Competitivnes

Competition
EU Competition Law
The idea of competition
There is a general belief among societies that have adopted the market economy as
their economic model that competition brings various benefits. Competition is
believed to ensure low prices and a broad range of choices for consumers as well as
overall efficiency and innovation.

Directorate General for Competition (DG COMP) of the European

Commission
Competition is a basic mechanism of the market economy which encourages
companies to offer consumers goods and services at the most favourable terms. It
encourages efficiency and innovation and reduces prices. In order to be effective,
competition requires companies to act independently of each other, but subject
to the competitive pressure exerted by the others. www.sgh.waw.pl
Adam Smith - The Wealth of Nations
‘invisible hand’
Smith used the term ‘invisible hand’ in a specific context, namely a discussion of
domestic versus foreign trade.

People of the same trade seldom meet together, even for merriment and diversion, but
the conversation ends in a conspiracy against the public or in some contrivance to
raise prices. It is impossible indeed to prevent such meetings, by any law which could
be executed, or would be consistent with liberty and justice. But though the law
cannot hinder people of the same trade from sometimes assembling together, it ought
to do nothing to facilitate such assemblies, much less to render them necessary.

(Smith, The Wealth of Nations (1776)).

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Forms of potential distortion of competition
• agreements between undertakings
• dominant firm abusing its market power
• a merger leading to a change in market structure
• State aid

The emphasis of the Commission’s enforcement activity in relation to [the prevention

of] exclusionary conduct is on safeguarding the competitive process in the internal
market and ensuring that undertakings which hold a dominant position do not exclude
their competitors by other means than competing on the merits of the products or
services they provide. In doing so the Commission is mindful that what really
matters is protecting an effective competitive process and not simply protecting
competitors. This may well mean that competitors who deliver less to consumers in
terms of price, choice, quality and innovation will leave the market.
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Commission, Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive
exclusionary conduct by dominant undertakings, OJ No. C 45 of 24 February 2009, p. 7, para. 6.
The economic principles of competition

• Sellers would like the price to be as high as possible to maximise profits. The
higher the price, the higher the quantity that sellers wish to sell.

• Buyers, on the other hand, usually prefer to buy products at as low a price as
possible. The lower the price, the higher the quantity that buyers wish to
purchase.

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The benchmark of perfect competition
1. Products are assumed to be homogeneous, i.e. all producers offer exactly the
same product.

2. There are a large number of firms supplying the product, which implies that the
behaviour of each individual firm does not have any influence on the market
price – firms are assumed to be price takers.

3. There are no barriers to entry and exit, i.e. firms can easily enter into and exit
from the market without incurring any costs.

4. There is perfect information for all firms and all buyers in the market.
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Monopoly
under monopoly there is only one producer offering the good in question. This
producer does not face any competition, neither actual nor potential. Entry into the
market is assumed to be blocked (or the costs of market entry are assumed to be
prohibitively high).

Economists usually consider four potential sources of monopoly:

1. exclusive control over important inputs,
2. patents,
3. government licences or franchises, and
4. economies of scale.

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Oligopoly
Oligopoly models allow for interaction between firms in a given market. With a
limited number of firms, suppliers will realise that their behaviour, e.g. in relation to
output- and price-setting, will affect the behaviour of others.

Prices will be higher than under perfect competition but lower than under monopoly.
As a consequence, social welfare under oligopolistic competition will lie between
the level of social welfare achieved under perfect competition and monopoly. The
exact outcome will depend on the features of the market at hand, including the cost
structure of supply and the degree of product differentiation.

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The objective of EC competition policy is to protect ‘effective competition’

The degree of competition that can realistically be achieved in a given market will depend
on the features of the industry at hand. Relevant criteria include:

• the level of product differentiation,

• the number and size-distribution of firms,

• The character and means of market information,

• the underlying cost structure and the,

• degree of flexibility of capacity, i.e. the significance of barriers to entry.

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Categories and areas of union competence
Article 3
1. The Union shall have exclusive competence in the following areas:
(a) customs union;
(b) the establishing of the competition rules necessary for the functioning of the internal
market;
(c) monetary policy for the Member States whose currency is the euro;
(d) the conservation of marine biological resources under the common fisheries policy;

(e) common commercial policy.

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The goal of competitive markets
THE INTERNAL MARKET
Article 26
(ex Article 14 TEC)
1. The Union shall adopt measures with the aim of establishing or ensuring the
functioning of the internal market, in accordance with the relevant provisions of the
Treaties.
2. 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.
3. The Council, on a proposal from the Commission, shall determine the guidelines and
conditions necessary to ensure balanced progress in all the sectors concerned.

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ECONOMIC AND MONETARY POLICY
Article 119
1. For the purposes set out in Article 3 of the Treaty on European Union, the activities of the
Member States and the Union shall include, as provided in the Treaties, the adoption of an
economic policy which is based on the close coordination of Member States' economic
policies, on the internal market and on the definition of common objectives, and conducted
in accordance with the principle of an open market economy with free competition.

CHAPTER 1 ECONOMIC POLICY

Article 120
Member States shall conduct their economic policies with a view to contributing to the
achievement of the objectives of the Union, as defined in Article 3 of the Treaty on European
Union, and in the context of the broad guidelines referred to in Article 121(2). The Member
States and the Union shall act in accordance with the principle of an open market
economy with free competition, favouring an efficient allocation of resources,www.sgh.waw.pl
and in
compliance with the principles set out in Article 119.
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Primary legislation
1. Articles 101–106 TFEU deals with competition rules that apply to undertakings.

2. Articles 107–109 TFEU governs the measures necessary to prevent

anticompetitive State aid. These provisions are addressed to States and aim at
preventing distortions of competition through the granting of economic benefits
to selected undertakings from State resources.

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Article 101
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
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void.
Article 101
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
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

1. Regulations,
2. Directives,
3. Decisions,
4. Recommendations and Opinions

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Regulations
A regulation shall have general application. It shall be binding in its entirety and
directly applicable in all Member States.

• Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of

concentrations between undertakings (the EC Merger Regulation) OJ L 24,
29.1.2004, p. 1–22

• Council Regulation (EC) No 1/2003 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,
4.1.2003, p. 1–25

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Directives
A directive shall be binding, as to the result to be achieved, upon each Member State to
which it is addressed, but shall leave to the national authorities the choice of form and
methods.

Directives tend to be so specific that EU citizens and companies can count on

directive-based law to be practically the same across other European Member
States.

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Decisions
A decision shall be binding in its entirety. A decision which specifies those to whom
it is addressed shall be binding only on them.

A distinction can be made between two categories of decision: decisions which

specify those to whom they are addressed, and general de­cisions which do not have
any specific addressees (cf. Article 288(4) TFEU). Where regulations are meant to
be general, decisions are typically meant for specific cases. A decision is binding,
but decisions that specify their addressee(s) only bind that addressee(s).

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Recommendations and opinions
Recommendations and opinions shall have no binding force.

They enable the Union institutions to express a view to Member States, and in some
cases to individual citizens, which is not binding and does not place any legal
obligation on the addressee.

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International applicability
EU competition law is applicable to all restraints of competition which have an effect within
the EU, such as, for example, anticompetitive agreements concluded in a third country but
relating to competition in the EU market. This principle is usually referred to as ‘effects
doctrine’ and is accepted in many competition laws around the world.

Woodpulp case
It follows that where those producers concert on the prices to be charged to their customers
in the Community [Union] and put that concertation into effect by selling at prices which are
actually coordinated, they are taking part in concertation which has the object and effect of
restricting competition within the common market within the meaning of Article 85 of the
Treaty [Article 101 TFEU].

ECJ (27 September 1988), Joined Cases C-89/85, C-104/85, C-114/85, C-116/85, C-117/85, C-125/85,C-126/85 to C-
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129/85 – Ahlström Osakeyhtiö and Others v Commission (Woodpulp) [1988] ECR 5193.
General relationship between EU and national law
Following its decision in Costa v ENEL the ECJ further addressed the issue of the
relationship between EU and national competition law in Walt Wilhelm v
Bundeskartellamt. In this case it was clarified that, in the event of a conflict, EU
competition law would take precedence over national competition law.

Article 3(2) of Regulation 1/2003 stipulates the following:

The application of national competition law may not lead to the prohibition of agreements,
decisions by associations of undertakings or concerted practices whichmay affect trade
between Member States but which do not restrict competition within the meaning of
Article 81(1) of the Treaty [Article 101(3) TFEU], or which fulfil the conditions of Article
81(3) of the Treaty [Article 101(3) TFEU] or which are covered by a Regulation for the
application of Article 81(3) of the Treaty [Article 101(3) TFEU]. Member States shall not
under this Regulation be precluded from adopting and applying on their territory stricter
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national laws which prohibit or sanction unilateral conduct engaged in by undertakings.
Main institutions of the EU
Article 13 TEU (institutional framework) The Union’s institutions shall be:

• the European Parliament,

• the European Council,

• the Council,

• the European Commission,

• the Court of Justice of the European Union,

• the European Central Bank,

• the Court of Auditors.

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 European Commission
Article 17 TEU
The Commission shall promote the general interest of the Union and take appropriate
initiatives to that end. It shall ensure the application of the Treaties, and of measures
adopted by the institutions pursuant to them. It shall oversee the application of Union law
under the control of the Court of Justice of the European Union. It shall execute the
budget and manage programmes. It shall exercise coordinating, executive and
management functions, as laid down in the Treaties. With the exception of the common
foreign and security policy, and other cases provided for in the Treaties, it shall ensure
the Union's external representation. It shall initiate the Union's annual and multiannual
programming with a view to achieving interinstitutional agreements.

Union legislative acts may only be adopted on the basis of a Commission proposal,
except where the Treaties provide otherwise. Other acts shall be adopted on the basis of a
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Commission proposal where the Treaties so provide.

European Commission
Article 258 TFUE
If the Commission considers that a Member State has failed to fulfil an obligation under
the Treaties, it shall deliver a reasoned opinion on the matter after giving the State
concerned the opportunity to submit its observations.

If the State concerned does not comply with the opinion within the period laid down by
the Commission, the latter may bring the matter before the Court of Justice of the
European Union.

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European Commission
Article 207 TFUE
1. The common commercial policy shall be based on uniform principles, particularly with
regard to changes in tariff rates, the conclusion of tariff and trade agreements relating to trade
in goods and services, and the commercial aspects of intellectual property, foreign direct
investment, the achievement of uniformity in measures of liberalisation, export policy and
measures to protect trade such as those to be taken in the event of dumping or subsidies.
3. Where agreements with one or more third countries or international organisations need
to be negotiated and concluded, Article 218 shall apply, subject to the special provisions of
this Article.
The Commission shall make recommendations to the Council, which shall authorise it to
open the necessary negotiations.
For the negotiation and conclusion of agreements in the fields of trade in services and the
commercial aspects of intellectual property, as well as foreign direct investment, the
Council shall act unanimously where such agreements include provisions for which
unanimity is required for the adoption of internal rules. www.sgh.waw.pl
The Advisory Committee
on Restrictive Agreements and Dominant Position
Some of the Commission’s draft decisions are discussed in the Advisory Committee
on Restrictive Agreements and Dominant Position, bringing together competition
experts from the Member States. Before taking a decision to order an infringement
to be brought to an end, to make binding the commitments offered by undertakings,
to find Article 101(1) TFEU inapplicable or to impose a fine or periodic penalty
payment on undertakings, the Commission will consult the Advisory Committee at
one of its meetings or by written procedure. The Advisory Committee is not
consulted in merger cases though.

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The Hearing Officer

The office of the Hearing Officer was created to safeguard the procedural rights of
the undertakings which are subject to a procedure under the competition rules
towards the Commission. The legal basis of the office of the Hearing Officer are the
Terms of Reference of the Hearing Officer. The office of the Hearing Officer is
intended to be independent of the Commission’s Directorate General for
Competition. To this end, Hearing Officers are attached directly to the Commission
member responsible for competition and not to the Directorate General for
Competition. They are appointed by the Commission.

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The European Ombudsman

The European Ombudsman is an institution created to fight maladministration in the

activities of the EU institutions and bodies and to make recommendations with a
view to putting an end to it. The European courts are exempt from the investigations
of the Ombudsman due to their judicial role.

In the area of competition law complaints to the Ombudsman typically relate to

access to documents in the Commission’s file which the Commission refuses to
grant.

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Court of Justice of the European Union
Article 19 TEU
1. The Court of Justice of the European Union shall include the Court of Justice, the
General Court and specialised courts. It shall ensure that in the interpretation and
application of the Treaties the law is observed.

2. The Court of Justice shall consist of one judge from each Member State. It shall be
assisted by Advocates-General.
The General Court shall include at least one judge per Member State.
The Judges and the Advocates-General of the Court of Justice and the Judges of the General
Court shall be chosen from persons whose independence is beyond doubt (…) They shall be
appointed by common accord of the governments of the Member States for six years.
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Court of Justice of the European Union

The Court of Justice of the European Union shall, in accordance with the Treaties:
(a) rule on actions brought by a Member State, an institution or a natural or legal person;

(b) give preliminary rulings, at the request of courts or tribunals of the Member States,
on the interpretation of Union law or the validity of acts adopted by the institutions;

(c) rule in other cases provided for in the Treaties.

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 Court of Justice of the European Union
Article 267 TFUE

The Court of Justice of the European Union shall have jurisdiction to give preliminary rulings
concerning:
(a) the interpretation of the Treaties;
(b) the validity and interpretation of acts of the institutions, bodies, offices or agencies of the Union;

Where such a question is raised before any court or tribunal of a Member State, that court or tribunal may, if it
considers that a decision on the question is necessary to enable it to give judgment, request the Court to give a
ruling thereon.

Where any such question is raised in a case pending before a court or tribunal of a Member State against whose decisions there is
no judicial remedy under national law, that court or tribunal shall bring the matter before the Court.

If such a question is raised in a case pending before a court or tribunal of a Member State with regard to a person in custody, the
Court of Justice of the European Union shall act with the minimum of delay. www.sgh.waw.pl
National competition authorities
Article 5 Regulation 1/2003 empowers the competition authorities of the Member
States to apply Articles 101 and 102 TFEU. This decentralised approach is intended
to reduce the Commission’s workload by including further authorities in the
enforcement of the competition rules that can handle more cases. In effect, many more
potential violations of the EU competition rules are investigated by the national
competition authorities than by the Commission.

A national competition authority may also impose a fine, periodic penalty payment or
any other penalty provided for under national law for a violation of the EU
competition rules. This may lead to a divergence of sanctions depending on whether
the Commission or a national competition authority investigates a certain
anticompetitive conduct and ultimately imposes sanctions against the undertakings
involved. www.sgh.waw.pl
National courts

National courts are empowered to apply Articles 101 and 102 TFEU by Article 6
Regulation 1/2003. This may be the case where a decision of a national competition
authority applying EU competition law is appealed under national procedural law or
in civil litigation relating to an alleged anticompetitive conduct. Civil litigation may
arise where the validity of a contract is disputed that potentially infringes Article
101 or 102 TFEU or where damages are sought from a cartel member.

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