Regulation of Competition

Overview of Companies

• Two companies mentioned are ATREX and BULVA, which sell products called "glints" to a wide consumer base.

Regulatory Decisions

• Consideration of merging into a single firm may have negative impacts on competition.
• Formation of a secret cartel could also harm consumers and invites scrutiny from competition authorities.
• Maintaining high prices can affect consumer welfare and is subject to regulation.

Objectives of Competition Policy

• Previous module focused on explaining imperfectly competitive markets.
• Current module offers guidance for competitive policy with a normative approach highlighting that competition enhances economic efficiency.
• The primary challenge is the temptation for firms to reduce competition, leading to regulations aimed at protecting competitive markets.

European Competition Law

• TFEU Article 101 prohibits agreements that limit competition.
• TFEU Article 102 addresses the abuse of dominance.
• Regulations include merger control and oversight of state aids to ensure competition is maintained.

Market Definition

• Relevant market is defined as the smallest product group where a hypothetical monopolist could sustain a Small and Significant Non-transitory Increase in Prices (SSNIP).
• Identify the closest substitutes to a product and employ the hypothetical monopoly test.
• Start narrow in defining the market and expand to include substitutes until a SSNIP can be sustained.

Market Power Assessment

• Market power is the capability to raise prices above competitive levels.
• The Lerner index measures market power through the difference between price and marginal costs as a percentage of price.
• Concentration indices like market shares and the Herfindahl-Hirschman Index (HHI) assess the distribution of market power among firms.

Mergers

• A merger involves combining two or more companies into one entity, categorized as horizontal, vertical, or conglomerate.
• Mergers can lead to reduced competition and higher prices or result in economic efficiencies that may decrease prices.
• Long-term effects of mergers can include innovation and increased consumer choice.

Merger Statistics

• In 2023, there were 54,750 mergers and acquisitions globally valued at $3.1 trillion.

Merger Control Guidelines

• Mandatory notifications for mergers with 'Community dimension' based on turnover thresholds (e.g., combined worldwide turnover over €5 billion).
• Decision types include clearance, prohibition, and clearance with remedies; most cases involve clearance with remedies.
• Structural remedies often required, such as divesting assets, to mitigate potential consumer harm.

Role of HHI in Merger Guidelines

• HHI is used as a tool to measure market concentration and assess the potential impact of mergers on competition.

Cartels and Detection

• Cartels represent secret agreements between firms to limit competition, with methods of detection being critical for enforcement.

Overview of Companies

• Two companies mentioned are ATREX and BULVA, which sell products called "glints" to a wide consumer base.

Regulatory Decisions

• Consideration of merging into a single firm may have negative impacts on competition.
• Formation of a secret cartel could also harm consumers and invites scrutiny from competition authorities.
• Maintaining high prices can affect consumer welfare and is subject to regulation.

Objectives of Competition Policy

• Previous module focused on explaining imperfectly competitive markets.
• Current module offers guidance for competitive policy with a normative approach highlighting that competition enhances economic efficiency.
• The primary challenge is the temptation for firms to reduce competition, leading to regulations aimed at protecting competitive markets.

European Competition Law

• TFEU Article 101 prohibits agreements that limit competition.
• TFEU Article 102 addresses the abuse of dominance.
• Regulations include merger control and oversight of state aids to ensure competition is maintained.

Market Definition

• Relevant market is defined as the smallest product group where a hypothetical monopolist could sustain a Small and Significant Non-transitory Increase in Prices (SSNIP).
• Identify the closest substitutes to a product and employ the hypothetical monopoly test.
• Start narrow in defining the market and expand to include substitutes until a SSNIP can be sustained.

Market Power Assessment

• Market power is the capability to raise prices above competitive levels.
• The Lerner index measures market power through the difference between price and marginal costs as a percentage of price.
• Concentration indices like market shares and the Herfindahl-Hirschman Index (HHI) assess the distribution of market power among firms.

Mergers

• A merger involves combining two or more companies into one entity, categorized as horizontal, vertical, or conglomerate.
• Mergers can lead to reduced competition and higher prices or result in economic efficiencies that may decrease prices.
• Long-term effects of mergers can include innovation and increased consumer choice.

Merger Statistics

• In 2023, there were 54,750 mergers and acquisitions globally valued at $3.1 trillion.

Merger Control Guidelines

• Mandatory notifications for mergers with 'Community dimension' based on turnover thresholds (e.g., combined worldwide turnover over €5 billion).
• Decision types include clearance, prohibition, and clearance with remedies; most cases involve clearance with remedies.
• Structural remedies often required, such as divesting assets, to mitigate potential consumer harm.

Role of HHI in Merger Guidelines

• HHI is used as a tool to measure market concentration and assess the potential impact of mergers on competition.

Cartels and Detection

• Cartels represent secret agreements between firms to limit competition, with methods of detection being critical for enforcement.