs to the State Aid Control.

28. Defines incompatible state aids
The main regulation over State Aids lays down on art. 107 of TEU. The article is composed by 3 main sections:
Defines incompatible state aids
Outlines compatible state aids
Outlines which state aids may be considered compatible with the market.
Are incompatible aids which distort or threaten to distort competition inside the market
Aids for natural disaster or exceptional occurrences.
Regional Aids
General Measures
Sectorial Aids

29. General Block Exemption Regulation
Is the result of a process of modernization and simplification of State aid procedures in order to:
Promote transparency over state aid regulations
Make possible a quickly implementation of aids
Specific state aids, which fulfill the GBER and art. 107 TEU conditions, are permitted exempting the state member from prior notification and Commission approval.

30. THANK YOU