WECI PRESENTATION

1.- What is competition

Is a key concept in economics, which refers to the rivalry or struggle between different firms in a market for the
sale of goods, attract customers and generate profits.
Competition: can be divided in

- Price competition
- Or non price competition.- Firms compete on the basis of product differentiation, advertising, or other
factors.
In a competitive market producer look to produce goods and services at the lowest possible cost.
Moreover, competition can also promote innovation, as firms compete to develop new products or improve
existing ones to gain a competitive edge.
Competition is a key aspect of a common market, as it drives higher productivity, lower prices, and greater
consumer welfare.
2.- Competition Theories
Competition theories in economics refer to different perspectives on how competition affects economic
outcomes. We will briefly explained the key competition theories.
1. Perfect Competition Theory
 The number of seller and buyers in the market is very large. Independently they cannot influence the
market. It has a very intense competition between firms. There is no barriers to entry or exit the market
 Under perfect competition, firms are price takers, meaning they accept the market-determined price
and adjust their production accordingly.
 All participants produce the same kind of product, there are no differences
 Small enterprises produce a very small amount of products and independently do not affect the
production capacity of other participants;
 There will be no legal, organizational, financial and technological restrictions to enter the network.

2. Imperfect Competition
The opposite of perfect competition and in nature is limited, the competition is between companies with a large
market share or it can be a monopoly.
2.1. Monopolistic Competition. With the characteristics:
 The number of companies not so large.
 Firms have some market power but is limited.
 Product differentiation allows firms to remain price setters.
 There can be a differentiation of quality: raw materials, quality, design, production, durability;
 The entry and exit barriers are not so high

2.2. Oligopoly Theory

 It is assume there are only a few large and dominant firms with a high market power
 There can be price fixing. Oligopolies may result in higher prices
 The firms can offer differentiated or homogeneous products. There is potential for product
differentiation.
 Entry and exit barriers can be significant, which can limit the entry of new firms and contribute to the
market dominance of existing firm
 2.3. Monopoly Theory

 A monopoly is a market structure that consists of only one seller or producer.

 A monopoly limits available substitutes for its product and creates barriers for competitors to enter the
marketplace.

 Monopolies can lead to unfair consumer practices.

 Some monopolies such as those in the utility sector are government regulated.

II.- Chicago School of Antitrust.

 This School of thought started to gain importance in the late 70´s

 This approach focus in the ability of the market to work and self-regulate and also it gives central
importance to "Efficiency".
 Efficiency having the objective of consumer welfare
 Advocates then for a laissez-fair economy where there is no government intervention in markets

For the Chicago School:

- Market power of large companies was not seen as bad now the focus was on the efficiency that was
the goal so in the end the consumers would get low prices. If you let the market work and self-regulate,
event monopolies would not endure as other companies enter the market and compete.

 Competence .The Chicago School saw no evil in market power per se as dominant firms may be more
efficient. And as long as there was some competition, consumers will enjoy the benefits of both efficient
markets and competition.
 The purpose of antitrust laws is that prices are as low as possible.
 The theory use the perfect competition model as a starting point.
 For the Chicago School not every conduct that increased prices would be unlawful. Rather, only the
most terrible forms of anticompetitive conduct – e.g., price-fixing, market division – that distorts the
functions of the market and prevents market self-correction would be condemned

Post Chicago School of Antitrust

 In the 90´s the antitrust policies change to a more real approach.

 It had the same view of welfare focus for the consumers (low prices and efficieness)
 Did not assume perfect competition as its start point.
 It now accept that free markets are affected by social, political and economic aspects
 Concerns about results of market power and market concentration

III.- Competition Policies

The development of European Union competition law has been a significant part of the European Union's
integration process. Here is a brief explanation of the making of EU competition law:
1.- Treaty of Rome (1957): The foundation of EU competition law can be traced back to the Treaty of Rome,
which established the European Economic Community (EEC). The treaty aimed to create a common market
among member states and included provisions on competition policy. Article 85 (now Article 101 of the Treaty
on the Functioning of the European Union) prohibited anti-competitive agreements and practices.
2.- Regulation No. 17/1962: In 1962, the Council of the European Economic Community adopted Regulation
No. 17/1962. This regulation established the first sectorial policy with supranational characteristics within the
Community. It harmonized competition rules and created a supranational authority, the European Commission,
with powers to enforce competition law.
Council Regulation No 17 of 6 February 1962, First Regulation implementing Articles 81 and 82(4) of the
Treaty(5), has allowed a Community competition policy to develop that has helped to disseminate a
competition culture within the Community. In the light of experience, however, that Regulation should now be
replaced by legislation designed to meet the challenges of an integrated market and a future enlargement of
the Community.1
3.- The Maastricht Treaty, signed in 1992, the treaty's significance lies in elevating competition policy to the
level of a supranational EU policy and providing a framework for further development and consolidation of EU
competition law
The Maastricht Treaty replaced an imperfect and partial patchwork of direct cooperation between
governments. It brought this cooperation under the EU umbrella and opened the way to much more effective
and inclusive action between member states.

4.- Merger Control: Over time, the EU expanded its competition law framework. In 1989, the Merger Regulation
(Regulation No. 4064/89) was adopted, establishing a centralized European Community merger control
system. It required companies to notify and gain approval from the European Commission for mergers and
acquisitions meeting certain thresholds.
gives the Community the objective of instituting 'a system ensuring that competition in the common market is
not distorted';2
5- Modernization of EU Competition Law: In 2004, a process of modernizing EU competition law began.
Regulation No. 1/2003 replaced Regulation No. 17/1962, decentralizing enforcement and granting national
competition authorities concurrent powers. It aimed to enhance cooperation between the European
Commission and national authorities.
IV.- EU MERGER CONTROL
Main legal framework:

 EU Merger Regulation (EUMR)

Regulate mergers, acquisitions and joint ventures that may have an impact on competition within the EU's
single market.

 Implementing Regulation

Contains procedural issues (notification, deadlines, right to be heard, etc.).

 EU is a mandatory merger control regime

 It means that the company mades a compulsory notification of the merger transaction to the relevant
authority
 Parties to a transaction are legally prevented from closing a deal until they have received merger
clearance.
 This is use to prevent anti-competitive transactions.

Investigation:

1
EUR-Lex - 32003R0001 - EN - EUR-Lex (europa.eu)
2
EUR-Lex - 31989R4064 - EN - EUR-Lex (europa.eu)
  The Commission conducts a detailed investigation to assess whether the transaction could significantly
prevent effective competition in the EU market.
 Potential impact on competition, market shares, barriers to entry, and the creation of dominant market
positions.
 Phase II review, additional information, input from market participants, and evaluates potential
remedies

 The Commission has the authority to either approve the merger or prohibit it altogether

 Companies that fail to comply with the EU merger control requirements can face significant penalties,
including fines of up to 10% of their global turnover.

 EU Merger control Example. Wieland/ARP/Schwermetall

The ruling of the European Commission was that the transaction will likely result in a significant impediment of
effective competition.

The transaction raised competition concerns, as it would have allowed Wieland to eliminate the competitive
pressure exercised by ARP and become a dominant player in the markets for rolled products in the European
Economic Area ("EEA")

The sole control over Schwermetall would result in vertical effects (that would further reinforce alleged
horizontal effects), namely through access to sensitive information about Schwermetall's customers (Wieland's
competitors on the downstream market) and likely price increases in the downstream market.