Lecture V

Lecture V.
EU competition policy
Why do we need competition

policy?
Competition Policy ensures that markets
remain competitive (antitrust / anti-cartel enforcement / merger control)
become competitive (liberalisation)
Competitive markets
produce benefits for consumers
lead to technological innovation
Competition policy enhances consolidation

of the Internal Market
Competition policy contributes to ensuring the
competitiveness of European industry
2
Competition Policy
The Purpose
Proivions of the Treaties competition
policy creates a system ensuring that
competition in the internal market is
not distorted;
Competition Policy Report Basic
principles an open market with free
competition
3
Competition Policy
The Purpose (contd)
Competition Policy
Encourage industrial efficiency, optimal allocation

of resources
Need competitive home market in order to

compete worldwide
Prevent: price fixing, market share cartels, abuse

of dominant position, and anti competitive
mergers and state monopolies/aid
Internal market [community wide] essential

condition for development of efficient and
competitive industries
4
Competition Policy
The Purpose (contd)
European Community Law:
Main objectives of European competition policy
Single market for benefit of producers and

consumers
Level playing field equality of competition;

prevent market power
Promote efficiency to ensure firms rationalize their

production and distribution
5
What is competition law?

Competition law exists to protect the process of
competition in a free market economy
A system where the allocation of resources is

determined solely by supply and demand in free
markets
Competition wanted because of the market result it
produces
Efficiency
Low prices
Innovations
Competition rules limits the freedom of the market
players to protect the process of competition
The three pillars of EU Competition

Policy
Notes: Numbering of art. Prior to Lisbon
A N T IT R U S T
M ERG ER CO NTRO L
S T A T E A ID
C o n t r o l o f b e h a v io u r
o f c o m p a n ie s
S a fe g u a r d in g o f
m a rk e t s tru c tu re
P r e v e n t io n o f u n d u e
S t a t e in t e rv e n t io n
R e s t r ic t iv e
A g r e e m e n ts
A buse of
M a rk e t P o w e r
M e rg e r C o n tro l
M e a s u r e s f a v o u r in g
p u b l ic
u n d e r t a k in g s
S t a t e A id
c o n tro l
EU Competition Policy
ANTITRUST
Restrictive agreements and concerted practices

MERGER CONTROL
Abuse of a dominant position and control of mergers

STATE AID
Undue State intervention
ANTITRUST
Art. 101, former 81 EC : - restrictive
practices
Agreements which cause an appreciable restriction
of Competition, such as e.g. price fixing or market
sharing (and affect trade between Member States)
Art. 102, former art. 82 EC : - abuse of

dominant position
Behaviour which constitutes an abuse of a
dominant position, such as e.g. tying or
discrimination (and affects trade between Member
States).
9
MERGER CONTROL
Merger Control :
(Art. 2 of Regulation No 4064/89)
Operation which creates or

strengthens a dominant position
which impedes effective competition.
10
STATE AID
State Aid:
(Art. 107, former art. 87 of the EC Treaty)
Any aid granted by a Member State

which distorts competition by
favouring certain undertakings, in so
far as it affects trade, shall be
incompatible with the common
market
11
Competition Policy
Restrictive agreements -Article
101, former 81 TEC
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)
(b)
directly or indirectly fix purchase or selling

prices or any other trading conditions;
limit or control production, markets, technical
development, or investment;
12
Competition Policy
Article 101, former 81 TEC (contd)
(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 contracts
2.
Any agreements or decisions prohibited pursuant to this

article shall be automatically void.
13
Competition Policy
Undertakings, has been interpreted broadly

person or legal entity (person) engaged in
economic or commercial activity involving the
provision of goods or services.
Decision by associations of undertakings,
typically within trade associations and
decision has been held to include non binding
recommendations
14
Competition Policy
Concerted Practices, has been broadly

interpreted to mean some kind of coordinated
action which, although not an agreement,
knowingly leads to practical cooperation instead
of competition.
Affect trade between MSs, Court of Justice:

the agreement . . . may have an influence,
direct or indirect, actual or potential, on patterns
of trade between MSs
15
Competition Policy
Analysis of Article 101 TEC (contd)
Object or effect . . . distortion of competition

How decide? Full market analysis not required.
Also, if the agreement evidences an intent to restrict
competition, fact that the involvement of a participant
had negligible effect on competition irrelevant.
Within the Common Market For Court of Justice the

issue is not the place where the agreement was made,
BUT the place where concerted practice was to be
implemented
16
The concept of an
agreement
Agreement, has been interpreted broadly
It is sufficient if the undertakings in question should

have expressed their joint intention to conduct
themselves on the market in a specific way
joint intention a legally binding agreement not
necessary
The form of no importance (oral, signed, unsigned)

gentlemens agreements
The agreement does not have to be exhaustive
It is enough just to set the broad framework

for the undertakings market conduct
17
Concept of relevant
market
a tool for aiding the competitive assessment
by identifying those substitute products or
services which provide an effective constraint
on the competitive behaviour of the products
or services being offered in the market by the
parties under investigation
Identify competitive restraints from actual
competitors, does not include potential
competitors
But: In practice an extremely an influential
guide
18
Relevant market
The relevant market the product of three
different market dimensions
The relevant product market
Interchangeability: to what degree are other
products substitutes to the product in question?
The relevant geographic market

The area in which the actual product is sold; the
relevant geographic market
Temporal market
19
Block exemptions
Some horizontal agreements are not totally
prohibited by the law if their objective is
-specialization in production
-environmental or other new standards
-research and development
Their quota should be 20%-25%, if not an
individual exemption could be required.
A notification is not any more required
20
Competition Policy
Article 101
The provisions of art 101 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,
21
Competition Policy
Article 101(contd)
which contributes to improving the production or
distribution of foods 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.
22
Competition Policy
Analysis of Article 101
Exemptions
Agreement must contribute to

improving production or distribution
Agreement must allow all
consumers a fair share of benefit
Agreement must not create any
unnecessary restrictions
Agreement must not eliminate
competition
23
Abuse of dominant position

Analysis of Article 102, former art. 82 TEC Abuse of dominant
position
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 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 noconnection with
the subject of such contracts.
24
Competition Policy
Analysis of Article 103 - MS and
Comission shared responsibilities.
Until the entry into force of the provisions

adopted in pursuance of Article103, the
authorities in Member States shall rule on
the admissibility of agreements, decisions
and concerted practices and on abuse of
a dominant position in the internal market
in accordance with the law of their
country and with the provisions of
Article101, in particular paragraph3, and
of Article102.
25
Competition Policy
Analysis of Article 105 - MS and Comission shared
responsibilities.
1.
Without prejudice to Article104, the Commission shall
ensure the application of the principles laid down in Articles101
and 102. On application by a Member State or on its own
initiative, and in cooperation with the competent authorities in
the Member States, which shall give it their assistance, the
Commission shall investigate cases of suspected infringement of
these principles. If it finds that there has been an infringement, it
shall propose appropriate measures to bring it to an end.
2.
If the infringement is not brought to an end, the
Commission shall record such infringement of the principles in a
reasoned decision. The Commission may publish its decision and
authorise Member States to take the measures, the conditions
and details of which it shall determine, needed to remedy the
situation.
3.
The Commission may adopt regulations relating to the
categories of agreement in respect of which the Council has
adopted a regulation or a directive pursuant to Article103(2)(b).
26
Competition Policy
Analysis of Article 106, former art 86 / public underatkings
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 the Treaties.
2.
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 the Treaties, 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 Union.
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.
27
Competition Policy
Article 107, former art 87 state aid
Save as otherwise provided in the Treaties, any aid granted by a

Member State or through State resources in any form whatsoever
which distorts or threatens to distort competition by favouring
certain undertakings or the production of certain goods shall, in so
far as it affects trade between Member States, be incompatible
with the internal market.
2.
The following shall be compatible with the internal market:
(a) aid having a social character, granted to individual

consumers, provided that such aid is granted without
discrimination related to the origin of the products concerned;
(b) aid to make good the damage caused by natural

disasters or exceptional occurrences;
(c) aid granted to the economy of certain areas of the

Federal Republic of Germany affected by the division of Germany,
in so far as such aid is required in order to compensate for the
economic disadvantages caused by that division. Five years after
the entry into force of the Treaty of Lisbon, the Council, acting on
a proposal from the Commission, may adopt a decision repealing
this point.
28
Competition Policy
The following may be considered to be compatible with the

internal market:
(a)
aid to promote the economic development of areas
where the standard of living is abnormally low or where there is
serious underemployment, and of the regions referred to in
Article349, in view of their structural, economic and social
situation;
(b)
aid to promote the execution of an important project of
common European interest or to remedy a serious disturbance
in the economy of a Member State;
(c)
aid to facilitate the development of certain economic
activities or of certain economic areas, where such aid does
not adversely affect trading conditions to an extent contrary to
the common interest;
(d)
aid to promote culture and heritage conservation where
such aid does not affect trading conditions and competition in
the Union to an extent that is contrary to the common interest;
(e)
such other categories of aid as may be specified by
decision of the Council on a proposal from the Commission.
29
Competition Policy
1.
The Commission shall, in cooperation with Member
States, keep under constant review all systems of aid
existing in those States. It shall propose to the latter any
appropriate measures required by the progressive
development or by the functioning of the internal market.
2.
If, after giving notice to the parties concerned to
submit their comments, the Commission finds that aid
granted by a State or through State resources is not
compatible with the internal market having regard to
Article107, or that such aid is being misused, it shall
decide that the State concerned shall abolish or alter such
aid within a period of time to be determined by the
Commission.
30

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Lecture V.

Why do we need competition

Competition policy enhances consolidation

Encourage industrial efficiency, optimal allocation

Need competitive home market in order to

Prevent: price fixing, market share cartels, abuse

Internal market [community wide] essential

European Community Law:

Main objectives of European competition policy

Single market for benefit of producers and

Level playing field equality of competition;

Promote efficiency to ensure firms rationalize their

What is competition law?

A system where the allocation of resources is

The three pillars of EU Competition

Restrictive agreements and concerted practices

Abuse of a dominant position and control of mergers

Undue State intervention

Art. 102, former art. 82 EC : - abuse of

Operation which creates or

Any aid granted by a Member State

The following shall be prohibited as incompatible with

directly or indirectly fix purchase or selling

share markets or sources of supply;

apply dissimilar conditions to equivalent

Any agreements or decisions prohibited pursuant to this

Undertakings, has been interpreted broadly

Concerted Practices, has been broadly

Affect trade between MSs, Court of Justice:

Object or effect . . . distortion of competition

Within the Common Market For Court of Justice the

It is sufficient if the undertakings in question should

The form of no importance (oral, signed, unsigned)

It is enough just to set the broad framework

The relevant geographic market

Agreement must contribute to

Abuse of dominant position

Any abuse by one or more undertakings of a dominant position

(a) directly or indirectly imposing unfair purchase or selling

(b) limiting production, markets or technical development to

(d) making the conclusion of contracts subject to acceptance

Until the entry into force of the provisions

In the case of public undertakings and undertakings to which

Save as otherwise provided in the Treaties, any aid granted by a

(a) aid having a social character, granted to individual

(b) aid to make good the damage caused by natural

(c) aid granted to the economy of certain areas of the

The following may be considered to be compatible with the

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