Competition Policy Background Flashcards
Why is competition policy necessary?
Since firms may be inclined to restrict competition in their attempt to increase their market power at the expense of their competitors and/or consumers
How can competition policy be broadly defined?
As the set of policies and laws which ensure that competition in the marketplace is not restricted in such a way as to reduce economic welfare
What led to the introduction of competition policy in the USA?
The large improvements in transportation and communication at the end of the nineteenth century which drove firms to exploit economies of scale and scope to reduce their cost, which in turn increased competition, resulting in price wars and so to stabilise prices, dominant firms reacted by forming cartels and consumers got hurt in the process, resulting in antitrust laws being passed in many states
What is a cartel?
A group of independent market participants who collude with each other in order to improve their profits and dominate the market.
What was antitrust policy mainly guided by between WW2 and mid 1970s?
The early industrial organisation known as the Structure-Conduct-Performance (SCP) approach, Harvard School of thought
What was the Chicago School of thought when it came to competition policy and intervention?
It contrasted the Harvard school by criticising the heavily interventionist approach to business practises and mergers and advocated for the efficiencies that can be brought about by these practises to be recognised, more of a laissez-faire approach
Why was the Leniency policy introduced?
In order to strengthen the fight against cartels
True or False:
In the EU, competition laws exist at the national and supranational levels
True, but we mainly look at the supranational
When were competition laws first introduced in the UK and why?
In 1919, in an attempt to curb prices after WW1
Why were competition laws amended in the UK after WW2
With the objective to reduce unemployment through competition in the marketplace
In the UK, what were the acts prior to the major reform of 1998 characterised by?
A lack of clear objectives and enforcement tools
What was Germany’s view on cartels in the early 20th century?
They were permitted and even enforceable in courts, as they were seen as an instrument to stabilise prices
When was the first supranational competition law adopted in the EU? What was it?
In 1951 within the Treaty of Paris
It aimed to ‘prevent, restrict, or distort the normal operation of competition’
What have the common European Competition laws been important for?
Economic efficiency and market integration, distinguishing it from US
When was the merger regulation adopted in the EU?
1989 to fill the gap left by the Treaty of Rome (which did not consider mergers explicitly)
What does it mean if acts are per se violations of the Sherman Act?
no justification or defence is allowed because they are considered so harmful to competition
The 1920 US Steel decision had a major impact on US antitrust policy, how?
The Supreme court made it clear that what matters is not the mere fact of being a monopoly but how a firm has obtained monopoly power and how it uses it
What articles is EU Competition legislation contained in?
Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU)
What does Article 101 deal with?
Cartels and restrictive vertical agreements
What is the most obvious example of illegal conduct infringing Article 101?
A cartel between competitors (which may involve price-fixing or market sharing)
What does Article 102 deal with?
With firms that have a dominant market share and abuse that position and also covers mergers, acquisitions and joint ventures
What can the Commission do to those firms that violate EU Competition rules?
Impose fines
Have differences between US and EU Competition policy decreased or increased over the last decades?
Decreased, they are governed by similar principles
What case that was defended in the USA and EU around 2000 resulted in different conclusions?
The Virgin/British Airways case
