04 oct 2007
Competition Law and Policy in the European Union
Competition policy played a central role in the development of the EU and its institutions. The European Commission, supported by the European courts, developed the framework for competition policy in Europe. This framework has been built since the Treaty of Rome in 1957 on a foundation of promoting market opening while strengthening the institutions of the European Community. The competition policy of the European Community is now in transition toward a basis in market-centered economic considerations, as well as on application through the now-extensive network of nationallevel authorities. The "modernisation" reforms of the enforcement process became effective in May 2004, along with changes in the control of mergers, and the Commission has been considering revisions to its policies about other topics, notably abuse of dominance and state aid. As the Member States adapt their substantive rules to those of the Community, the roles of the European Commission, the national competition agencies and the courts are changing. Co-ordination of enforcement among many agencies in the European Community, particularly concerning applications for leniency as part of cartel investigations, is increasingly important. The Commission moved to strengthen its capacity for economic analysis and to correct weaknesses in its decision process that had been revealed in critical court decisions. The challenge to this system, well adapted for administrative application, is to produce results that are convincing to the courts while maintaining policy consistency in a system of decentralised enforcement. This report served as the basis for a peer review in the Competition Committee in 2005.
04 oct 2007
Dominant firms can use various strategies to eliminate or deter competition, including unlawful price cuts or "predatory pricing". That strategy involves a willingness to absorb losses in the near term that are rational only because they lead to greater profit in the longer term, after competitors have been disciplined or eliminated. Despite differences in statutes across jurisdictions, the roundtable discussion held in October 2004 in the Competition Committee quickly revealed a virtually unanimous view that the purpose of competition laws is to protect and promote competition, not competitors. With respect to methods for detecting predatory prices, including price-cost tests, there was a greater diversity of views because different cost measures are appropriate in different situations. There was broad agreement among Members that investigations should include an examination of whether an alleged predator would likely be able to recoup its predatory losses, with a negative finding indicative of a low probability of harm to competition.
04 oct 2007
Resale below Cost Laws and Regulations
Despite general agreement that consumers benefit from lower prices that are not predatory, several nations have laws against loss leader sales even when they are unlikely to foreclose competition. These laws appear to protect competitors rather than competition. The Competition Committee’s roundtable discussion in October 2005 focused on efforts to reform or remove laws against loss leader sales and efforts to prevent such restrictions from being enacted. The Secretariat background note argued that rules again loss leader sales should be sunsetted because they are likely to harm consumers and protect inefficient competitors, fail to account adequately for pro-competitive business justifications for loss leader sales and detract from economic dynamism and growth. Japan, Germany and France, defended their rules against price competition, although France was in the process of a reform. Members of a second group of countries were working to remove laws against loss leader sales. The nations in a third group with no law against loss leader sales, reported efforts by groups of competitors to have such rules applied either at the national level or at the state/provincial level. Both the consumer and business submissions argued that prohibiting loss leader sales is likely to harm consumers and protect competitors, rather than competition.