Administration in International Organizations PUBLIC COMPETITION LAW Class I, 6th Oct 2014

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Administration in International Organizations PUBLIC COMPETITION LAW

Class I, 6th Oct 2014

Krzysztof Rokita

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Part I: Introduction to Competition Law

“Competition law is concerned with ensuring that firms operating in the free market economy do not restrict or distort competition in a way that

prevents the market from functioning optimally.”

A. Jones, B. Sufrin, EU Competition Law, p. 1.

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Three pillars of competition law

+ Public restrictions of competition: State aid

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Part II: Objectives of competition law

A. Economic efficiency

Economic efficiency → Welfare

1. Perfect competition:

• large number of buyers and sellers

• the product is homogeneous

• all buyers and sellers have perfect information

• no barriers to entry and exit

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Economic efficiency:

1. Allocative efficiency – market price equals marginal cost, goods are produced in the quantities valued by society

2. Productive efficiency – goods are produced at the lowest possible cost 3. Dynamic efficiency – measures how well market delivers innovation and

technological progress

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2. Monopoly:

•there is only one seller

•price will be higher than the price at a competitive market

•quantity supplied of the product will be less than it would be on a competitive market

•some of the consumers who would be willing to pay the competitive lower price are deprived of the product at all

•Consumer surplus → Producer surplus

•Deadweight loss of a monopoly (reduction in efficiency)

•X-inefficiency

•Innovation?

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• Social (total) welfare

• Consumer welfare

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Earphones Producer A + Earphones producer B = Earphones producer C Before merger:

Earphones price = 7 EUR, 20 units sold

After merger:

Earphones price = 8 EUR, less units sold

Competition policy based on consumer welfare →merger not allowed

Competition policy based on total welfare: gain in productive efficiency outweighs loss of allocative efficiency and total welfare is maximized → merger allowed

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B. Economic freedom and protecting competitors (ordoliberal policy)

•dispersal of economic power as a matter of ideology

•protection of competitors and structure of the market

•may lead to the protection of inefficient firms and losses of economic efficiency

C. Public policy and socio-political factors

•Protection of social, employment, industrial, environmental or regional policy

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• EU Competition law goals?

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• Special goal of EU competition law – market integration

• Article 3(1)(g) of the EC Treaty → Protocol No. 27 on the Internal Market and Competition

• “a system ensuring that competition in the internal market is not distorted”

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Court of Justice emphasizes fundamental nature of competition rules as a means of market integration:

C-126/97 - Eco Swiss

•However, according to Article 3(g) of the EC Treaty (now, after amendment, Article 3(1)(g) EC), Article 81 EC (ex Article 85) constitutes a fundamental provision which is essential for the accomplishment of the tasks entrusted to the Community and, in particular, for the functioning of the internal market. The importance of such a provision led the framers of the Treaty to provide expressly, in Article 81(2) EC (ex Article 85(2)), that any agreements or decisions prohibited pursuant to that article are to be automatically void.

C-52/09 - TeliaSonera Sverige

•In order to answer those questions, it must be observed at the outset that Article 3(3) TEU states that the European Union is to establish an internal market, which, in accordance with Protocol No 27 on the internal

market and competition, annexed to the Treaty of Lisbon (OJ 2010 C 83, p. 309), is to include a system ensuring that competition is not distorted.

•Article 102 TFEU is one of the competition rules referred to in Article 3(1)(b) TFEU which are necessary for the functioning of that internal market.

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Article 26 TFEU

•“The internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties.”

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Part III: EU Competition law legal foundations

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• Primary legislation.

• The provisions of primary EU legislation relating to competition law are set out in Title VII, Chapter 1 TFEU.

• * Section 1 (comprising Articles 101–106 TFEU) deals with competition rules that apply to undertakings.

• * Section 2 (comprising Articles 107–109 TFEU) governs the measures necessary to prevent anticompetitive State aid.

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Article 101 TFEU

1. The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of

undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which:

(a) directly or indirectly fix purchase or selling prices or any other trading conditions;

(b) limit or control production, markets, technical development, or investment;

(c) share markets or sources of supply;

(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

(e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

2. Any agreements or decisions prohibited pursuant to this Article shall be automatically void.

3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of:

— any agreement or category of agreements between undertakings,

— any decision or category of decisions by associations of undertakings,

— any concerted practice or category of concerted practices, which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not:

(a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;

(b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.

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Article 102 TFEU

Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States.

Such abuse may, in particular, consist in:

(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;

(b) limiting production, markets or technical development to the prejudice of consumers;

(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

(d) making the conclusion of contracts subject to acceptance by the other parties of

supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

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Secondary legislation:

Regulations:

Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation)

Council Regulation 1/2003/EC of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty (OJ L 1/1, 4.1.2003)

Block exemption regulations

Decisions of the Commission Notices and Guidelines

Compilations of EU antitrust legislation:

http://ec.europa.eu/competition/antitrust/legislation/legislation.html

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Institutions involved in the enforcement of EU competition law:

•European Commission

•The Court of Justice of the European Union:

• the Court of Justice

• the General Court

•National competition authorities

•National courts

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• Relationship between EU and national competition law Art. 3(1) Regulation 1/2003:

“Where the competition authorities of the Member States or national courts apply national competition law to agreements, decisions by associations of undertakings or concerted practices within the meaning of Article 81(1) of the Treaty which may affect trade between Member States within the meaning of that provision, they shall also apply Article 81 of the Treaty to such agreements, decisions or concerted practices.

Where the competition authorities of the Member States or national courts apply national competition law to any abuse prohibited by Article 82 of the Treaty, they shall also apply Article 82 of the Treaty.”

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Art. 3(2) Regulation 1/2003:

The application of national competition law may not lead to the

prohibition of agreements, decisions by associations of undertakings or concerted practices which may affect trade between Member States but which do not restrict competition within the meaning of Article 81(1) of the Treaty, or which fulfil the conditions of Article 81(3) of the Treaty or which are covered by a Regulation for the application of Article 81 (3) of the Treaty. Member States shall not under this Regulation be

precluded from adopting and applying on their territory stricter national laws which prohibit or sanction unilateral conduct engaged in by

undertakings.”

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Conflicts:

•Article 101: Anti-competitive agreements → convergence rule: if an agreement is not prohibited under EU competition law, it cannot be

prohibited under national competition law

•Article 102: Abusive unilateral conduct → no convergence rule:

MS may apply on their territory stricter rules which prohibit or impose sanctions on unilateral conduct

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Art. 3(3) Regulation 1/2003:

•“Without prejudice to general principles and other provisions of Community law, paragraphs 1 and 2 do not apply when the competition authorities and the courts of the Member States apply national merger control laws nor do

they preclude the application of provisions of national law that predominantly pursue an objective different from that pursued by Articles 81 and 82 of the Treaty.”

•1. National competition authorities may review concentrations that do not fall into the ambit of EU merger control.

•2. Provisions that pursue objective different from that of Articles 102 and 102 TFUE (for example law prohibiting unfair trading practices)

may be applied even if this leads to the prohibition of conduct that would be permissible under EU competition law.