Competition law is the field of
law
Law is a set of rules that are created and are enforceable by social or governmental institutions to regulate behavior,Robertson, ''Crimes against humanity'', 90. with its precise definition a matter of longstanding debate. It has been vario ...
that promotes or seeks to maintain
market competition
In economics, competition is a scenario where different Economic agent, economic firmsThis article follows the general economic convention of referring to all actors as firms; examples in include individuals and brands or divisions within the sa ...
by regulating
anti-competitive conduct by companies.
Competition law is implemented through public and private enforcement. It is also known as antitrust law (or just antitrust), anti-monopoly law,
and trade practices law.
The history of competition law reaches back to the
Roman Empire
The Roman Empire ( la, Imperium Romanum ; grc-gre, Βασιλεία τῶν Ῥωμαίων, Basileía tôn Rhōmaíōn) was the post- Republican period of ancient Rome. As a polity, it included large territorial holdings around the Mediter ...
. The business practices of market traders,
guild
A guild ( ) is an association of artisans and merchants who oversee the practice of their craft/trade in a particular area. The earliest types of guild formed as organizations of tradesmen belonging to a professional association. They sometimes ...
s and governments have always been subject to scrutiny, and sometimes severe sanctions. Since the 20th century, competition law has become global. The two largest and most influential systems of competition regulation are
United States antitrust law
In the United States, antitrust law is a collection of mostly federal laws that regulate the conduct and organization of businesses to promote competition and prevent unjustified monopolies. The three main U.S. antitrust statutes are the Sherm ...
and
European Union competition law
European competition law is the competition law in use within the European Union. It promotes the maintenance of competition within the European Single Market by regulating anti-competitive conduct by companies to ensure that they do not crea ...
. National and regional competition authorities across the world have formed international support and enforcement networks.
Modern competition law has historically evolved on a national level to promote and maintain fair competition in markets principally within the territorial boundaries of
nation-states
A nation state is a political unit where the state and nation are congruent. It is a more precise concept than "country", since a country does not need to have a predominant ethnic group.
A nation, in the sense of a common ethnicity, may i ...
. National competition law usually does not cover activity beyond territorial borders unless it has significant effects at nation-state level.
Countries may allow for
extraterritorial jurisdiction
Extraterritorial jurisdiction (ETJ) is the legal ability of a government to exercise authority beyond its normal boundaries.
Any authority can claim ETJ over any external territory they wish. However, for the claim to be effective in the externa ...
in competition cases based on so-called "effects doctrine".
The protection of international competition is governed by international competition agreements. In 1945, during the negotiations preceding the adoption of the
General Agreement on Tariffs and Trade (GATT) in 1947, limited international competition obligations were proposed within the ''Charter for an International Trade Organisation''. These obligations were not included in GATT, but in 1994, with the conclusion of the
Uruguay Round
The Uruguay Round was the 8th round of multilateral trade negotiations (MTN) conducted within the framework of the General Agreement on Tariffs and Trade (GATT), spanning from 1986 to 1993 and embracing 123 countries as "contracting parties". The R ...
of GATT multilateral negotiations, the
World Trade Organization
The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade. With effective cooperation
in the United Nations System, governments use the organization to establish, revise, and ...
(WTO) was created. The ''Agreement Establishing the WTO'' included a range of limited provisions on various cross-border competition issues on a sector specific basis.
Principle
Competition law, or antitrust law, has three main elements:
* prohibiting agreements or practices that restrict free trading and competition between business. This includes in particular the repression of free trade caused by
cartel
A cartel is a group of independent market participants who collude with each other in order to improve their profits and dominate the market. Cartels are usually associations in the same sphere of business, and thus an alliance of rivals. Mos ...
s.
* banning abusive behavior by a firm dominating a market, or anti-competitive practices that tend to lead to such a dominant position. Practices controlled in this way may include
predatory pricing
Predatory pricing is a pricing strategy, using the method of undercutting on a larger scale, where a dominant firm in an industry will deliberately reduce the prices of a product or service to loss-making levels in the short-term. The aim is th ...
,
tying,
price gouging
Price gouging is a pejorative term used to describe the situation when a seller increases the prices of goods, services, or commodities to a level much higher than is considered reasonable or fair. Usually, this event occurs after a demand or ...
, and
refusal to deal
Though in general, each business may decide with whom they wish to transact, there are some situations when a refusal to deal may be considered an unlawful anti-competitive practice, if it prevents or reduces competition in a market. The unlawful ...
.
* supervising the
mergers and acquisitions
Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, other business organizations, or their operating units are transferred to or consolidated with another company or business organization. As an aspect ...
of large corporations, including some
joint venture
A joint venture (JV) is a business entity created by two or more parties, generally characterized by shared ownership, shared returns and economic risk, risks, and shared governance. Companies typically pursue joint ventures for one of four rea ...
s. Transactions that are considered to threaten the competitive process can be prohibited altogether, or approved subject to "remedies" such as an obligation to divest part of the merged business or to offer licenses or access to facilities to enable other businesses to continue competing.
Substance and practice of competition law varies from jurisdiction to jurisdiction. Protecting the interests of consumers (
consumer welfare
Welfare economics is a branch of economics that uses microeconomic techniques to evaluate well-being (welfare) at the aggregate (economy-wide) level.
Attempting to apply the principles of welfare economics gives rise to the field of public econ ...
) and ensuring that entrepreneurs have an opportunity to compete in the
market economy are often treated as important objectives. Competition law is closely connected with law on deregulation of access to markets, state aids and subsidies, the
privatization
Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...
of state owned assets and the establishment of independent sector regulators, among other market-oriented supply-side policies. In recent decades, competition law has been viewed as a way to provide better
public services
A public service is any service intended to address specific needs pertaining to the aggregate members of a community. Public services are available to people within a government jurisdiction as provided directly through public sector agencies ...
.
Robert Bork
Robert Heron Bork (March 1, 1927 – December 19, 2012) was an American jurist who served as the solicitor general of the United States from 1973 to 1977. A professor at Yale Law School by occupation, he later served as a judge on the U.S. Cour ...
argued that competition laws can produce adverse effects when they reduce competition by protecting inefficient competitors and when costs of legal intervention are greater than benefits for the consumers.
History
Roman legislation
An early example was enacted during the
Roman Republic
The Roman Republic ( la, Res publica Romana ) was a form of government of Rome and the era of the classical Roman civilization when it was run through public representation of the Roman people. Beginning with the overthrow of the Roman Ki ...
around 50 BC. To protect the
grain trade, heavy fines were imposed on anyone directly, deliberately, and insidiously stopping supply ships.
[Wilberforce (1966) p. 20] Under
Diocletian in 301 A.D., an
edict
An edict is a decree or announcement of a law, often associated with monarchism, but it can be under any official authority. Synonyms include "dictum" and "pronouncement".
''Edict'' derives from the Latin edictum.
Notable edicts
* Telepinu Pro ...
imposed the death penalty for anyone violating a tariff system, for example by buying up, concealing, or contriving the scarcity of everyday goods.
More legislation came under the constitution of
Zeno
Zeno ( grc, Ζήνων) may refer to:
People
* Zeno (name), including a list of people and characters with the name
Philosophers
* Zeno of Elea (), philosopher, follower of Parmenides, known for his paradoxes
* Zeno of Citium (333 – 264 BC), ...
of 483 A.D., which can be traced into Florentine municipal laws of 1322 and 1325. This provided for confiscation of property and banishment for any trade combination or joint action of monopolies private ''or'' granted by the Emperor. Zeno rescinded all previously granted exclusive rights.
[Wilberforce (1966) p. 21] Justinian I
Justinian I (; la, Iustinianus, ; grc-gre, Ἰουστινιανός ; 48214 November 565), also known as Justinian the Great, was the Byzantine emperor from 527 to 565.
His reign is marked by the ambitious but only partly realized ''renova ...
subsequently introduced legislation to pay officials to manage state monopolies.
Middle Ages
Legislation in England to control monopolies and restrictive practices was in force well before the
Norman Conquest
The Norman Conquest (or the Conquest) was the 11th-century invasion and occupation of England by an army made up of thousands of Norman, Breton, Flemish, and French troops, all led by the Duke of Normandy, later styled William the Con ...
.
The
Domesday Book
Domesday Book () – the Middle English spelling of "Doomsday Book" – is a manuscript record of the "Great Survey" of much of England and parts of Wales completed in 1086 by order of King William I, known as William the Conqueror. The manus ...
recorded that "
foresteel" (i.e. forestalling, the practice of buying up goods before they reach market and then inflating the prices) was one of three
forfeitures that
King Edward the Confessor
Edward the Confessor ; la, Eduardus Confessor , ; ( 1003 – 5 January 1066) was one of the last Anglo-Saxon English kings. Usually considered the last king of the House of Wessex, he ruled from 1042 to 1066.
Edward was the son of Æthe ...
could carry out through England. But concern for fair prices also led to attempts to directly regulate the market. Under
Henry III an act was passed in 1266 to fix bread and ale prices in correspondence with grain prices laid down by the
assize
The courts of assize, or assizes (), were periodic courts held around England and Wales until 1972, when together with the quarter sessions they were abolished by the Courts Act 1971 and replaced by a single permanent Crown Court. The assizes e ...
s. Penalties for breach included
amercement
An amercement is a financial penalty in English law, common during the Middle Ages, imposed either by the court or by peers. The noun "amercement" lately derives from the verb to amerce, thus: the king amerces his subject, who offended some law. T ...
s,
pillory and
tumbrel. A 14th-century statute labelled forestallers as "oppressors of the poor and the community at large and enemies of the whole country". Under
King Edward III
Edward III (13 November 1312 – 21 June 1377), also known as Edward of Windsor before his accession, was King of England and Lord of Ireland from January 1327 until his death in 1377. He is noted for his military success and for restoring ...
the
Statute of Labourers
The Statute of Labourers was a law created by the English parliament under King Edward III in 1351 in response to a labour shortage, which aimed at regulating the labour force by prohibiting requesting or offering a wage higher than pre-Plague st ...
of 1349 fixed wages of artificers and workmen and decreed that foodstuffs should be sold at reasonable prices. On top of existing penalties, the statute stated that overcharging merchants must pay the injured party double the sum he received, an idea that has been replicated in
punitive
Punishment, commonly, is the imposition of an undesirable or unpleasant outcome upon a group or individual, meted out by an authority—in contexts ranging from child discipline to criminal law—as a response and deterrent to a particular acti ...
treble damages
In United States law, treble damages is a term that indicates that a statute permits a court to triple the amount of the actual/compensatory damages to be awarded to a prevailing plaintiff. Treble damages are a multiple of, and not an addition t ...
under
US antitrust law
In the United States, antitrust law is a collection of mostly federal laws that regulate the conduct and organization of businesses to promote competition and prevent unjustified monopolies. The three main U.S. antitrust statutes are the Sherma ...
. Also under Edward III, the following statutory provision outlawed trade combination.
In continental Europe, competition principles developed in ''
lex mercatoria
''Lex mercatoria'' (from the Latin for "merchant law"), often referred to as "the Law Merchant" in English, is the body of commercial law used by merchants throughout Europe during the medieval period. It evolved similar to English common law as ...
''. Examples of legislation enshrining competition principles include the ''constitutiones juris metallici'' by
Wenceslaus II of
Bohemia between 1283 and 1305, condemning combination of ore traders increasing prices; the Municipal Statutes of Florence in 1322 and 1325 followed
Zeno
Zeno ( grc, Ζήνων) may refer to:
People
* Zeno (name), including a list of people and characters with the name
Philosophers
* Zeno of Elea (), philosopher, follower of Parmenides, known for his paradoxes
* Zeno of Citium (333 – 264 BC), ...
's legislation against state monopolies; and under
Emperor Charles V in the
Holy Roman Empire
The Holy Roman Empire was a political entity in Western, Central, and Southern Europe that developed during the Early Middle Ages and continued until its dissolution in 1806 during the Napoleonic Wars.
From the accession of Otto I in 962 ...
a law was passed "to prevent losses resulting from monopolies and improper contracts which many merchants and artisans made in the Netherlands". In 1553,
Henry VIII of England
Henry VIII (28 June 149128 January 1547) was King of England from 22 April 1509 until his death in 1547. Henry is best known for his six marriages, and for his efforts to have his first marriage (to Catherine of Aragon) annulled. His disa ...
reintroduced tariffs for foodstuffs, designed to stabilize prices, in the face of fluctuations in supply from overseas. So the legislation read here that whereas,
Around this time organizations representing various tradesmen and handicrafts people, known as
guild
A guild ( ) is an association of artisans and merchants who oversee the practice of their craft/trade in a particular area. The earliest types of guild formed as organizations of tradesmen belonging to a professional association. They sometimes ...
s had been developing, and enjoyed many concessions and exemptions from the laws against monopolies. The privileges conferred were not abolished until the Municipal Corporations Act 1835.
Early competition law in Europe
![Edward coke](https://upload.wikimedia.org/wikipedia/commons/3/33/Edward_coke.jpg)
The English common law of
restraint of trade is the direct predecessor to modern competition law later developed in the US. It is based on the prohibition of agreements that ran counter to public policy, unless the
reasonableness
In law, a reasonable person, reasonable man, or the man on the Clapham omnibus, is a hypothetical person of legal fiction crafted by the courts and communicated through case law and jury instructions.
Strictly according to the fiction, it i ...
of an agreement could be shown. It effectively prohibited agreements designed to restrain another's trade. The 1414 ''Dyer's'' is the first known restrictive trade agreement to be examined under English common law. A dyer had given a bond not to exercise his trade in the same town as the plaintiff for six months but the plaintiff had promised nothing in return. On hearing the plaintiff's attempt to enforce this restraint, Hull J exclaimed, "per Dieu, if the plaintiff were here, he should go to prison until he had paid a fine to the King". The court denied the collection of a bond for the dyer's breach of agreement because the agreement was held to be a restriction on trade. English courts subsequently decided a range of cases which gradually developed competition related case law, which eventually were transformed into
statute law
Statutory law or statute law is written law passed by a body of legislature. This is opposed to oral or customary law; or regulatory law promulgated by the executive or common law of the judiciary. Statutes may originate with national, state leg ...
.
![Elizabeth I (Armada Portrait)](https://upload.wikimedia.org/wikipedia/commons/7/7b/Elizabeth_I_%28Armada_Portrait%29.jpg)
Europe around the 16th century was changing quickly. The
new world
The term ''New World'' is often used to mean the majority of Earth's Western Hemisphere, specifically the Americas."America." ''The Oxford Companion to the English Language'' (). McArthur, Tom, ed., 1992. New York: Oxford University Press, p. ...
had just been opened up, overseas trade and plunder was pouring wealth through the international economy and attitudes among businessmen were shifting. In 1561 a system of Industrial Monopoly Licenses, similar to modern
patent
A patent is a type of intellectual property that gives its owner the legal right to exclude others from making, using, or selling an invention for a limited period of time in exchange for publishing an enabling disclosure of the invention."A ...
s had been introduced into England. But by the reign of
Queen Elizabeth I
Elizabeth I (7 September 153324 March 1603) was Queen of England and Ireland from 17 November 1558 until her death in 1603. Elizabeth was the last of the five House of Tudor monarchs and is sometimes referred to as the "Virgin Queen".
El ...
, the system was reputedly much abused and used merely to preserve privileges, encouraging nothing new in the way of innovation or manufacture. In response English courts developed case law on restrictive business practices. The statute followed the unanimous decision in ''Darcy v. Allein'' 1602, also known as the
Case of Monopolies
''Edward Darcy Esquire v Thomas Allin of London Haberdasher'' (1602) 74 ER 1131 (also spelt as "Allain" or "Allen" and "Allein" but most widely known as the ''Case of Monopolies''), was an early landmark case in English law, establishing that th ...
, of the
King's Bench to declare void the sole right that Queen Elizabeth I had granted to Darcy to import playing cards into England.
Darcy, an officer of the Queen's household, claimed damages for the defendant's infringement of this right. The court found the grant void and that three characteristics of
monopoly
A monopoly (from Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situation where a speci ...
were (1) price increases, (2) quality decrease, (3) the tendency to reduce artificers to idleness and beggary. This put an end to granted monopolies until
King James I
James VI and I (James Charles Stuart; 19 June 1566 – 27 March 1625) was King of Scotland as James VI from 24 July 1567 and King of England and Ireland as James I from the union of the Scottish and English crowns on 24 March 1603 until hi ...
began to grant them again. In 1623 Parliament passed the
Statute of Monopolies, which for the most part excluded
patent
A patent is a type of intellectual property that gives its owner the legal right to exclude others from making, using, or selling an invention for a limited period of time in exchange for publishing an enabling disclosure of the invention."A ...
rights from its prohibitions, as well as guilds. From
King Charles I, through the civil war and to
King Charles II, monopolies continued, especially useful for raising revenue. Then in 1684, in ''East India Company v. Sandys'' it was decided that exclusive rights to trade only outside the realm were legitimate, on the grounds that only large and powerful concerns could trade in the conditions prevailing overseas.
The development of early competition law in England and Europe progressed with the diffusion of writings such as ''
The Wealth of Nations
''An Inquiry into the Nature and Causes of the Wealth of Nations'', generally referred to by its shortened title ''The Wealth of Nations'', is the '' magnum opus'' of the Scottish economist and moral philosopher Adam Smith. First published in ...
'' by
Adam Smith, who first established the concept of the ''
market economy''. At the same time
industrialisation replaced the individual
artisan
An artisan (from french: artisan, it, artigiano) is a skilled craft worker who makes or creates material objects partly or entirely by hand. These objects may be functional or strictly decorative, for example furniture, decorative art ...
, or group of artisans, with paid labourers and machine-based production. Commercial success increasingly dependent on maximizing production while minimizing cost. Therefore, the size of a company became increasingly important, and a number of European countries responded by enacting laws to regulate large companies that restricted trade. Following the
French Revolution
The French Revolution ( ) was a period of radical political and societal change in France that began with the Estates General of 1789 and ended with the formation of the French Consulate in coup of 18 Brumaire, November 1799. Many of its ...
in 1789 the law of 14–17 June 1791 declared agreements by members of the same trade that fixed the price of an industry or labour as void, unconstitutional, and hostile to liberty. Similarly, the Austrian Penal Code of 1852 established that "agreements ... to raise the price of a commodity ... to the disadvantage of the public should be punished as misdemeanours". Austria passed a law in 1870 abolishing the penalties, though such agreements remained void. However, in Germany laws clearly validated agreements between firms to raise prices. Throughout the 18th and 19th centuries, ideas that dominant private companies or legal monopolies could excessively restrict trade were further developed in Europe. However, as in the late 19th century, a depression spread through Europe, known as the
Panic of 1873
The Panic of 1873 was a financial crisis that triggered an economic depression in Europe and North America that lasted from 1873 to 1877 or 1879 in France and in Britain. In Britain, the Panic started two decades of stagnation known as the ...
, ideas of competition lost favour, and it was felt that companies had to co-operate by forming
cartels
A cartel is a group of independent market participants who collude with each other in order to improve their profits and dominate the market. Cartels are usually associations in the same sphere of business, and thus an alliance of rivals. Mos ...
to withstand huge pressures on prices and profits.
Modern competition law
While the development of competition law stalled in Europe during the late 19th century, in 1889
Canada
Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by tot ...
enacted what is considered the first competition statute of modern times. The ''Act for the Prevention and Suppression of Combinations formed in restraint of Trade'' was passed one year before the United States enacted the most famous legal statute on competition law, the
Sherman Act of 1890. It was named after
Senator John Sherman who argued that the Act "does not announce a new principle of law, but applies old and well recognised principles of common law".
United States antitrust
![Senatorial Round House by Thomas Nast 1886](https://upload.wikimedia.org/wikipedia/commons/9/9c/Senatorial_Round_House_by_Thomas_Nast_1886.jpg)
The
Sherman Act of 1890 attempted to outlaw the restriction of competition by large companies, who co-operated with rivals to fix outputs, prices and market shares, initially through ''pools'' and later through ''trusts''. Trusts first appeared in the US railroads, where the capital requirement of railroad construction precluded competitive services in then scarcely settled territories. This trust allowed railroads to discriminate on rates imposed and services provided to consumers and businesses and to destroy potential competitors. Different trusts could be dominant in different industries. The
Standard Oil Company trust in the 1880s controlled several markets, including the market in
fuel oil,
lead
Lead is a chemical element with the symbol Pb (from the Latin ) and atomic number 82. It is a heavy metal that is denser than most common materials. Lead is soft and malleable, and also has a relatively low melting point. When freshly cu ...
and
whiskey
Whisky or whiskey is a type of distilled alcoholic beverage made from fermented grain mash. Various grains (which may be malted) are used for different varieties, including barley, corn, rye, and wheat. Whisky is typically aged in wooden ...
.
Vast numbers of citizens became sufficiently aware and publicly concerned about how the trusts negatively impacted them that the Act became a priority for both major parties. A primary concern of this act is that competitive markets themselves should provide the primary regulation of prices, outputs, interests and profits. Instead, the Act outlawed anticompetitive practices, codifying the common law restraint of trade doctrine. Prof Rudolph Peritz has argued that competition law in the United States has evolved around two sometimes conflicting concepts of competition: first that of individual liberty, free of government intervention, and second a fair competitive environment free of excessive
economic power. Since the enactment of the Sherman Act enforcement of competition law has been based on various economic theories adopted by Government.
Section 1 of the Sherman Act declared illegal "every contract, in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations." Section 2 prohibits
monopolies
A monopoly (from Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situation where a speci ...
, or attempts and conspiracies to monopolize. Following the enactment in 1890 US court applies these principles to business and markets. Courts applied the Act without consistent economic analysis until 1914, when it was complemented by the
Clayton Act
The Clayton Antitrust Act of 1914 (, codified at , ), is a part of United States antitrust law with the goal of adding further substance to the U.S. antitrust law regime; the Clayton Act seeks to prevent anticompetitive practices in their incipie ...
which specifically prohibited exclusive dealing agreements, particularly tying agreements and interlocking directorates, and mergers achieved by purchasing stock. From 1915 onwards the ''
rule of reason'' analysis was frequently applied by courts to competition cases. However, the period was characterized by the lack of competition law enforcement. From 1936 to 1972 courts' application of antitrust law was dominated by the ''
structure-conduct-performance'' paradigm of the Harvard School. From 1973 to 1991, the enforcement of antitrust law was based on efficiency explanations as the Chicago School became dominant, and through legal writings such as Judge
Robert Bork
Robert Heron Bork (March 1, 1927 – December 19, 2012) was an American jurist who served as the solicitor general of the United States from 1973 to 1977. A professor at Yale Law School by occupation, he later served as a judge on the U.S. Cour ...
's book ''
The Antitrust Paradox''. Since 1992
game theory has frequently been used in antitrust cases.
With the Hart–Scott–Rodino Antitrust Improvements Act of 1976, mergers and acquisitions came into additional scrutiny from U.S. regulators. Under the act, parties must make a pre-merger notification to the U.S. Department of Justice and Federal Trade Commission prior to the completion of a transaction. As of February 2, 2021, the FTC reduced the Hart-Scott-Rodino reporting threshold to $92 million in combined assets for the transaction.
European Union law
Competition law gained new recognition in Europe in the inter-war years, with Germany enacting its first anti-cartel law in 1923 and Sweden and Norway adopting similar laws in 1925 and 1926 respectively. However, with the
Great Depression of 1929 competition law disappeared from Europe and was revived following the
Second World War
World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposi ...
when the United Kingdom and Germany, following pressure from the United States, became the first European countries to adopt fully fledged competition laws. At a regional level
EU competition law
European competition law is the competition law in use within the European Union. It promotes the maintenance of competition within the European Single Market by regulating anti-competitive conduct by companies to ensure that they do not crea ...
has its origins in the
European Coal and Steel Community (ECSC) agreement between France,
Italy
Italy ( it, Italia ), officially the Italian Republic, ) or the Republic of Italy, is a country in Southern Europe. It is located in the middle of the Mediterranean Sea, and its territory largely coincides with the homonymous geographical ...
,
Belgium
Belgium, ; french: Belgique ; german: Belgien officially the Kingdom of Belgium, is a country in Northwestern Europe. The country is bordered by the Netherlands to the north, Germany to the east, Luxembourg to the southeast, France to th ...
, the
Netherlands
)
, anthem = ( en, "William of Nassau")
, image_map =
, map_caption =
, subdivision_type = Sovereign state
, subdivision_name = Kingdom of the Netherlands
, established_title = Before independence
, established_date = Spanish Netherl ...
,
Luxembourg
Luxembourg ( ; lb, Lëtzebuerg ; french: link=no, Luxembourg; german: link=no, Luxemburg), officially the Grand Duchy of Luxembourg, ; french: link=no, Grand-Duché de Luxembourg ; german: link=no, Großherzogtum Luxemburg is a small lan ...
and Germany in 1951 following the Second World War. The agreement aimed to prevent Germany from re-establishing dominance in the production of
coal
Coal is a combustible black or brownish-black sedimentary rock, formed as rock strata called coal seams. Coal is mostly carbon with variable amounts of other elements, chiefly hydrogen, sulfur, oxygen, and nitrogen.
Coal is formed when ...
and
steel as it was felt that this dominance had contributed to the outbreak of the war. Article 65 of the agreement banned cartels and article 66 made provisions for concentrations, or mergers, and the abuse of a dominant position by companies. This was the first time that competition law principles were included in a
plurilateral regional agreement and established the trans-European model of competition law. In 1957 competition rules were included in the
Treaty of Rome, also known as the EC Treaty, which established the
European Economic Community (EEC). The Treaty of Rome established the enactment of competition law as one of the main aims of the EEC through the "institution of a system ensuring that competition in the common market is not distorted". The two central provisions on EU competition law on companies were established in article 85, which prohibited anti-competitive agreements, subject to some exemptions, and article 86 prohibiting the abuse of dominant position. The treaty also established principles on competition law for member states, with article 90 covering public undertakings, and article 92 making provisions on state aid. Regulations on mergers were not included as member states could not establish consensus on the issue at the time.
Today, the
Treaty of Lisbon
The Treaty of Lisbon (initially known as the Reform Treaty) is an international agreement that amends the two treaties which form the constitutional basis of the European Union (EU). The Treaty of Lisbon, which was signed by the EU member s ...
prohibits anti-competitive agreements in Article 101(1), including
price fixing
Price fixing is an anticompetitive agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given ...
. According to Article 101(2) any such agreements are automatically void. Article 101(3) establishes exemptions, if the collusion is for distributional or technological innovation, gives consumers a "fair share" of the benefit and does not include unreasonable restraints that risk eliminating competition anywhere (or compliant with the
general principle of European Union law
The general principles of European Union law are general principles of law which are applied by the European Court of Justice and the national courts of the member states when determining the lawfulness of legislative and administrative measures ...
of
proportionality). Article 102 prohibits the abuse of
dominant position, such as price discrimination and exclusive dealing.
Regulation 139/2004/EC governs mergers between firms. The general test is whether a concentration (i.e. merger or acquisition) with a community dimension (i.e. affects a number of EU member states) might significantly impede
effective competition
Effective competition is a concept first proposed by John Maurice Clark, then under the name of "workable competition," as a "workable" alternative to the economic theory of perfect competition, as perfect competition is seldom observed in the rea ...
. Articles 106 and 107 provide that member state's right to deliver public services may not be obstructed, but that otherwise public enterprises must adhere to the same competition principles as companies. Article 107 lays down a general rule that the state may not aid or subsidize private parties in distortion of free competition and provides exemptions for
charities, regional development objectives and in the event of a
natural disaster.
Leading
ECJ
The European Court of Justice (ECJ, french: Cour de Justice européenne), formally just the Court of Justice, is the supreme court of the European Union in matters of European Union law. As a part of the Court of Justice of the European Un ...
cases on competition law include ''
Consten & Grundig v Commission'' and ''
United Brands v Commission''.
India
India responded positively by opening up its economy by removing controls during the
Economic liberalisation
Economic liberalization (or economic liberalisation) is the lessening of government regulations and restrictions in an economy in exchange for greater participation by private entities. In politics, the doctrine is associated with classical liber ...
. In quest of increasing the efficiency of the nation's economy, the
Government of India
The Government of India (ISO: ; often abbreviated as GoI), known as the Union Government or Central Government but often simply as the Centre, is the national government of the Republic of India, a federal democracy located in South Asia, ...
acknowledged the
Liberalization
Liberalization or liberalisation (British English) is a broad term that refers to the practice of making laws, systems, or opinions less severe, usually in the sense of eliminating certain government regulations or restrictions. The term is used m ...
Privatization
Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...
Globalization
Globalization, or globalisation (English in the Commonwealth of Nations, Commonwealth English; American and British English spelling differences#-ise, -ize (-isation, -ization), see spelling differences), is the process of foreign relation ...
era. As a result, Indian market faces competition from within and outside the country.
[Warrier VS, Conflict between Competition Law and Intellectual Property Right]
Citation: 2010 (1) LW 2
The Lex-Warrier: Online Law Journal, This led to the need of a strong legislation to dispense justice in commercial matters and
the Competition Act, 2002
The Competition Act, 2002 was enacted by the Parliament of India and governs Indian competition law. It replaced the archaic The Monopolies and Restrictive Trade Practices Act, 1969. Under this legislation, the Competition Commission of India wa ...
was passed. The history of competition law in India dates back to the 1960s when the first competition law, namely the Monopolies and Restrictive Trade Practices Act (MRTP) was enacted in 1969. But after the economic reforms in 1991, this legislation was found to be obsolete in many aspects and as a result, a new competition law in the form of
the Competition Act, 2002
The Competition Act, 2002 was enacted by the Parliament of India and governs Indian competition law. It replaced the archaic The Monopolies and Restrictive Trade Practices Act, 1969. Under this legislation, the Competition Commission of India wa ...
was enacted in 2003. The
Competition Commission of India
The Competition Commission of India (CCI) is the chief national competition regulator in India. It is a statutory body within the Ministry of Corporate Affairs and is responsible for enforcing the Competition Act, 2002 to promote competition ...
, is the quasi judicial body established for enforcing provisions of the Competition Act.
China
The
Anti Monopoly Law of China came into effect in 2008. For years, it was enforced by three different branches of government, but since 2018 its enforcement has been the responsibility of the
State Administration for Market Regulation
The State Administration for Market Supervision (SAMR) (), is the ministerial-level agency directly under the State Council of the People's Republic of China in charge of regulating areas such as market competition, monopolies, intellectual prope ...
. The ''
People's Daily'' reported that the law had generated 11 billion RMB of penalties between 2008 and 2018.
International expansion
By 2008 111 countries had enacted competition laws, which is more than 50 percent of countries with a population exceeding 80,000 people. 81 of the 111 countries had adopted their competition laws in the past 20 years, signaling the spread of competition law following the collapse of the
Soviet Union
The Soviet Union,. officially the Union of Soviet Socialist Republics. (USSR),. was a List of former transcontinental countries#Since 1700, transcontinental country that spanned much of Eurasia from 1922 to 1991. A flagship communist state, ...
and the expansion of the
European Union
The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been de ...
. Currently
competition authorities of many states closely co-operate, on everyday basis, with foreign counterparts in their enforcement efforts, also in such key area as information / evidence sharing.
In many of Asia's developing countries, including India, Competition law is considered a tool to stimulate economic growth. In
Korea
Korea ( ko, 한국, or , ) is a peninsular region in East Asia. Since 1945, it has been divided at or near the 38th parallel, with North Korea (Democratic People's Republic of Korea) comprising its northern half and South Korea (Republic o ...
and
Japan, the competition law prevents certain forms of
conglomerates. In addition, competition law has promoted fairness in China and Indonesia as well as international integration in Vietnam.
Hong Kong
Hong Kong ( (US) or (UK); , ), officially the Hong Kong Special Administrative Region of the People's Republic of China (abbr. Hong Kong SAR or HKSAR), is a city and special administrative region of China on the eastern Pearl River Delta i ...
's Competition Ordinance came into force in the year 2015.
ASEAN member states
As part of the creation of the ASEAN Economic Community, the member states of the
Association of South-East Asian Nations
ASEAN ( , ), officially the Association of Southeast Asian Nations, is a Political union, political and economic union of 10 member Sovereign state, states in Southeast Asia, which promotes intergovernmental organization, intergovernmental coo ...
(ASEAN) pledged to enact competition laws and policies by the end of 2015. Today, all ten member states have general competition legislation in place. While there remains differences between regimes (for example, over merger control notification rules, or leniency policies for whistle-blowers), and it is unlikely that there will be a supranational competition authority for ASEAN (akin to the European Union), there is a clear trend towards increase in infringement investigations or decisions on cartel enforcement.
Enforcement
![WTO members and observers](https://upload.wikimedia.org/wikipedia/commons/9/9a/WTO_members_and_observers.svg)
At a national level competition law is enforced through competition authorities, as well as private enforcement. The
United States Supreme Court
The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. federal court cases, and over state court cases that involve a point o ...
explained:
In the
European Union
The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been de ...
, the Modernisation Regulation 1/2003 means that the
European Commission
The European Commission (EC) is the executive of the European Union (EU). It operates as a cabinet government, with 27 members of the Commission (informally known as "Commissioners") headed by a President. It includes an administrative body ...
is no longer the only body capable of public enforcement of
European Union competition law
European competition law is the competition law in use within the European Union. It promotes the maintenance of competition within the European Single Market by regulating anti-competitive conduct by companies to ensure that they do not crea ...
. This was done to facilitate quicker resolution of competition-related inquiries. In 2005 the Commission issued a
Green Paper
In the United Kingdom, the Commonwealth countries, Hong Kong, the United States and the European Union, a green paper is a tentative government report and consultation document of policy proposals for debate and discussion. A green paper represen ...
on ''Damages actions for the breach of the EC antitrust rules'', which suggested ways of making private damages claims against cartels easier.
Some EU Member States enforce their competition laws with criminal sanctions. As analysed by
Professor Whelan, these types of sanctions engender a number of significant theoretical, legal and practical challenges.
Antitrust administration and legislation can be seen as a balance between:
* guidelines which are clear and specific to the courts, regulators and business but leave little room for discretion that prevents the application of laws from resulting in unintended consequences.
* guidelines which are broad, hence allowing administrators to sway between improving economic outcomes versus succumbing to political policies to redistribute wealth.
Chapter 5 of the post war
Havana Charter
Havana (; Spanish: ''La Habana'' ) is the capital and largest city of Cuba. The heart of the La Habana Province, Havana is the country's main port and commercial center. contained an Antitrust code but this was never incorporated into the WTO's forerunner, the
General Agreement on Tariffs and Trade 1947.
Office of Fair Trading Director and Professor Richard Whish wrote sceptically that it "seems unlikely at the current stage of its development that the WTO will metamorphose into a global competition authority". Despite that, at the ongoing
Doha round
The Doha Development Round or Doha Development Agenda (DDA) is the trade-negotiation round of the World Trade Organization (WTO) which commenced in November 2001 under then director-general Mike Moore. Its objective was to lower trade barriers ...
of trade talks for the
World Trade Organization
The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade. With effective cooperation
in the United Nations System, governments use the organization to establish, revise, and ...
, discussion includes the prospect of competition law enforcement moving up to a global level. While it is incapable of enforcement itself, the newly established
International Competition Network (ICN) is a way for national authorities to coordinate their own enforcement activities.
Theory
Classical perspective
Under the doctrine of
laissez-faire
''Laissez-faire'' ( ; from french: laissez faire , ) is an economic system in which transactions between private groups of people are free from any form of economic interventionism (such as subsidies) deriving from special interest groups ...
, antitrust is seen as unnecessary as competition is viewed as a long-term dynamic process where firms compete against each other for market dominance. In some markets, a firm may successfully dominate, but it is because of superior skill or innovativeness. However, according to laissez-faire theorists, when it tries to raise prices to take advantage of its monopoly position it creates profitable opportunities for others to compete. A process of
creative destruction
Creative destruction (German: ''schöpferische Zerstörung'') is a concept in economics which since the 1950s is the most readily identified with the Austrian-born economist Joseph Schumpeter who derived it from the work of Karl Marx and pop ...
begins which erodes the monopoly. Therefore, government should not try to break up monopoly but should allow the market to work.
The classical perspective on competition was that certain agreements and business practice could be an unreasonable restraint on the
individual liberty
Civil liberties are guarantees and freedoms that governments commit not to abridge, either by constitution, legislation, or judicial interpretation, without due process. Though the scope of the term differs between countries, civil liberties may ...
of tradespeople to carry on their livelihoods. Restraints were judged as permissible or not by courts as new cases appeared and in the light of changing business circumstances. Hence the courts found specific categories of agreement, specific clauses, to fall foul of their doctrine on economic fairness, and they did not contrive an overarching conception of market power. Earlier theorists like Adam Smith rejected any monopoly power on this basis.
In ''
The Wealth of Nations
''An Inquiry into the Nature and Causes of the Wealth of Nations'', generally referred to by its shortened title ''The Wealth of Nations'', is the '' magnum opus'' of the Scottish economist and moral philosopher Adam Smith. First published in ...
'' (1776)
Adam Smith also pointed out the cartel problem, but did not advocate specific legal measures to combat them.
By the latter half of the 19th century, it had become clear that large firms had become a fact of the market economy.
John Stuart Mill's approach was laid down in his treatise ''
On Liberty
''On Liberty'' is a philosophical essay by the English philosopher John Stuart Mill. Published in 1859, it applies Mill's ethical system of utilitarianism to society and state. Mill suggests standards for the relationship between authority a ...
'' (1859).
Neo-classical synthesis
![Paul Samuelson](https://upload.wikimedia.org/wikipedia/commons/4/4c/Paul_Samuelson.gif)
After Mill, there was a shift in economic theory, which emphasized a more precise and theoretical model of competition. A simple neo-classical model of free markets holds that production and distribution of goods and services in competitive free markets maximizes
social welfare
Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifical ...
. This model assumes that new firms can freely enter markets and compete with existing firms, or to use legal language, there are no
barriers to entry. By this term economists mean something very specific, that competitive free markets deliver
allocative,
productive
Productivity is the efficiency of production of goods or services expressed by some measure. Measurements of productivity are often expressed as a ratio of an aggregate output to a single input or an aggregate input used in a production proces ...
and dynamic efficiency. Allocative efficiency is also known as
Pareto efficiency
Pareto efficiency or Pareto optimality is a situation where no action or allocation is available that makes one individual better off without making another worse off. The concept is named after Vilfredo Pareto (1848–1923), Italian civil engi ...
after the Italian economist
Vilfredo Pareto
Vilfredo Federico Damaso Pareto ( , , , ; born Wilfried Fritz Pareto; 15 July 1848 – 19 August 1923) was an Italians, Italian polymath (civil engineer, sociologist, economist, political scientist, and philosopher). He made several important ...
and means that resources in an economy over the
long run In economics, the long-run is a theoretical concept in which all markets are in equilibrium, and all prices and quantities have fully adjusted and are in equilibrium. The long-run contrasts with the short-run, in which there are some constraints an ...
will go precisely to those who are
willing and
able to pay for them. Because rational producers will keep producing and selling, and buyers will keep buying up to the last
marginal unit of possible output – or alternatively rational producers will be reduce their output to the margin at which buyers will buy the same amount as produced – there is no waste, the greatest number wants of the greatest number of people become satisfied and
utility
As a topic of economics, utility is used to model worth or value. Its usage has evolved significantly over time. The term was introduced initially as a measure of pleasure or happiness as part of the theory of utilitarianism by moral philosoph ...
is perfected because resources can no longer be reallocated to make anyone better off without making someone else worse off; society has achieved allocative efficiency. Productive efficiency simply means that society is making as much as it can. Free markets are meant to reward those who
work hard, and therefore those who will put society's resources towards the
frontier of its possible production. Dynamic efficiency refers to the idea that business which constantly competes must research, create and innovate to keep its share of consumers. This traces to Austrian-American political scientist
Joseph Schumpeter
Joseph Alois Schumpeter (; February 8, 1883 – January 8, 1950) was an Austrian-born political economist. He served briefly as Finance Minister of German-Austria in 1919. In 1932, he emigrated to the United States to become a professor at H ...
's notion that a "perennial gale of creative destruction" is ever sweeping through
capitalist
Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price system, priva ...
economies, driving enterprise at the market's mercy. This led Schumpeter to argue that monopolies did not need to be broken up (as with
Standard Oil) because the next gale of economic innovation would do the same.
Contrasting with the allocatively, productively and dynamically efficient market model are monopolies, oligopolies, and cartels. When only one or a few firms exist in the market, and there is no credible threat of the entry of competing firms, prices rise above the competitive level, to either a monopolistic or oligopolistic equilibrium price. Production is also decreased, further decreasing
social welfare
Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifical ...
by creating a
deadweight loss
In economics, deadweight loss is the difference in production and consumption of any given product or service including government tax. The presence of deadweight loss is most commonly identified when the quantity produced ''relative'' to the amoun ...
. Sources of this market power are said to include the existence of
externalities
In economics, an externality or external cost is an indirect cost or benefit to an uninvolved third party that arises as an effect of another party's (or parties') activity. Externalities can be considered as unpriced goods involved in either co ...
,
barriers to entry of the market, and the
free rider problem
In the social sciences, the free-rider problem is a type of market failure that occurs when those who benefit from resources, public goods (such as public roads or public library), or services of a communal nature do not pay for them or under-p ...
. Markets may
fail
Failure is the state or condition of not meeting a desirable or intended objective, and may be viewed as the opposite of success. The criteria for failure depends on context, and may be relative to a particular observer or belief system. One ...
to be efficient for a variety of reasons, so the exception of competition law's intervention to the rule of ''
laissez faire
''Laissez-faire'' ( ; from french: laissez faire , ) is an economic system in which transactions between private groups of people are free from any form of economic interventionism (such as subsidies) deriving from special interest groups. ...
'' is justified if
government failure
Government failure, in the context of public economics, is an economic inefficiency caused by a government intervention, if the inefficiency would not exist in a true free market. The costs of the government intervention are greater than the bene ...
can be avoided. Orthodox economists fully acknowledge that
perfect competition is seldom observed in the real world, and so aim for what is called "
workable competition". This follows the theory that if one cannot achieve the ideal, then go for the second best option by using the law to tame market operation where it can.
Chicago school
![Robert Bork](https://upload.wikimedia.org/wikipedia/commons/d/d8/Robert_Bork.jpg)
A group of economists and lawyers, who are largely associated with the
University of Chicago
The University of Chicago (UChicago, Chicago, U of C, or UChi) is a private university, private research university in Chicago, Illinois. Its main campus is located in Chicago's Hyde Park, Chicago, Hyde Park neighborhood. The University of Chic ...
, advocate an approach to competition law guided by the proposition that some actions that were originally considered to be anticompetitive could actually promote competition. The
U.S. Supreme Court
The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. federal court cases, and over state court cases that involve a point o ...
has used the Chicago school approach in several recent cases. One view of the Chicago school approach to antitrust is found in United States Circuit Court of Appeals Judge
Richard Posner
Richard Allen Posner (; born January 11, 1939) is an American jurist and legal scholar who served as a federal appellate judge on the U.S. Court of Appeals for the Seventh Circuit from 1981 to 2017. A senior lecturer at the University of Chic ...
's books ''Antitrust Law'' and ''Economic Analysis of Law''.
Robert Bork
Robert Heron Bork (March 1, 1927 – December 19, 2012) was an American jurist who served as the solicitor general of the United States from 1973 to 1977. A professor at Yale Law School by occupation, he later served as a judge on the U.S. Cour ...
was highly critical of court decisions on United States antitrust law in a series of law review articles and his book ''
The Antitrust Paradox''. Bork argued that both the original intention of antitrust laws and economic efficiency was the pursuit ''only'' of consumer welfare, the protection of competition rather than competitors.
[Bork (1978), p. 405.] Furthermore, only a few acts should be prohibited, namely cartels that fix prices and divide markets, mergers that create monopolies, and dominant firms pricing predatorily, while allowing such practices as vertical agreements and price discrimination on the grounds that it did not harm consumers. Running through the different critiques of US antitrust policy is the common theme that government interference in the operation of free markets does more harm than good. "The only cure for bad theory," writes Bork, "is better theory."
Harvard Law School professor
Philip Areeda
Phillip Elias Areeda (January 28, 1930 – December 24, 1995) was an American legal scholar known for his scholarship on U.S. antitrust law. Areeda was a law professor at Harvard University from 1961 until his death in 1995.
Life and career
Areed ...
, who favours more aggressive antitrust policy, in at least one Supreme Court case challenged Robert Bork's preference for non-intervention.
Practice
Collusion and cartels
Dominance and monopoly
![Monopoly-surpluses](https://upload.wikimedia.org/wikipedia/commons/e/ef/Monopoly-surpluses.svg)
When firms hold large market shares, consumers risk paying higher prices and getting lower quality products than compared to competitive markets. However, the existence of a very high market share does not always mean consumers are paying excessive prices since the threat of new entrants to the market can restrain a high-market-share firm's price increases. Competition law does not make merely having a monopoly illegal, but rather abusing the power that a monopoly may confer, for instance through exclusionary practices.
First, it is necessary to determine whether a firm is dominant, or whether it behaves "to an appreciable extent independently of its competitors, customers and ultimately of its consumer". Under EU law, very large market shares raise a presumption that a firm is dominant, which may be rebuttable. If a firm has a dominant position, then there is "a special responsibility not to allow its conduct to impair competition on the common market". Similarly as with collusive conduct, market shares are determined with reference to the particular market in which the firm and product in question is sold. Then although the lists are seldom closed, certain categories of abusive conduct are usually prohibited under the country's legislation. For instance, limiting production at a shipping port by refusing to raise expenditure and update technology could be abusive. Tying one product into the sale of another can be considered abuse too, being restrictive of consumer choice and depriving competitors of outlets. This was the alleged case in ''
Microsoft v. Commission'' leading to an eventual fine of million for including its
Windows Media Player
Windows Media Player (WMP) is the first media player (application software), media player and media library application that was developed by Microsoft for playing sound reproduction, audio, video and viewing images on personal computers runnin ...
with the
Microsoft Windows platform. A refusal to supply a facility which is essential for all businesses attempting to compete to use can constitute an abuse. One example was in a case involving a medical company named ''
Commercial Solvents
Commercial Solvents Corporation (CSC) was an American chemical and biotechnology company created in 1919.
History
The Commercial Solvents Corporation was established at the end of World War I; earning distinction as the pioneer producer of acetone ...
''. When it set up its own rival in the
tuberculosis
Tuberculosis (TB) is an infectious disease usually caused by '' Mycobacterium tuberculosis'' (MTB) bacteria. Tuberculosis generally affects the lungs, but it can also affect other parts of the body. Most infections show no symptoms, i ...
drugs market, Commercial Solvents were forced to continue supplying a company named Zoja with the raw materials for the drug. Zoja was the only market competitor, so without the court forcing supply, all competition would have been eliminated.
Forms of abuse relating directly to pricing include price exploitation. It is difficult to prove at what point a dominant firm's prices become "exploitative" and this category of abuse is rarely found. In one case however, a French funeral service was found to have demanded exploitative prices, and this was justified on the basis that prices of funeral services outside the region could be compared. A more tricky issue is
predatory pricing
Predatory pricing is a pricing strategy, using the method of undercutting on a larger scale, where a dominant firm in an industry will deliberately reduce the prices of a product or service to loss-making levels in the short-term. The aim is th ...
. This is the practice of dropping prices of a product so much that one's smaller competitors cannot cover their costs and fall out of business. The Chicago school considers predatory pricing to be unlikely. However, in ''France Telecom SA v. Commission'' a broadband internet company was forced to pay $13.9 million for dropping its prices below its own production costs. It had "no interest in applying such prices except that of eliminating competitors" and was being cross-subsidized to capture the lion's share of a booming market. One last category of pricing abuse is
price discrimination
Price discrimination is a microeconomic pricing strategy where identical or largely similar goods or services are sold at different prices by the same provider in different markets. Price discrimination is distinguished from product differe ...
. An example of this could be a company offering rebates to industrial customers who export their sugar, but not to customers who are selling their goods in the same market.
Example
According to The World Bank's "Republic of Armenia Accumulation, Competition, and Connectivity Global Competition" report which was published in 2013, the Global Competitiveness Index suggests that Armenia ranks lowest among ECA (Europe and Central Asia) countries in the effectiveness of anti-monopoly policy and the intensity of competition. This low ranking somehow explains the low employment and low incomes in Armenia.
Mergers and acquisitions
A merger or acquisition involves, from a competition law perspective, the concentration of economic power in the hands of fewer than before. This usually means that one firm buys out the
shares of another. The reasons for oversight of economic concentrations by the state are the same as the reasons to restrict firms who abuse a position of dominance, only that regulation of mergers and acquisitions attempts to deal with the problem before it arises, ''ex ante'' prevention of market dominance. In the United States merger regulation began under the Clayton Act, and in the European Union, under the Merger Regulation 139/2004 (known as the "ECMR"). Competition law requires that firms proposing to merge gain authorization from the relevant government authority. The theory behind mergers is that transaction costs can be reduced compared to operating on an open market through bilateral contracts. Concentrations can increase
economies of scale
In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their scale of operation, and are typically measured by the amount of output produced per unit of time. A decrease in cost per unit of output enables ...
and scope. However often firms take advantage of their increase in market power, their increased market share and decreased number of competitors, which can adversely affect the deal that consumers get. Merger control is about predicting what the market might be like, not knowing and making a judgment. Hence the central provision under EU law asks whether a concentration ''would'', if it went ahead, "significantly impede effective competition... in particular as a result of the creation or strengthening off a dominant position..." and the corresponding provision under US antitrust states similarly,
What amounts to a substantial lessening of, or significant impediment to competition is usually answered through empirical study. The market shares of the merging companies can be assessed and added, although this kind of analysis only gives rise to presumptions, not conclusions. The
Herfindahl-Hirschman Index is used to calculate the "density" of the market, or what concentration exists. Aside from the maths, it is important to consider the product in question and the rate of technical innovation in the market. A further problem of collective dominance, or
oligopoly through "economic links" can arise, whereby the new market becomes more conducive to
collusion
Collusion is a deceitful agreement or secret cooperation between two or more parties to limit open competition by deceiving, misleading or defrauding others of their legal right. Collusion is not always considered illegal. It can be used to att ...
. It is relevant how transparent a market is, because a more concentrated structure could mean firms can coordinate their behavior more easily, whether firms can deploy deterrents and whether firms are safe from a reaction by their competitors and consumers. The entry of new firms to the market, and any barriers that they might encounter should be considered. If firms are shown to be creating an uncompetitive concentration, in the US they can still argue that they create efficiencies enough to outweigh any detriment, and similar reference to "technical and economic progress" is mentioned in Art. 2 of the ECMR. Another defense might be that a firm which is being taken over is about to fail or go insolvent, and taking it over leaves a no less competitive state than what would happen anyway. Mergers vertically in the market are rarely of concern, although in ''AOL/Time Warner'' the
European Commission
The European Commission (EC) is the executive of the European Union (EU). It operates as a cabinet government, with 27 members of the Commission (informally known as "Commissioners") headed by a President. It includes an administrative body ...
required that a joint venture with a competitor
Bertelsmann be ceased beforehand. The EU authorities have also focused lately on the effect of
conglomerate mergers, where companies acquire a large portfolio of related products, though without necessarily dominant shares in any individual market.
Intellectual property, innovation and competition
Competition law has become increasingly intertwined with
intellectual property
Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The best-known types are patents, cop ...
, such as
copyright
A copyright is a type of intellectual property that gives its owner the exclusive right to copy, distribute, adapt, display, and perform a creative work, usually for a limited time. The creative work may be in a literary, artistic, educatio ...
,
trademark
A trademark (also written trade mark or trade-mark) is a type of intellectual property consisting of a recognizable sign, design, or expression that identifies products or services from a particular source and distinguishes them from othe ...
s,
patent
A patent is a type of intellectual property that gives its owner the legal right to exclude others from making, using, or selling an invention for a limited period of time in exchange for publishing an enabling disclosure of the invention."A ...
s,
industrial design right
An industrial design right is an intellectual property right that protects the visual design of objects that are purely utilitarian. An industrial design consists of the creation of a shape, configuration or composition of pattern or color, or co ...
s and in some jurisdictions
trade secret
Trade secrets are a type of intellectual property that includes formulas, practices, processes, designs, instruments, patterns, or compilations of information that have inherent economic value because they are not generally known or readily ...
s. It is believed that promotion of
innovation
Innovation is the practical implementation of ideas that result in the introduction of new goods or services or improvement in offering goods or services. ISO TC 279 in the standard ISO 56000:2020 defines innovation as "a new or changed entit ...
through enforcement of intellectual property rights may promote as well as limit competitiveness. The question rests on whether it is legal to acquire monopoly through accumulation of intellectual property rights. In which case, the judgment needs to decide between giving preference to intellectual property rights or to competitiveness:
* Should antitrust laws accord special treatment to intellectual property.
* Should intellectual rights be revoked or not granted when antitrust laws are violated.
Concerns also arise over anti-competitive effects and consequences due to:
* Intellectual properties that are collaboratively designed with consequence of violating antitrust laws (intentionally or otherwise).
* The further effects on competition when such properties are accepted into industry standards.
* Cross-licensing of intellectual property.
* Bundling of intellectual property rights to long-term business transactions or agreements to extend the market exclusiveness of intellectual property rights beyond their statutory duration.
*
Trade secrets
Trade secrets are a type of intellectual property that includes formulas, practices, processes, designs, instruments, patterns, or compilations of information that have inherent economic value because they are not generally known or readily a ...
, if they remain a secret, having an eternal length of life.
Some scholars suggest that a prize instead of patent would solve the problem of deadweight loss, when innovators got their reward from the prize, provided by the government or non-profit organization, rather than directly selling to the market, see
Millennium Prize Problems
The Millennium Prize Problems are seven well-known complex mathematical problems selected by the Clay Mathematics Institute in 2000. The Clay Institute has pledged a US$1 million prize for the first correct solution to each problem. According ...
. However, innovators may accept the prize only when it is at least as much as how much they earn from patent, which is a question difficult to determine.
[Suzanne Scotchmer: "Innovation and Incentives" the MIT press, 2004 (Chapter 2).]
See also
*
Consumer protection
*
European Union competition law
European competition law is the competition law in use within the European Union. It promotes the maintenance of competition within the European Single Market by regulating anti-competitive conduct by companies to ensure that they do not crea ...
* ''
The History of the Standard Oil Company
''The History of the Standard Oil Company'' is a 1904 book by journalist Ida Tarbell. It is an exposé about the Standard Oil Company, run at the time by oil tycoon John D. Rockefeller, the richest figure in American history. Originally seriali ...
'' (book)
*
Institute for Consumer Antitrust Studies
*
Irish Competition law
*
List of competition regulators
*
List of countries' copyright length
Copyright is the right to copy and publish a particular work. The terms "copy" and "publish" are quite broad. They include copying in electronic form, the making of translated versions, the creation of a television program based on the work, and ...
*
Relevant market
In competition law, a relevant market is a market in which a particular product or service is sold. It is the intersection of a relevant product market and a relevant geographic market. The European Commission defines a relevant market and its pro ...
*
Resale price maintenance
Resale price maintenance (RPM) or, occasionally, retail price maintenance is the practice whereby a manufacturer and its distributors agree that the distributors will sell the manufacturer's product at certain prices (resale price maintenance), a ...
*
Sherman Antitrust Act
The Sherman Antitrust Act of 1890 (, ) is a United States antitrust law which prescribes the rule of free competition among those engaged in commerce. It was passed by Congress and is named for Senator John Sherman, its principal author.
...
*
SSNIP
In competition law, before deciding whether companies have significant market power which would justify government intervention, the test of small but significant and non-transitory increase in price (SSNIP) is used to define the relevant market i ...
*
United States antitrust law
In the United States, antitrust law is a collection of mostly federal laws that regulate the conduct and organization of businesses to promote competition and prevent unjustified monopolies. The three main U.S. antitrust statutes are the Sherm ...
*
Megacorporation
Megacorporation, mega-corporation, or megacorp, a term originally coined by Alfred Eichner in his book ''The Megacorp and Oligopoly: Micro Foundations of Macro Dynamics'' but popularized by William Gibson, derives from the combination of the pref ...
Notes
References
*
Bork, Robert H. (1978) ''
The Antitrust Paradox'', New York Free Press
* _____ (1993). ''The Antitrust Paradox'' (second edition). New York: Free Press. .
*
Friedman, Milton (1999
"The Business Community's Suicidal Impulse" ''Cato Policy Report'', 21(2), pp. 6–7 (scroll down & press +).
*
Galbraith Kenneth (1967) ''The New Industrial State''
* Harrington, Joseph E. (2008). "antitrust enforcement," ''
The New Palgrave Dictionary of Economics
''The New Palgrave Dictionary of Economics'' (2018), 3rd ed., is a twenty-volume reference work on economics published by Palgrave Macmillan. It contains around 3,000 entries, including many classic essays from the original Inglis Palgrave Diction ...
'', 2nd Edition
Abstract.*
Mill, John Stuart (1859) ''
On Liberty
''On Liberty'' is a philosophical essay by the English philosopher John Stuart Mill. Published in 1859, it applies Mill's ethical system of utilitarianism to society and state. Mill suggests standards for the relationship between authority a ...
''
*
Posner, Richard (2001) ''Antitrust Law'', 2nd ed.,
Preview.* _____ (2007) ''Economic Analysis of Law'' 7th ed.,
* Prosser, Tony (2005) ''The Limits of Competition Law'', ch.1
*
*
Schumpeter, Joseph (1942) ''The Process of Creative Destruction''
*
Smith, Adam (1776) ''
An Enquiry into the Nature and Causes of the Wealth of Nations'' onlin
from the Adam Smith Institute*
Wilberforce, Richard, Alan Campbell and Neil Elles (1966) ''The Law of Restrictive Practices and Monopolies'', 2nd edition, London: Sweet and Maxwell
* Whish, Richard (2003) ''Competition Law'', 5th Ed. Lexis Nexis Butterworths
* https://anali.rs/the-klobuchar-bill-is-something-rotten-in-the-us-antitrust-legislative-reform/
Further reading
* ''Competition Policy International'', , available at https://web.archive.org/web/20071127034131/http://www.globalcompetitionpolicy.org/
* Elhauge, Einer, Geradin, Damien (2007) ''Global Competition Law and Economics'',
* Faull, Jonathan, Nikpay, Ali (eds) (2007) "Faull & Nikpay : The EC Law of Competition,"
* Georg Erber, Georg, Kooths, Stefan, '"Windows Vista: Securing Itself against Competition?'," in: ''DIW Weekly Report'', 2/2007, Vol.3, 7–14.
* Hylton, Keith N., et al., "Antitrust World Reports'," available at https://web.archive.org/web/20080724022203/http://www.antitrustworldwiki.com/
External links
United Nations set of principles on competition (The UN Set)Intergovernmental Group of Experts on Competition Law and Policy
{{Authority control
Welfare economics