EU Competition Policy

Question 1

Power of European Commission in competition policy

Answer 1

Commission has sole power (only overturn-able by ECJ)

• right to make on-site inspections without prior warning
• inspect the homes of company personnel
• right to impose fines on firms (max. 10% of firm’s worldwide turnover)
• force firms to repay subsidies it deems to be illicit

Question 2

Areas of Competition policy

Answer 2

• antitrust and cartels
• merger control

-> can result in either private or public (state aid) restraints to trade

Question 3

Economics of cartels

Answer 3

Harberger triangle:
-> ‘ripoff’ and inefficiency effects as outcome (only 0.1% of GDP for US)

X-efficiency for cartels

(very common: exclusive territories)

Question 4

Abuse of dominant position

Answer 4

• illegal under EU law

- dominance may tempt firm to extract extra profits from suppliers/customers

Question 5

Article 101

Answer 5

Prohibits restrictive practices (price fixing, market sharing, restrictions on supply etc.)

• block exemptions for certain categories of agreements or if agreement contributes to production or distribution of product or to technical or economic progress
• no formal agreement needed, practice of firms having effect of limiting competition is enough
• ‘efficiency defence’ can be offered in favour of a restrictive agreement

Question 6

Article 102

Answer 6

Restricts the abuse of a dominant market position where it affects trade between the MS:

• dominant position depends on market share
• practices banned: refusal to supply, unfair prices and conditions, predatory pricing, loyalty rebates, exclusive dealing, abuse of intellectual property rights, refusal to supply, tied sales
• no legal basis to divest monopolies

Question 7

Control of Merger (Merger regulation)

Answer 7

Anti-competitive behaviour addressed:

• ‘a concentration which would significantly impede effective competition in the common market’
• community dimension needed

Options of EU:

• unconditionally clearthe merger
• approve the mergersubject to conditions (“remedies”)
• prohibitthe merger

Question 8

State aid

Answer 8

Aid granted by a MS distorting or threatening to distort competition by favouring certain undertakings or the production of certain goods is incompatible with a common market where it affects trade.

• certain aids permitted (e.g. for promotion of development in poorer regions, areas with economic disruptions, sectoral development)
• compulsory notification of MS to Commission -> Commission reviews and can prohibit or modify aid

Question 9

Types of market failures relevant for state aid

Answer 9

• public goods
• merit goods
• increasing returns to scale
• externalities
• imperfect or asymmetric information
• institutional rigidities
• imperfect factor mobility
• subsidisation of foreign competitors
• frictional problems of adjustment to changes in markets