FREE ESSAY ON EUROPEAN UNION COMPETITON POLICY

EUROPEAN UNION COMPETITON POLICY

The European Union (EU) has had a direct and profound effect on the economies of member
states. The main objective of the EU is to enhance the allocational efficiency of the
economies of the member states by removing barriers to the movement of goods, services,
and production . The regulation of competition is administered by the EU's competition
policy. The aim of the policy is to create and maintain a system permitting undistorted
competition within an economic region . The notion of pure competition in the EU is
governed by The European Commission. They are the guardians of competition and exist
within the structure of competition policy. The importance of a policy regulating
competition was recognized early, and explicitly outlined in Articles 85-94 in the Treaty
of Rome . The purpose was to prevent private economic actors and national public
authorities from dividing up the large European market, thus jeopardizing or even
canceling the benefits of integration . Nonetheless, even in the most ideal economic
conditions, economists accept that perfect competition cannot be achieved. Consequently,
the concept of 'workable competition' has been developed. Although not perfect, firms and
governments are encouraged to work towards the most competitive structure possible. This
structure can be achieved by policing business within the European Union, and thereby
eliminating practices deemed as anti competitive. The EU competition policy secures the
benefits of European integration by effectively regulating anti competitive practices,
namely monopolistic behavior, mergers and state aids, however does not ensure that Europe
will remain competitive in international markets. 
One of the most commonly recognized forms of anti competitive activity is monopolistic
behavior. Identified as a company who has established a dominant position in its
respective industry, and abuses their position in a manner that may have an effect on
trade between member states. "Forms of abuse of dominant position include unfair pricing,
exclusion or limitation of supply, and discrimination among trade partners" . The rules
of competition regulating monopolistic behavior are outlined in Article 82 (formerly
Article 86) of the EC treaty. It reads: "Any abuse by one or more undertakings of a
dominant position within the common market or in a substantial part of it shall be
prohibited as incompatible with the common market in so far as it may affect trade
between Member States" . Although Article 86 does not define what a 'dominant position'
is, past decisions by the Commission suggest that a firm with less than 40% of the market
will not be regarded as dominant . 'The Commission' refers to The European Commission,
who police EU competition rules. In cases of possible monopolistic activity, the
Commission must assess the degree of market dominance by deciding the boundaries of the
relevant market both in terms of the products involved and its geographic extent. The
boundaries are ambiguous at times as high market share does not automatically give
monopoly power. However, the dominant position itself is not illegal, only the abuse of
dominance . Abuse of dominance is formally defined as, the conduct of a firm that may
influence the structure of the relevant market or its degree of competition, even if such
conduct is favored by a provision of national law . Those found guilty of abusing
dominant position, can receive a penalty from the Commission, which may consist of
various fines or dividing the company. Before taking a decision, the Commission gives the
firm and Member State the opportunity to explain their position at specially organized
hearings. Also, the firms or Member States that are subject to the Commission's decision
may challenge the decision before the Court of First Instance. It is also possible for
individuals or firms that believe they are the victims of anti-competitive behavior to
take their case before the national courts . Although many European firms have criticized
the Commission, the Commission has been praised internationally for its development of
one of the most extensive and sophisticated competition enforcement programs . It is
evident that the Commission closely monitors many firms that may be a threat to the EU.
This includes firms attempting to amalgamate in hopes of achieving dominant position in a
particular industry and market.
A merger is when a firm acquires exclusive control of another firm or of a firm it
controlled jointly with another firm, or where several firms take control of a firm or
create a new one. The Treaty of Rome contained no specific powers to control mergers,
therefore the Commission attempted to create a merger regime using Articles 85 and 86.
They claimed that a firm in g dominant position which took over a rival, was guilty of an
abuse . Regulating mergers have become more structured since regulation (EEC) No 4064/89,
which gives the Commission the power to examine mergers before they take place, in order
to decide whether they are compatible with the internal market. This involves defining
the relevant product market, defining the relevant geographic market, and assessing the
compatibility of the merger with the internal market on the basis of the principle of
dominant position . If a particular merger creates or strengthens a dominant position
that may impair competition in the EU or a substantial part of it, the proposal can be
prohibited indefinitely . Surprisingly there have been a low number of cases in which the
merger has been prohibited, or changes have been required. This is to the credit of those
who have requested mergers, and the soundness of their proposals. However, when the
Commission has been called on to enforce the EU competition policy specifically on the
subject of mergers, they have been subject to controversy. The major issue concerns the
criteria that the Commission uses for considering the desirability of mergers. The
Commission often restricts criteria to the issues relating to competition, but it is
necessary to evaluate other surrounding issues in order to ensure a suitable decision .
An inappropriate judgment by the Commission could potentially produce a dominant firm in
the market, with intentions to abuse their dominance. With pressures from both potential
monopoly situations and proposed mergers, the Commission spends much of its time focusing
on firms within the EU. Still, the Commission must not situate their attention solely on
private firms, but also the governments of Member States. 
Government's grant subsides, known as 'state aid', to domestic firms that may correct
market failures, steer their economies, or attain social objectives by influencing
private economic decision-making. The Commission worries that assistance from national
governments to their domestic firms, will affect trade between member states . As
outlined in Article 87 (formerly Article 92) of the treaty, "Subsidies ('state aids')
which distort competition by favoring certain enterprises and giving them an artificial
advantage are considered incompatible with the common market, and the Commission can
require such aid to be abolished or modified" . Although Article 92 condemns all state
aids which distort competition, it is difficult to enforce controls on state aid and
impossible to ban it completely. Any advantage granted by the State or through State
resources is considered as State aid where it confers an economic advantage on the
recipient, it is granted selectively to certain firms or to the production of certain
goods, it could distort competition, or it affects trade between Member States . The
commission must ensure that Member States only grant aid that is compatible with the
common market. This includes aid having a social character granted to individual
consumers provided that it is granted without discrimination related to the origin of the
products concerned, aid to make good the damage caused by natural disasters or
exceptional occurrences, aid granted to areas of a country affected by the division of
the country, aid to promote the development of certain activities or regions, aid to
promote the execution of an important project of common European interest or to remedy a
serious disturbance in the economy of a Member State, aid to promote culture and heritage
conservation or any other categories of aid specified by the Council . The key tasks for
EU competition policy include differentiating between such purposes and minimizing the
extent to which aid distorts the European economy. If necessary, the actions of member
governments must be prohibited while constantly monitoring each member state. The
individual governments are generally unable to regulate themselves due to their close
involvement as subsidizers and decision-makers . A solution to each government's dilemma
is notifying the Commission of any plans to provide aid, which allows the Commission to
review the proposal and proceed to modify or suppress support when necessary. Member
States in violation of the EU competition policy section regarding state aids can be
subject to fines in addition to the annulment or modification of aid granted. 
The Commission has the authority to penalize those who infringe on the EU competition
policy and in fact are encourage to do so. This maintains harmony in the common market
and promotes 'workable competition' within the EU. However, this is the same EU
competition policy that suppresses the growth of potential multinational firms. As
previously mentioned, a firm with less than 40% of market share is not considered
dominant. Once a firm is identified as 'dominant', the Commission closely monitors it. In
fear of being accused of abusing dominant position, firms are accordingly hesitant to
conduct business as though they would otherwise. If a dominant firm is involved, simple
aspects of competition may be interpreted as abusing 'dominant position'. In terms of
potential international advancement, the firm is contained by EU competition policy.
Certain mergers and acquisitions may also be seen as 'abuse' when evaluation criteria is
restricted to issues relating to competition . It is necessary to evaluate other
surrounding issues in order to ensure a suitable decision. The governments must make
serious decisions as well. Subsidizing domestic firms operating in internationally
competitive markets that would otherwise go bankrupt is a violation of EU competition
policy . The EU believes that these anti competitive policies will create European
champions and allow them to thrive in international markets . The reality, the firms
involved are struggling amongst their international competitors. This is due to the
direct and indirect results of the EU competition policy and applicable anti competitive
policies. 
It is generally agreed that EU competition policy is necessary to secure the benefits of
European integration. However, there is an ongoing controversy about whether encouraging
competition under such strict anti competitive policies in the EU, is the best means of
ensuring that Europe is competitive in international markets . Nonetheless, it is beyond
dispute that some sort of competition policy will continue at the European level. The
controversy and discussions are based on the application of rules derived from a model of
perfect competition. Although economists agree that 'workable' competition is much more
realistic, the aim of anti competitive policies is still to promote perfect competition.
This clash is to blame for the weak presence of European firms in international markets.
Ignorant to the international focus, the Commission persistently disputes issues
concerning the development and implementation of effective policies. Consequently, the EU
will increase undistorted competition but fail to grow along side their international
competitors.
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