Competition Law I - Anticompetitive Agreements

Competition Law I - Anticompetitive Agreements

• Competition is crucial for prosperity, benefiting consumers but challenging for producers/sellers
• Competition laws are designed to safeguard consumer welfare by addressing potential risks like price-fixing cartels and powerful companies abusing their power
• Competition enforcers monitor proposed mergers to prevent undermining effective competition.
• Competition enforcers must carefully consider the level of intervention to avoid distorting the natural dynamics of competition, as per Ariel Ezrachi.

Overview & Objectives of Lecture

• The lecture will cover the fundamental ideas of competition, competition law in the EU, and anti-competitive agreements, focusing on Article 101 of the TFEU.

Foundations and Context of Modern Competition Law

• Modern competition law's roots lie in North America, specifically post-US Civil War communications and transportation advancements.
• These advancements linked previously separate markets, leading to larger enterprises operating across wider locations.
• The late 19th century saw large enterprises (known as Trusts) emerge, often displacing smaller firms, leading to cost reductions and lower prices passed on to consumers, putting pressure on small businesses.
• Trusts held substantial economic and political power, changing social structures and impacting community control.
• The emergence of trusts and large enterprises in the late 19th century prompted the implementation of laws like the Sherman Act.

Sherman Act (1890)

• A pivotal piece of legislation aimed at curbing large monopolies and trusts in various industries.
• The Act aimed to enhance rivalry among businesses.
• The Act sought to ensure small businesses' opportunity to compete.
• It prohibited unreasonable restraints of trade that prevented competition among businesses.
• The Act empowered the federal government with the authority to investigate trusts and companies suspected of violating the Act.

Evolution of Modern Competition Law

• Faith in free economies was shaken after The Great Depression.
• Post-WWII, the free market emerged as the organising principle of western economies, including Europe (Rome Treaty).
• The Fall of the Soviet Union marked the triumph of free-market capitalism.
• The 2007 financial crisis eroded confidence in free markets, compounded by globalization and austerity measures.
• Present challenges encompass growing inequalities, populism, protectionism, and economic activity from technological giants in the digital economy.

Aims of Competition Law

• Improve economic performance, through:
  • Promoting growth.
  • Increasing productivity.
  • Stimulating innovation.
• Support fair distribution of wealth through:
  • Reducing poverty.
  • Addressing historical disadvantage for certain groups.
• Protect the integrity of the political process.
• Secure positions for small- and medium-sized enterprises (SMEs).

Practicing Competition Law

• Offers global career opportunities.
• Demands a global understanding of principles and interconnectedness.

Basic Principles of Competition

• Perfect Competition: Customers and suppliers are fully informed and rational. The market is simple, products are homogenous, and invisible hand competition is prominent.
• Oligopoly: Imperfect competition dominated by a few large competitors. There is often limited competition, potentially involving tacit collusion to prevent the market from becoming more competitive and thus protecting themselves.
• Monopoly: Domination by a single firm. This company has high market concentration (BoE). There is no competition in the market, leading to an inability for prices or other conditions to be appropriately set by competition.

Market Power

• The ability of a firm to profitably sustain its price above the competitive level without losing market share.
• This depends on the market in question and its competitors.

Relevant Market

• Product Market: Products considered substitutes by consumers and/or suppliers.
• Geographic Market: Area in which relevant products are marketed, sharing similar conditions.
• Temporal Market: Timeframe for products and services to be considered in the market (if applicable).

Market Share

• Used to categorize companies and quantify their relative market dominance in the appropriate market.
• Allows to understand the potential competitive restraints.
• Also considers barriers to entry for outside companies.
• Evaluates potential buyer power.

Harms of Market Power

• Joint market power after anticompetitive agreements
• Single dominant/monopolist firm
• Mergers of two or more firms

Anti-Competitive Agreements in EU (Art 101 TFEU)

• A common form of anti-competitive agreements is cartels, which are illegal in many jurisdictions, including the EU.
• Cartels seek to fix prices, limit production, or share markets among independent competitor companies to prevent each other from competing.
• Cartels reduce incentives for innovation, by removing competitive pressure, and may involve collusions amongst producers or distributors.
• The leniency program encourages companies to reveal their illegal dealings with other competitors in exchange for immunity or a reduction in fines from the commission.
• Settlements for fine reductions are possible.

Article 101 TFEU - The Scheme

• Article 101(1): Prohibits undertakings' collusive activities which appreciably distort competition between member states. The burden of proof lies with the European Commission or whoever alleges an infringement.
• Article 101(2): Provides for the nullity of the undertaking's conduct + enforcement (public and private) when anti-competitive conduct is discovered and proven.
• Article 101(3): Excludes agreements with exceptions for individual purposes where the undertaking must demonstrate any benefit is greater than its harmful effects.

Article 101 TFEU - The Elements

• Undertakings/ Associations of undertakings.
• Agreements/ decisions of associations of undertakings/ concerted practices.
• Anti-competitive object or effect.
• Effect on trade.

Undertaking, Association of Undertakings

• An undertaking is any entity engaged in an economic activity regardless of legal form or financing type.
• Associations of undertakings can be subject to Article 101 TFEU, even if they don't engage in economic activities themselves, if they coordinate the market behaviour of members.

Agreements, Decisions, Concerted Practices

• Any form of collusion that leads to a distortion or restriction of competition between independent undertakings is prohibited.
• Article 101 TFEU lists 3 categories: agreements, decisions, and concerted practices.
• These categories are not exclusive and frequently overlap.

Object or Effect of Preventing, Restricting, or Distorting Competition

• The EU regulates behaviour which restricts competition through the object or effect of such conduct.
• This can be evaluated by examining objective intentions, aims, and context.
• Agreement or concerted practice restrictions which could affect trade between member states, even if the parties have no explicitly collusive agreement.
• Subjective intents of parties are not relevant when examining whether an agreement or practice restricts competition.

Restriction by Object

• Deals with situations where the agreement's inherent nature creates a potential for anti-competitive effects.
• Agreements with the explicit goal of undermining competition are automatically prohibited, regardless of effect on trade between member states.
• Hardcore Restrictions are per se anti-competitive, such as agreements on price fixing, market sharing, resale price maintenance or export restrictions.

Restriction by Effect

• Focuses on the agreement's observed impact on competition.
• Requires a market analysis to determine relevant geographic and product markets; consideration of the agreement within its actual context.
• The analysis also examines potential limitations and foreclosure effects on access to market.
• Requires a comparison between factual situation and hypothetical scenario where the agreement did not take place.
• Relevant material factors that contribute to a potential negative effect (such as severity of protection clauses) are also considered.

Effect on Trade Between Member States

• Trade between EU member states must be affected by the agreement in an appreciable manner to qualify as a violation of Article 101.
• Agreements to be a violation, must have a minimum threshold of cross-border economic activity affected.
• There is a presumption against an effect on trade between EU member states when aggregate market shares and turnover are below certain values.

De Minimis Doctrine

• Offers a safety net for minor agreements between businesses that the Commission deems have no substantial effect on competition within the given parameters.
• Applies if market shares are under set thresholds (10% for competitors, 15% for non-competitors within the group).
• Exceptions include hardcore restrictions which are always viewed as having a significant effect.

EU Competition Law - Overview

• EU competition law aims at preventing distortions in the internal market, ensuring free competition and protecting consumers.
• It encompasses a system encompassing competition policy, which aims to ensure fair and effective competition, protect consumers and the structure and structure of the market.
• It's linked to EU's general law on free movement.
• The European Commission and national competition authorities (NCAs) enforce these laws.

Lecture Recap

• The lecture covered competition, competition law, market power, anti-competitive agreements, Article 101 of the TFEU.
• Key concepts like undertakings, agreements, decisions, concerted practices, object/effect of restrictions, market share, trade between member states, and the specific de minimis doctrine.

References

• A comprehensive list of articles, books, and other materials cited in the presentation is provided.