EC Competition Policy

Anti-collusion Policy
Economics of Anti-collusion
EC’s Policy on Anti-collusion

Anti-monopoly Policy
Economics of a Dominant Position
EC Anti-monopoly Policy

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 Anti-competitive Practices
Collusion
A) Horizontal: Cartel
price fixing or market sharing cartels
B) Vertical
selective or exclusive distribution arrangements, exclusive
purchasing and resale price maintenance
Oligopoly
Only a few producers of a homogeneous or differentiated
product in the market
Monopoly
A single producer of a commodity for which there is no
close substitute

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 Economic Welfare Effects of Collusion

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 The EC’s Policy on Anti Collusion

Article 81 (formerly Art.85), EC prohibits and explicitly

declares automatically void, ‘as incompatible with the
Common Market:
all agreements between undertakings, decisions by
associations of undertakings and concerted practices which
may affect trade between Member States and which have
their object or effect the prevention, restriction or
distortion of competition within the common market.

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 Conditions in Article 81.3

Contributing to improving production, distribution or

promote technical or ‘economic’ progress;

Allowing consumers a fair share of the benefits;

Avoiding restrictions that are not indispensable to the

attainment of the above two conditions;

Not affording the undertakings the possibility of eliminating

competition in respect of a sustainable part of the products
in question.

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 Pro-competitive Collusions

Horizontal restrictive agreements can be exempted only if:

 benefits exceed the social costs
1. The 10yr exemption for car dealers where parallel imports are
only possible on a personal basis or via agents instructed to
execute this personal purchase across an intra-EC border

Vertical restrictive agreements can be exempted only if:

 concluded for quality reasons
1.Petrol stations and brewery contracts for pubs, cafes, bars
and other beerhouses

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 Intra-brand vs. Inter-brand Competition

R Q

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 EC Anti-collusion Policy
in the Single Market

In many product markets, and increasingly in services

markets, the competitive context is accepted as a fact of
European business life and the policy focuses largely on
exemptions for beneficial agreements.

A record fine of ECU 280 million was set in 1994 by the

European Cement Association.

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 Fines Imposed 2003-2008

4000
3500 3338
3000
2500
Amount in 2271
2000 1846
millions Euro
1500
1000
683
500 405 390
0
2003 2004 2005 2006 2007 2008

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Anti-monopoly Policy
Economics of a Dominant Position
A dominant firm will extract monopoly profits and cause a
suboptimal allocation of resources.
In economic theory, dominance can only exist if there are
barriers to entry.
These barriers may be a result of structure or of conduct, or
both as, in practice, it is not always easy to disentangle the
two.
These traditional barriers are economies of scale possibly
combined with product differentiation.
They ultimately still depend on the ‘ sunk cost’ argument.
A market is called contestable if entry investments are not
‘sunk’ but recouped upon exit.
Persistent dominance can only occur in markets which are not
contestable.
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 Dominance vs. Abuse of Dominance

Figure 12.2. suggests that a market supplied by a few

firms, one of which is a large or larger than all others, is
not really an oligopoly but a monopoly with fringe
competitor.
Would this state of the market be mere dominance, or
indeed ‘abuse of dominance’ (in this case excessive prices)?
Can dominant firms legitimately defend their interests
without this being interpreted as an attempt to maintain
their dominance?
If dominant firms couldn’t always do this, it would mean
that bigness is penalised (even if efficiency is the origin of
it) and that conduct permissible for relatively small
companies not permissible for market leaders.

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 EC Anti-monopoly Policy

Article 86 (now Art.82), EC says that ‘any abuse by one or

more undertakings of a dominant position within the
common market or in a substantial part of it shall be
prohibited with the common market insofar as it may affect
trade between Member States…’
The above Article does not incorporate an exemption clause
for an ‘efficiency defence’ so that the conflict between
competition and (scale-based) efficiency is apparently
assumed not to arise.
There can be a trade-off between competition and
efficiency.

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 Anti-monopoly Policy
in the Single Market
Microsoft: An abuse of monopoly power?
• Prices way above marginal cost for
each unit supplied
• Attempts to dominate
media/internet browser market
through “bundling”
• Uses monopoly power to price
discriminate e.g. when selling
copies of Office software
• Keeps part of windows “secret” to
curb competition
• Stifles innovation

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