Session 7

Question 1

What were the 4 steps of European economic integration?

Answer 1

Liberalization
Defragmentation of the market
Pro-competitive effect
Industrial restructuring

Question 2

What’s a mark-up?

Answer 2

The difference between price and marginal cost

Question 3

How is the number of firms determined?

Answer 3

A first upward curve represents the Break-Even, that is the higher the mark the more firms can survive
A second downward curve represents Competition that means, the more firms, the lesser the market power of each firm and so the less the mark up

Question 4

What was the impact of liberalisation?

Answer 4

It meant that firms could move between home and foreign markets.

Question 5

What was the impact of defragmentation?

Answer 5

The break even shifted to the right, which means that the number of firms in the home market increased (multiplied by two)

Question 6

What was the impact of pro-competitive effects?

Answer 6

As the number of firms increased, the mark-up decreased, it created a new point A that is not on the Break Even curve.

Question 7

What was the impact of industrial restructuring?

Answer 7

Because point A was not suitable for the long term equilibrium, we moved instead to E’’, with firms disappearing, and profitability restored at a higher mark up

Question 8

In short what is the economic logic behind market liberalisation?

Answer 8

It leads to an industrial restructuring, in which prices decreases and so some firms are no longer profitable. These firms disappear.

Question 9

What are the long term consequences of market liberalisation?

Answer 9

The remaining firms have enlarged output, are more efficient and markups can rise again so profitability improves.

Question 10

What are the risks posed by bigger, fewer more efficient firms?

Answer 10

• risk of collusion between firms
• risk of few firms becoming too strong
• risk of member states influencing the process

Question 11

What do first generation studies say about EU manufacturing markups?

Answer 11

They decreased after the introduction of the single market and the EURO (between 1980s and mid 2000s)

Question 12

What do second generation studies say about EU markups?

Answer 12

An increase of markups after 2010 but i’s a short time series so it’s fairly uncertain.

Question 13

What do we say about US and RoW?

Answer 13

We see a long term upward trend for markups driven by the largest firms.

Question 14

Give two different interpretations of European concentration in the last 10 years.

Answer 14

Positive interpretation: winner takes all

Negative interpretation: decrease in competition and increase in market power

Question 15

Which phenomena are associated with European concentration?

Answer 15

• Strongly and positviely associated with changes in sector level productivity . This is driven by the most productive firms.
• Use of modern production technologies and productivity enhancing reallocation processes

Question 16

What are the three pillars of the European Competition Policy?

Answer 16

Anti-trust
Merger control
Regulation of state aid

Question 17

Define Anti-trust

Answer 17

It’s the prohibition of agreements and concerted practices between firms restricting competition. Horizontal and vertical agreements are prohibited.
It is the prohibition of abuse of dominance

Question 18

Define merger control

Answer 18

The obligation to submit mergers and acquisitions for clearance

Question 19

Define regulation of state aid

Answer 19

State aid is allowed only if he aid does not distort competition between companies in EU countries.

Question 20

How did European Competition Policy start?

Answer 20

In the 1960s, it targeted firm-initiated restrictive practices, and then it started tackling state aid.

Question 21

What happened in the 1970s around European Competition Policy w/ respect to state aid?

Answer 21

The Commission relaxed its position towards the grant of state aid, by recognising the need for national measures against unemployment and failing industries.

Question 22

In the 1980s why did the Commission expand its role on cracking down anti-competitive behavior?

Answer 22

New economic thinking, dynamic political leadership by the commission and a new framework emerged.

Question 23

What kind of control do EU merger review have?

Answer 23

Ex-ante control meaning that merged are only allowed under certain conditions.

Question 24

On what kind of mergers can the EU exert it’s control?

Answer 24

Only large mergers with an EU dimension that could Significantly Impeding Effective Competition
When there’s a trade-off for EU Consumers btw efficiency gains and loss of competitiveness

Question 25

What’s usually the reuslt of these mergers?

Answer 25

Usually green light, but there may be some structural remedies first, like selling assets such as brand or intellectual property rights

Question 26

What are the 4 criteria for state aid?

Answer 26

• Intervention by the state or through state resources (tax relief, grants,…)
• Intervention is distortive of markets
• Affects trade between EU countries
• Selective

Question 27

What are state aids exemption?

Answer 27

Balancing of the positive and negative effects

Allowing for common interest policies

Question 28

What are the risks posed by state aids?

Answer 28

Unequal distribution of industrial restructuring
Risk of aid competition between member states, so if all Member state use state aid then there’s no benefits from more competition

Question 29

Have state aid increased?

Answer 29

Yes, starting 2014

Question 30

What’s the sector that receives the most state aids?

Answer 30

Environmental protection including energy savings (55%)

Question 31

What are post Covid-19 changes to European Competition Law w/ respect to antitrust?

Answer 31

The cooperation framework on April 8th 2020 created temporary exceptions for business cooperation relevant to the crisis. Notably for pharmaceutical firms

Question 32

What are post-covid 19 changes w/ respect to merger control?

Answer 32

Because many firms became vulnerable to restructuring and takeovers, plus difficult merger investigation, the Commission first encouraged firms to delay their merge filing, but then resumed processing transactions

Question 33

What are post-covid-19 changes w/ respect to state aids?

Answer 33

In the middle of the pandemic, the Comission suspended its state aid assessment to assist crisis stricken industries.
Then, in March, the commission introduced a temporary framework to all for five types of aid.

Question 34

What were the 5 types of state aid allowed by the commission during the pandemics?

Answer 34

• Direct grants
• selective tax advantages
• guarantees on loans
• research and production (to fight the pandemic)
• support for small companies and start-ups

Question 35

What are the 3 factors that make industry policy complicated at the EU level?

Answer 35

• Competition policy
• Multilevel nature of EU economic policy
• numerous strategies, programmes, actions and initiatives announced at short intervals

Question 36

How much does the combined spending on industrial policy by MS and EU amount to?

Answer 36

1.1% of the EU GDP. But low by historical standards