Effective competition is seen by the European Commission as crucial to an open market economy. It cuts prices, raises quality and expands customer choice. Competition allows technological innovation to flourish.
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The main areas of EU competition policy are:
- antitrust and cartels
- merger control
- liberalisation
- state aids.
Antitrust and cartels
It is illegal for European businesses, including the professions, to collude with each other to fix prices or carve up markets between them. If a single company has a dominant position in a particular market, it may not abuse its market power to drive out competitors. Nor may a large company exploit the weaker negotiating position of its smaller customers and suppliers. Large firms may not, for example, impose conditions on suppliers which hamper their freedom to do business with other companies. The Commission can (and does) fine companies for all these practices.
Some exceptions are allowed. The Commission can allow companies to cooperate in developing a single technical standard for the market as a whole. It can allow smaller companies to cooperate if this strengthens their ability to compete with larger ones. Some types of cooperation deal need specific Commission approval, but others are covered by rules on blanket exemptions. The overriding considerations are whether consumers will benefit or other businesses be harmed.
Differences in car prices across the EU have narrowed, in part thanks to the efforts of the EU in bringing greater transparency in pricing. Commission intervention has made multi-brand car dealerships possible, enabled non-authorised dealers to sell parts and carry out repairs, and – since 1 October 2005 – allowed dealers to operate in more than one EU country. Some significant country-to-country price differences remain because tax systems vary, but the Commission is seeking a restructuring of all tax systems to create a true single market.
Merger control
The Commission can ban or impose conditions on mergers and takeovers of one firm by another if the enlarged company would too easily be able to squeeze out its competitors or if a merger would leave so few players in the market that innovation would be stifled, or price competition or consumer choice significantly reduced. In practice, most mergers are cleared without further action being necessary.
The Commission is generally only called upon to scrutinise the largest cross-border mergers, though smaller companies have the option of asking for Commission clearance if they think that will be less complex than going to several member states individually. On the other hand, the Commission will leave a member state to decide if the impact of a merger involving large companies with international operations will essentially be restricted to a single country.
It makes no difference, on the other hand, where the companies are based. If their sales figures in EU markets are large enough, the Commission has jurisdiction, and can prevent mergers even when the competition authorities in the country where the companies are headquartered have no objections.
Liberalisation
In an open economy, monopolies are rarely justified. They tend to result in high prices and poor service, and to stifle innovation. Exceptions and subsidies are allowed for inherently uneconomic services, which can be considered a basic right, such as postal deliveries in rural areas. The Commission pays particular attention to making sure competition between older players and new entrants to the gas and electricity markets is fair and brings prices to consumers and business down.
If infrastructure constitutes a natural monopoly, like gas pipelines and some telecommunications infrastructure, then everyone must be allowed to use it on the same terms. If there is no natural monopoly, then the process of selecting a company to provide the service must be transparent.
Professional services are another area where barriers to operating across borders have been slow to come down, but the European Commission has recently stepped up action to produce change.
State aids
The Commission monitors closely how much aid member state governments make available to business. It looks not just at obvious forms of aid, such as loans and grants, but also at tax breaks, goods and services made available at preferential rates and at loan guarantees which make the borrower a better credit risk.
Aid to businesses which have no chance of ever standing on their own feet is not allowed. Temporary assistance is permissible if there is a real chance that a business in difficulty can eventually become more competitive as a result. Aid for research and innovation, regional development or small and medium-sized enterprises is often allowable because these serve overall EU goals.
The litmus tests are whether the aid is in the interest of the Union as a whole and (2) whether a private investor would provide money in the same circumstances. The second test can justify start-up assistance granted by airports to attract low-cost airlines. Aid to low-cost airlines is also acceptable if the revenues they generate offset the cost to the taxpayer of underutilised infrastructure at secondary airports.
There are public services, such as broadcasting, which governments may legitimately fund, but they must be careful not to pay a disproportionate amount. Overpayment to the detriment of commercial competitors would be an illegal subsidy.
Checks and balances
The Commission’s extensive powers to investigate and halt violations of EU competition rules are subject to judicial review by the European Court of Justice. Companies and member states regularly lodge and sometimes succeed in appeals against Commission decisions, particularly in anti-trust, merger or state aid cases. The challenge of globalisation
In an age of globalisation, global players must not be able to do as they please just because they escape any single government’s control or to take advantage of gaps in the coverage of competition legislation in some countries. The EU takes part in discussions within the World Trade Organisation (WTO) on the relationship between investment and competition, and is an active member of the International Competition Network (ICN). More than 80 competition authorities are members of this network. The ICN does not make rules, but promotes best practice, particularly in enforcement.
EU Competition web links
European Commission Competition DG
EU Competition Grants and Loans
Summaries of EU Legislation in Force: Competition Policy
Recent case-law of the Court of Justice and the Court of First Instance: State Aid
Recent case-law of the Court of Justice and the Court of First Instance: Competition
Further information on EU Competition Policy on Europa
