Economics of EU Competition Policy
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Questions and Answers

What is the basic intuition behind EU Competition Policy?

One Market - One Set of Rules - One Referee

What are two incentives that economic integration creates for firms?

  1. Collusion; 2. Subsidize their companies.

What are the two main articles of the Treaty on the Functioning of the EU (TFEU) that relate to antitrust?

Article 101 and Article 102

What is the name of the EU regulation concerning mergers and acquisitions?

<p>Merger Regulation 139/2004</p> Signup and view all the answers

What are the articles of the TFEU that deal with state aid?

<p>Article 107-109</p> Signup and view all the answers

EU competition policy is an exclusive competence of the United States.

<p>False</p> Signup and view all the answers

Who was the EU Commissioner for Competition from 2009 to 2014?

<p>Joaquin Almunia</p> Signup and view all the answers

What are the three core enforcement powers of the European Commission to ensure the correct application of EU competition rules?

<ol> <li>Inspections, 2. Hearings, 3. Imposing fines and granting exemptions</li> </ol> Signup and view all the answers

The European Commission decides independently on cases related to EU competition policy.

<p>True</p> Signup and view all the answers

What is the name of the court that handles appeals from the EU's General Court regarding competition cases?

<p>European Court of Justice</p> Signup and view all the answers

National anti-trust authorities have been involved in enforcing certain aspects of EU competition law since the year 2000.

<p>False</p> Signup and view all the answers

What is the primary function of EU competition legislation?

<p>To guarantee the effectiveness of competition in the single market</p> Signup and view all the answers

What does the term 'community dimension' refer to in the context of EU competition policy?

<p>The boundary between the European and the national competition legal frameworks</p> Signup and view all the answers

What are the two main purposes of the 'relevant market definition'?

<ol> <li>To identify and define the boundaries of competition between firms. 2. To identify market power.</li> </ol> Signup and view all the answers

It is generally in the interest of defendant undertakings to describe the market as narrowly as possible.

<p>False</p> Signup and view all the answers

What are the two dimensions of boundaries when defining a relevant market?

<ol> <li>Product 2. Geographic</li> </ol> Signup and view all the answers

What is the principle that governs the definition of a relevant product market?

<p>Substitutability</p> Signup and view all the answers

What does the 'SSNIP' test assess in the determination of a relevant product market?

<p>The likely reactions of customers to a hypothetical small but sustained increase in the price of a product</p> Signup and view all the answers

What is the primary purpose of the 'SSNIP' test?

<p>To determine whether a price increase in a product would be profitable or not, taking into account the availability of substitutes</p> Signup and view all the answers

What is the key factor in determining whether two products are substitutes?

<p>Whether a price increase in one product leads to a significant decrease in demand and an increase in demand for the other product, making the price increase unprofitable</p> Signup and view all the answers

If a price increase for bananas is profitable, it suggests that consumers are willing to pay more for bananas and there are no good substitutes available

<p>True</p> Signup and view all the answers

According to the EU Commission, what is a key characteristic of bananas that makes them different from other fresh fruits?

<p>They are a very important part of the diet for certain segments of the population, particularly the very young, elderly, and sick.</p> Signup and view all the answers

The size of a relevant geographic market is directly proportional to the product's transportation costs compared to its value.

<p>False</p> Signup and view all the answers

What two main factors influence the definition of a relevant geographic market?

<ol> <li>Technical characteristics of goods and services. 2. Consumer preferences, including cultural and geographical factors</li> </ol> Signup and view all the answers

What is the legal basis for prohibitions on collusive behavior restricting competition within the EU common market?

<p>Article 101 of the Treaty on the Functioning of the EU (TFEU)</p> Signup and view all the answers

What type of agreements are specifically prohibited under Article 101 of the TFEU?

<p>Agreements that directly or indirectly fix purchase or selling prices or any other trading conditions, limit or control production, markets, technical development, or investment, share markets or sources of supply, apply dissimilar conditions to equivalent transactions with other trading parties, or include supplementary obligations that have no connection with the subject of the contract</p> Signup and view all the answers

Agreements that contribute to technical or economic progress can never be exempted from the prohibitions outlined in Article 101.

<p>False</p> Signup and view all the answers

What is the maximum fine that can be imposed on undertakings in breach of EU competition rules?

<p>Up to 10% of the turnover of the entire group of companies worldwide and for all products</p> Signup and view all the answers

What is the name of the program that encourages firms to inform the European Commission about their infringements of EU competition rules?

<p>Leniency programme</p> Signup and view all the answers

Under the Leniency programme, the first undertaking to submit sufficient evidence of an infringement receives only a partial exemption from fines.

<p>False</p> Signup and view all the answers

In what year did the European Commission discover that a cartel of rechargeable battery producers had been operating?

<p>2016</p> Signup and view all the answers

What steps did the rechargeable battery producers take to avoid aggressive competition in the market?

<p>They engaged in bilateral and sometimes multilateral contacts to agree on temporary price increases and exchange commercially sensitive information such as supply and demand forecasts.</p> Signup and view all the answers

Samsung received a partial exemption from fines for reporting the existence of the rechargeable battery cartel to the European Commission.

<p>False</p> Signup and view all the answers

How many years did the cartel of truck producers operate?

<p>14 years</p> Signup and view all the answers

Which truck manufacturer reported the existence of the truck cartel to the European Commission, thus avoiding a fine?

<p>MAN</p> Signup and view all the answers

What is the total fine imposed on the truck producers for their involvement in the cartel?

<p>Almost 3 billion euro</p> Signup and view all the answers

What is the name of the coordination method used by the truck producers to manipulate prices in the cartel?

<p>Coordination of prices at 'gross list'</p> Signup and view all the answers

The truck cartel's infringement covered the entire European Economic Area (EEA) from 1997 to 2011.

<p>True</p> Signup and view all the answers

What was the key way that the truck producers communicated with each other in the cartel?

<p>Through phone conversations, sometimes at the margins of trade fairs or other events</p> Signup and view all the answers

Study Notes

Course Information

  • Course title: Economics and Politics of the European Union Competition Policy
  • Course code: 30564
  • Academic year: 2023/2024
  • Instructor: Italo Colantone
  • Email: [email protected]

Outline

  • Introduction
  • Agreements and cartels
  • Abuse of dominant position
  • Concentrations (mergers and acquisitions)
  • State aid

Introduction

  • EU Competition Policy is closely related to the creation of the EU Single Market
  • Basic Intuition: One Market - One Set of Rules - One Referee
  • Competition policy aims to ensure economic freedom and efficient resource allocation
  • Economic integration increases competitive pressure on firms, leading to "survival of the fittest"
  • This can create incentives for firms to collude and for national governments to subsidize their companies
  • The Treaty of Rome included broad prohibitions on private and public policies that distort competition

Competition Policy: Structure of EU Legislation

  • Antitrust:
    • Article 101 of the Treaty on the Functioning of the EU (TFEU): Collusive behavior restricting competition
    • Article 102 of the TFEU: Abuse of dominant position
  • Control on Concentrations (Mergers and Acquisitions):
    • Merger Regulation 139/2004
  • State Aid:
    • Article 107-109 of the TFEU

Who Manages EU Competition Policy?

  • Competition Policy is an exclusive competence of the EU
  • Several Commissioners have held the Competition role, including:
    • Mario Monti (Italy) 1999-2004
    • Neelie Kroes (the Netherlands) 2004-2009
    • Margrethe Vestager (Denmark) since 2014
    • Joaquín Almunia (Spain) 2009-2014

The Framework of EU Competition Policy

  • The Commission ensures the correct application of EU competition rules
  • The Commission has wide-ranging inspection and enforcement powers
  • The Commission independently decides on cases (no role for Council or Parliament)
  • Parties can appeal EC decisions to the EU’s General Court (previously CFI); with further appeals to the European Court of Justice
  • Some enforcement functions are undertaken by national antitrust authorities of Member States since 2004

Community Dimension

  • EU legislation defines the legal instruments and scope of application for competition in the single market
  • EU rules apply when competition issues affect trade between Member States (covering cross-border economic activities)
  • The Community Dimension criterion defines the boundary between European and national competition legal frameworks
  • EU competition policy applies to the behavior of undertakings with a community dimension in a relevant market

Definition of "Undertaking"

  • Undertakings are subjects of competition law, often referring to companies
  • The concept of an undertaking encompasses any entity engaged in economic activity, regardless of legal status or financing
  • A single individual can be an undertaking if they have market impact beyond that of a consumer (e.g., world-class opera singers, lawyers)

Relevant Market Definition

  • Defining the correct market dimension identifies competition boundaries between firms
  • Firms generally want to define markets broadly to demonstrate significant competition
  • The Commission aims for a narrow market definition showing insufficient competition
  • Product Market:
    • Products are considered interchangeable by consumers based on their characteristics, prices and intended use (Principle of substitutability).
    • The SSNIP test evaluates customer reactions to hypothetical small price increases; if substitution is enough to make the price increase unprofitable, the substitutes are included in the relevant market
  • Geographic Market:
    • Markets are segmented based on technical characteristics, consumer preferences, and cultural or linguistic barriers
    • Market size is inversely related to transportation costs relative to product value; products with high value and low transportation costs have larger geographic markets

Prohibited Agreements (Article 101 of the TFEU)

  • Agreements, decisions, or concerted practices that may affect trade between Member States and prevent, restrict, or distort competition within the common market are prohibited
  • Prohibited behaviors include fixing prices, limiting product or market development, sharing markets or sources, applying dissimilar conditions to equivalent dealings, making contracts conditional on further obligations

Agreements Exemptions (Article 101 of the TFEU)

  • Prohibitions can be declared inapplicable for agreements, decisions, or concerted practices that improve production/distribution, promote technical/economic progress and allow a fair share to consumers, without substantial restrictions and competition elimination

Agreements Between Undertakings

  • Agreements may be horizontal (between competing firms) or vertical (between firms at different stages of production)
  • Examples include: research and development, market analysis, and marketing/distribution channels, distribution

Prohibited Agreements and Concerted Practices: Fines and Immunity

  • Undertakings breaching EU antitrust rules are liable to fines up to 10% of their worldwide turnover
  • Fines may be significant, depending on the level of infringements
  • Leniency programs encourage companies to report their breaches; first reporting company receives full immunity from fines
  • Cartel Examples Include:
    • Rechargeable battery producers
    • Truck producers

Specific Examples:

  • The Commission found that Samsung, Sony, Panasonic, and Sanyo engaged in agreements to avoid aggressive competition in the rechargeable battery market, involving temporary price increases and sensitive information exchange; Samsung received immunity
  • The Commission found that MAN, Volvo/Renault, Daimler, Iveco, and DAF engaged in truck pricing collusion for 14 years, with relevant markets for trucks being between 6–16 tons and over 16 tons; MAN escaped fines after revealing the cartel

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EU Competition Policy Lecture Notes PDF

Description

Explore the fundamentals of the European Union's competition policy with a focus on agreements, cartels, and state aid. This quiz delves into the structure of EU legislation and its impact on the single market. Test your knowledge on how competition policy promotes economic freedom and resource allocation.

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