Competition law A sustainable - PowerPoint Presentation

Slide1

Competition lawA sustainable development perspective

Tihamér Tóth,

Phd

.Slide2

The menue: coverage of EU competition lawAntitrustRules applicable to MSs

Anti-competitive agreements

Abuse of dominance

M & A

State aid

State monopolies, exclusive rights

Anti-competitive state measuresSlide3

DiscussionWhat is competition?Is competition good or

bad

?

Example

: strong/fierce competition?Example: week competition?Slide4

What is competition?A situation in which

firms

independently

strive for buyers’ patronage in order to achieve a particular business objective (profits, sales, market share) - rivalry.A process whereby market actors participate in the economy

without overwhelming contraints from private or public power.Is competition (economic freedom) a value in itself, or just an instrument to maximize welfare?Slide5

Competition – why?The best mechanism for ensuring effective allocation of resourcesPressure towards lower prices and more innovation and choice

Provides the widest possible freedom of action to all

Can

the

state not perform all these tasks?Slide6

Is competition good or bad?Just as the unity of human society cannot be founded on an opposition of classes, so also the right ordering of economic life cannot be left to a free competition of forces. (…) But free competition, while justified and certainly useful provided it is kept within certain limits, clearly cannot direct economic life. (…) competition can still less perform, since it is a headstrong power and a violent energy that, to benefit people, needs to be strongly curbed and wisely ruled. But it cannot curb and rule itself.

Pope Pius XI,

Quadragesimo

anno

, 88.Slide7

Competition: good or bad?[T]oday everything comes under the laws of competition and the survival of the fittest, where the powerful feed upon the powerless. As a consequence, masses of people find themselves excluded and marginalized: without work, without possibilities, without any means of escape.

Pope FrancisSlide8

Competition: good or bad?Economy and finance,

as

instruments

,

can be used badly when those at the helm are motivated by purely selfish ends. Instruments that are good in themselves can thereby be transformed into harmful

ones. But it is man's darkened reason that produces these consequences, not the instrument per se. Therefore it is not the instrument that must be called to account, but individuals, their moral conscience and their

personal and social responsibilityPope Benedict, Caritas in VeritateSlide9

Competition and sustainabilityCompetition law paradigm of individual agents, seeking self-interested profit-maximization,

s

hort

/

medium

term consideration of mainly price effectsRace to the bottom, firms imposing a negative externality to maximize profitsEnergy pollution to cut costsShould competition policy promote

well-being/happiness?Material + quality of life, including environmental considerationsSlide10

Competition and sustainability - EU„The Union shall establish an internal market. It shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment

.”

Article 3(3) TFEU Slide11

Environment in the TFEUShared competence (vs. EU competition

policy)

Article

11:

Environmental protection requirements must be integrated into the definition and implementation

of the Union's policies and activities, in particular with a view to promoting sustainable development.Art. 191. Principles of EU environmental policy: precautionary principle, preventive action should be taken, and that the polluter should pay.Slide12

Anti-competitive agreementsArticle 101 TFEUSlide13

What is missing?„The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, ……….

by associations of

……………

and

……………….

which may affect trade between Member States and which have as their object …. effect the prevention, restriction or distortion of competition within the internal market…”Slide14

Who is an undertaking?The notion of economic activity

Diego

Cali

(Port of Genova)

case

Anti-pollution surveillance servicesPerformed by a company entrusted with this right by the StateUsers paying a fee for the „service”Protection of the environment is part of the powers

of the public authority, lacking an economic natureSlide15

Types of business conduct covered under Article 101

Cartels

JV,

cooperation

Distribution

agreementsActivities of associationsSlide16

Competition restrictionsBy

object

Price

cartels

Quota

cartelsStatus quo cartelsInformation exchange on future pricesFixing retail prices for distributorsTotal prohibition of parallel trade for distributors (absolute territorial protection)

By effectMost information exchangesJoint productionJoint procurement/sellingStandardisationNon-compete in distributionExclusive distributionSelective distributionSlide17

Lawful competition restrictionsDe minimis (minor)

restrictions

of

competition

Article

101 (3) TFEU: exception with 4 criteria:Economic development (efficiencies)Fair share to consumersNo unnecessary restrictionsNo elimination of competitionVW/Ford JV caseSlide18

EC block exemption regulationsVertical [2790/99 Commission Regulation]Motor vehicle distribution and servicingTechnology transferR&D

Specialisation

Insurance

Vertical

and

Horizontal Commission Guidelines!Slide19

JV agreements v. cartelsCompetitorsCartels: by aim

infringement

(

naked

restrictions), no efficiency justification, often secretCrime in many countriesJV: effects based approachBER, individual exception and de minimis availableSlide20

Is this a cartel?

Overproduction of beef in Ireland

;

Government urge

d

companies to solve the problemAim: reduce the total capacity of the processing industry by 25% within one yearThe Beef Industry Developments Society decided to set up a fund financed by market share related contributions to provide compensation to slaughter houses cutting back their capacities; they had to agree not to re-enter the market for 2 yearsSlide21

DiscussionTwo engineering companies that produce vehicle components agree to set up a JV to combine their R&D efforts to improve the production and performance of an existing component. The production of that component would also have a positive effect on the

environment

: v

ehicles

would consume less fuel and therefore emit less CO2 . The companies will continue to manufacture and sell the components separately. The two companies have market shares in the Union of 15 % and 20 % on the Original Equipment Manufacturer (‘OEM’) product market. The product life cycle for the component is typically two to three years. Slide22

Horizontal guidelinesAuto R&D JV, maintain own production

C

onsume

less fuel and therefore emit less

CO2 Does market structure matter?Can environmental factors be considered under Article 101 (3)?Slide23

DiscussionThe European Association of Washing Machines discussed the state of play of manufacturing machines consuming less water and electricity. A decision was adopted obliging its members to gradually phasing out the production of machines not meeting the agreed water and energy consumption levels. Discuss: (1) can this be regarded as an anti-competitive agreement (2) can it be justified under Article 101 (3) TFEU? Slide24

Abuse of dominanceArticle 102 TFEUSlide25

What is missing?Any ……… by one or more undertakings of a ……….

….

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

…………….

trade between Member States. Slide26

Abuse of a dominant positionExistence of a dominant positionDefinition of the

relevant

market

Single

or collective dominanceAbuse by one or more undertakingsExploitative: consumers hurt (i.e. unfairly high prices) Exclusionary: competitors suffer (market foreclosure)

May affect interstate tradeNote: no exception/exemption systemBut: Art. 106 (2)Justifications Slide27

AbuseCharging unreasonably high pricesCharging

different

prices

based upon the nationality of the buyerSelling at artificially low prices efficient competitors can't compete withRefusing to deal with certain customers or offering special discounts to customers who buy all or most of their supplies from the domcoMaking the sale of one product conditional on the sale of another productSlide28

ARA decisionCommission fined Altstoff Recycling Austria (ARA) EUR 6 million for blocking competitors from entering the Austrian market for management of household packaging waste from 2008 to

2012

Essential

facility

: ARA’s nationwide collection infrastructurePress release: „greater recycling and re-use brings benefits for both the environment and the economy”Slide29

The control of M&AsMaintainig competitive market structuresSlide30

M&A rules in a nutshellCouncil

Regulation

139/2004

EC (4064/89 EC)Commission implementing regulationGuidelines, noticesSIEC (dominance) test, forward-lookingEx ante control: notification and suspensionCommunity dimension - „One stop shop” for

concentrationsabove the thresholdsSlide31

M&A – The SIEC test4064/89: „a dominant position

will

be

created

or strengthened as a result of which effective competition would be impeded in the common market or in a substantial part of it”139/2004: „which would

significantly impede effective competition in the common market or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position”Slide32

M&A – The SIEC test II.The structure of competitive assessments:

Defining

the

relevant market(s)Analysing the state and future of competition (horizontal, vertical, portfolio and conglomerate effects)Covers both single firm and collective dominanceIs sustainable

development ever an issue?Slide33

Consequences of M&AsBalancing

Benefits of concentrations

Increased market power

Economies of scale

and scope (efficiencies)

The

ability of one or morefirms to profitably raiseprices, reduce output, choice or quality, diminish innovationSlide34

An M&A caseU.S. EnergySolutions – waste disposal:

court

blocked

merger of Waste Control Specialists and its biggest rival, Energy SolutionsWould have combine the only two commercial low-level radioactive waste disposal facilities for 36 statesradioactive byproducts of nuclear power generation, scientific research and certain medical treatmentsCompetition can lead to better disposal services at lower pricesEnvironmentalists: less sites: more movement of wasteSlide35

Anti-competitive State actionsState aidSlide36

The prohibition of state aidArticle 107(1) of the TFEU covers any form of state aid which meets the following criteria cumulatively:

involves

an

economic advantage

to undertakings;that advantage is ‘selective’ (individual/sectoral/regional, as opposed to general policy instruments governing economic policy);it is financed directly or indirectly through State resources and is attributed to the State;it distorts competition; andit affects trade between Member States.Slide37

The rules of the state aid gameThe European Commission has exclusive competence to approve

aid

State

aid

has

to be notified before granting (the standstill obligation of Article 108 (3) TFEU)Exceptions to the notification obligation: de minimis aid, aid that falls within a block exemption, and compensation for public services.Slide38

Green aidProtecting the environment

can

be a European

common

objective justifying state aidBlock exemption regulation – no need to notifyInvestment aidGoing beyond Community standards + max 35% aid intensity, excluding waste

managementEarly adaptation to future Community standards for SMEs: 15%Enabling to achieve energy savings: 60%High-efficiency co-generation: 45%Promotion of energy from renewable energy sources: 45%Slide39

Internal market lawFreedoms (free movement of goods, ….)Restriction

can

be

justified

if necessary and proportionateProtection of environment can be a justificationContrasting private and public restrictions of competition/trade: why is there no „green exemption” in antitrust?