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# Competition Policy (Chapter 3) **Competition policy** aims to define the rules, control actors' behaviors, and prevent practices that harm competition, potentially harming consumers, e.g., fixing prices above competitive levels. Regulatory authorities monitor three main areas: illegal agreements...

# Competition Policy (Chapter 3) **Competition policy** aims to define the rules, control actors' behaviors, and prevent practices that harm competition, potentially harming consumers, e.g., fixing prices above competitive levels. Regulatory authorities monitor three main areas: illegal agreements (collusions), abuses of dominant positions, and mergers/acquisitions. ## Competition Policy Regarding Agreements * **Agreements:** Generally seen as unjustified. For example, fixing prices above their competitive level leads to an unjustified transfer of money from consumers to producers. In this case, the product remains unchanged, undermining innovation. * **Authorities:** They can conduct investigations, surprise inspections, and implement leniency programs. Leniency programs may offer reduced penalties to companies that report illegal practices, encouraging cooperation and self-reporting. Incentives for reporting likely encourage cartel members to denounce each other. * **Goal:** Protect consumers by preventing price fixing and other anti-competitive practices. ## Competition Policy Regarding Dominant Positions * **Dominant position:** Defined as the ability for a company to act independently from market pressures, meaning it doesn't need to respond to competitors' demands to the same degree as a smaller, more vulnerable company. Economically, this resembles market power. * **Evidence:** Demonstrating a dominant position is crucial. In Europe, a threshold around 40% market share is usually considered evidence of dominance. Methods include analyzing market share data. * **Examples of practices:** * **Predatory pricing:** A dominant firm lowers prices to eliminate competitors, intending to raise prices afterward. * **Tying:** Selling one product (e.g., a software package) dependent on the purchaser also buying another product. Microsoft's bundling of Windows Media Player with Windows operating system is an example. ## Competition Policy Regarding Mergers and Acquisitions * **Merger/Acquisition Control:** Companies must notify authorities before these actions. The authorities will consider the degree of market concentration (pre and post-deal) to estimate the impact. * **Thresholds:** * **US and France**: If a merging entity has a market share of less than 25% (horizontal merging) or 30% (vertical or conglomerate merging), Authorities often consider the potential for increased market power low. This approach prevents potential harm to the market.