Competition law

"Antitrust" and "Anti-Monopoly Law" redirect here. For the film, seeAntitrust(film).For the law specific to China, seeAnti Monopoly Law of China.

Competition lawis the field oflawthat promotes or seeks to maintainmarket competitionby regulatinganti-competitiveconduct by companies.Competition law is implemented through public and private enforcement.It is also known asantitrust law(or justantitrust),anti-monopoly law,andtrade practices law;the act of pushing for antitrust measures or attacking monopolistic companies (known astrusts) is commonly known astrust busting.

The history of competition law reaches back to theRoman Empire.The business practices of market traders,guildsand 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 areUnited States antitrust lawandEuropean Union competition law.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 ofnation-states.National competition law usually does not cover activity beyond territorial borders unless it has significant effects at nation-state level.Countries may allow forextraterritorial jurisdictionin 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 theGeneral Agreement on Tariffs and Trade(GATT) in 1947, limited international competition obligations were proposed within theCharter for an International Trade Organisation.These obligations were not included in GATT, but in 1994, with the conclusion of theUruguay Roundof GATT multilateral negotiations, theWorld Trade Organization(WTO) was created. TheAgreement Establishing the WTOincluded a range of limited provisions on various cross-border competition issues on a sector specific basis.Competition law has failed to prevent monopolization of economic activity. "The global economy is dominated by a handful of powerful transnational corporations (TNCs).... Only 737 top holders accumulate 80% of the control over the value of all... network control is much more unequally distributed than wealth. In particular, the top ranked actors hold a control ten times bigger than what could be expected based on their wealth.... Recent works have shown that when a financial network is very densely connected it is prone to systemic risk. Indeed, while in good times the network is seemingly robust, in bad times firms go into distress simultaneously. This knife-edge property was witnessed during the recent (2009) financial turmoil..."

Starting Point

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 bycartels.
• banning abusive behavior by a firmdominatinga market, or anti-competitive practices that tend to lead to such a dominant position. Practices controlled in this way may includepredatory pricing,tying,price gouging,andrefusal to deal.
• supervising themergers and acquisitionsof large corporations, including somejoint ventures.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) and ensuring that entrepreneurs have an opportunity to compete in themarket economyare often treated as important objectives. Competition law is closely connected with law on deregulation of access to markets, state aids and subsidies, theprivatizationof 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 betterpublic services.Robert Borkargued 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

Main article:History of competition law

Roman legislation

An early example was enacted during theRoman Republicaround 50 BC.To protect thegrain trade,heavy fines were imposed on anyone directly, deliberately, and insidiously stopping supply ships.UnderDiocletianin 301 A.D., anedictimposed 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 ofZenoof 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 privateorgranted by the Emperor. Zeno rescinded all previously granted exclusive rights.Justinian Isubsequently 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 theNorman Conquest.TheDomesday Bookrecorded that "foresteel"(i.e. forestalling, the practice of buying up goods before they reach market and then inflating the prices) was one of threeforfeituresthatKing Edward the Confessorcould carry out through England.But concern for fair prices also led to attempts to directly regulate the market. UnderHenry IIIan act was passed in 1266to fix bread and ale prices in correspondence with grain prices laid down by theassizes.Penalties for breach includedamercements,pilloryandtumbrel.A 14th-century statute labelled forestallers as "oppressors of the poor and the community at large and enemies of the whole country".UnderKing Edward IIItheStatute of Labourersof 1349fixed 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 inpunitivetreble damagesunderUS antitrust law.Also under Edward III, the following statutory provision outlawed trade combination.

... we have ordained and established, that no merchant or other shall make Confederacy, Conspiracy, Coin, Imagination, or Murmur, or Evil Device in any point that may turn to the Impeachment, Disturbance, Defeating or Decay of the said Staples, or of anything that to them pertaineth, or may pertain.

In continental Europe, competition principles developed inlex mercatoria.Examples of legislation enshrining competition principles include theconstitutiones juris metallicibyWenceslaus IIofBohemiabetween 1283 and 1305, condemning combination of ore traders increasing prices; the Municipal Statutes of Florence in 1322 and 1325 followedZeno's legislation against state monopolies; and underEmperor Charles Vin theHoly Roman Empirea 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 Englandreintroduced tariffs for foodstuffs, designed to stabilize prices, in the face of fluctuations in supply from overseas. So the legislation read here that whereas,

it is very hard and difficult to put certain prices to any such things... [it is necessary because] prices of such victuals be many times enhanced and raised by the Greedy Covetousness and Appetites of the Owners of such Victuals, by occasion of ingrossing and regrating the same, more than upon any reasonable or just ground or cause, to the great damage and impoverishing of the King's subjects.

Around this time organizations representing various tradesmen and handicrafts people, known asguildshad 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

JudgeCokein the 17th century thought that general restraints on trade were unreasonable.

The English common law ofrestraint of tradeis 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 thereasonablenessof an agreement could be shown. It effectively prohibited agreements designed to restrain another's trade. The 1414Dyer'sis 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 intostatute law.

Elizabeth I assured monopolies would not be abused in the early era ofglobalization.

Europe around the 16th century was changing quickly. Thenew worldhad 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 modernpatentshad been introduced into England. But by the reign ofQueen Elizabeth I,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 inDarcy v. Allein1602, also known as theCase of Monopolies,of theKing's Benchto 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 ofmonopolywere (1) price increases, (2) quality decrease, (3) the tendency to reduce artificers to idleness and beggary. This put an end to granted monopolies untilKing James Ibegan to grant them again. In 1623 Parliament passed theStatute of Monopolies,which for the most part excludedpatentrights from its prohibitions, as well as guilds. FromKing Charles I,through the civil war and toKing Charles II,monopolies continued, especially useful for raising revenue.Then in 1684, inEast India Company v. Sandysit 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 asThe Wealth of NationsbyAdam Smith,who first established the concept of themarket economy.At the same timeindustrialisationreplaced the individualartisan,or group of artisans, with paid labourers and machine-based production. Commercial success became 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 theFrench Revolutionin 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 thePanic of 1873,ideas of competition lost favour, and it was felt that companies had to co-operate by formingcartelsto 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 1889Canadaenacted what is considered the first competition statute of modern times. TheAct for the Prevention and Suppression of Combinations formed in restraint of Tradewas passed one year before the United States enacted the most famous legal statute on competition law, theSherman Actof 1890. It was named afterSenator John Shermanwho 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

Main article:United States antitrust law

Senatorial Round House byThomas Nast,1886

TheSherman Actof 1890 attempted to outlaw the restriction of competition by large companies, who co-operated with rivals to fix outputs, prices and market shares, initially throughpoolsand later throughtrusts.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. TheStandard Oil Companytrust in the 1880s controlled several markets, including the market infuel oil,leadandwhiskey.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.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 excessiveeconomic 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 prohibitsmonopolies,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 theClayton Actwhich specifically prohibited exclusive dealing agreements, particularly tying agreements and interlocking directorates, and mergers achieved by purchasing stock. From 1915 onwards therule of reasonanalysis 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 thestructure-conduct-performanceparadigm 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 JudgeRobert Bork's bookThe Antitrust Paradox.Since 1992game theoryhas 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

Main article:European Union competition 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 theGreat Depressionof 1929 competition law disappeared from Europe and was revived following theSecond World Warwhen 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 levelEU competition lawhas its origins in theEuropean Coal and Steel Community(ECSC) agreement between France,Italy,Belgium,theNetherlands,Luxembourgand Germany in 1951 following the Second World War. The agreement aimed to prevent Germany from re-establishing dominance in the production ofcoalandsteelas 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 aplurilateralregional agreement and established the trans-European model of competition law. In 1957 competition rules were included in theTreaty of Rome,also known as the EC Treaty, which established theEuropean 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, theTreaty of Lisbonprohibits anti-competitive agreements in Article 101(1), includingprice fi xing.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 thegeneral principle of European Union lawofproportionality). Article 102 prohibits the abuse ofdominant position,such as price discrimination and exclusive dealing.Regulation 139/2004/ECgoverns 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 impedeeffective competition.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 forcharities,regional development objectives and in the event of anatural disaster.

LeadingECJcases on competition law includeConsten & Grundig v CommissionandUnited Brands v Commission.

India

Main articles:The Competition Act, 2002andCompetition Commission of India

India responded positively by opening up its economy by removing controls during theEconomic liberalisation.In quest of increasing the efficiency of the nation's economy, theGovernment of Indiaacknowledged theLiberalizationPrivatizationGlobalizationera. As a result, Indian market faces competition from within and outside the country.This led to the need of a strong legislation to dispense justice in commercial matters andthe Competition Act, 2002was 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 ofthe Competition Act, 2002was enacted in 2003. TheCompetition Commission of India,is the quasi judicial body established for enforcing provisions of the Competition Act.

China

Main article:Anti Monopoly Law of China

TheAnti Monopoly Law of Chinacame 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 theState Administration for Market Regulation.ThePeople's Dailyreported 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 theSoviet Unionand the expansion of theEuropean Union.Currentlycompetition authoritiesof 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. InKoreaandJapan,the competition law prevents certain forms ofconglomerates.In addition, competition law has promoted fairness in China and Indonesia as well as international integration in Vietnam.Hong Kong'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 theAssociation of South-East Asian Nations(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

See also:World Trade OrganizationandInternational Competition Network

There is considerable controversy amongWTOmembers, in green and blue, whether competition law should form part of the agreements.

Competition law is enforced at the national level through competition authorities, as well as private enforcement. TheUnited States Supreme Courtexplained:

Every violation of the antitrust laws is a blow to the free-enterprise system envisaged by Congress. This system depends on strong competition for its health and vigor, and strong competition depends, in turn, on compliance with antitrust legislation. In enacting these laws, Congress had many means at its disposal to penalize violators. It could have, for example, required violators to compensate federal, state, and local governments for the estimated damage to their respective economies caused by the violations. But, this remedy was not selected. Instead, Congress chose to permit all persons to sue to recover three times their actual damages every time they were injured in their business or property by an antitrust violation.

In theEuropean Union,the so-called "Modernisation Regulation",Regulation 1/2003,established that theEuropean Commissionwas no longer the only body capable of public enforcement ofEuropean Union competition law.This was done to facilitate quicker resolution of competition-related inquiries. In 2005 the Commission issued aGreen PaperonDamages 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 byWhelan,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-warHavana Chartercontained an Antitrust codebut this was never incorporated into the WTO's forerunner, theGeneral Agreement on Tariffs and Trade1947.Office of Fair TradingDirector and 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 ongoingDoha roundof trade talks for theWorld Trade Organization,discussion includes the prospect of competition law enforcement moving up to a global level. While it is incapable of enforcement itself, the newly establishedInternational Competition Network(ICN) is a way for national authorities to coordinate their own enforcement activities.

Theory

Main article:Competition law theory

Classical perspective

See also:Classical economics

Under the doctrine oflaissez-faire,antitrust is seen as unnecessary as competition is viewed as a long-term dynamic process where firms compete against each other for marketdominance.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 ofcreative destructionbegins which erodes the monopoly. Therefore, government should not try to break up monopoly but should allow the market to work.

John Stuart Millbelieved therestraint of tradedoctrine was justified to preservelibertyandcompetition.

The classical perspective on competition was that certain agreements and business practice could be an unreasonable restraint on theindividual libertyof 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.

A monopoly granted either to an individual or to a trading company has the same effect as a secret in trade or manufactures. The monopolists, by keeping the market constantly under-stocked, by never fully supplying the effectual demand, sell their commodities much above the natural price, and raise their emoluments, whether they consist in wages or profit, greatly above their natural rate.

InThe Wealth of Nations(1776)Adam Smithalso pointed out the cartel problem, but did not advocate specific legal measures to combat them.

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

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 treatiseOn Liberty(1859).

Again, trade is a social act. Whoever undertakes to sell any description of goods to the public, does what affects the interest of other persons, and of society in general; and thus his conduct, in principle, comes within the jurisdiction of society... both the cheapness and the good quality of commodities are most effectually provided for by leaving the producers and sellers perfectly free, under the sole check of equal freedom to the buyers for supplying themselves elsewhere. This is the so-called doctrine of Free Trade, which rests on grounds different from, though equally solid with, the principle of individual liberty asserted in this Essay. Restrictions on trade, or on production for purposes of trade, are indeed restraints; and all restraint, qua restraint, is an evil...

Neo-classical synthesis

See also:Neoclassical synthesis

Paul Samuelson,author of the 20th century's most successful economics text, combined mathematical models andKeynesianmacroeconomic intervention. He advocated the general success of the market but backed the American government's antitrust policies.

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 maximizessocial welfare.This model assumes that new firms can freely enter markets and compete with existing firms, or to use legal language, there are nobarriers to entry.By this term economists mean something very specific, that competitive free markets deliverallocative,productiveand dynamic efficiency. Allocative efficiency is also known asPareto efficiencyafter the Italian economistVilfredo Paretoand means that resources in an economy over thelong runwill go precisely to those who arewillingandableto pay for them. Because rational producers will keep producing and selling, and buyers will keep buying up to the lastmarginal unitof 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 andutilityis 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 whowork hard,and therefore those who will put society's resources towards thefrontier 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 scientistJoseph Schumpeter's notion that a "perennial gale of creative destruction" is ever sweeping throughcapitalisteconomies, driving enterprise at the market's mercy.This led Schumpeter to argue that monopolies did not need to be broken up (as withStandard 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 decreasingsocial welfareby creating adeadweight loss.Sources of this market power are saidto include the existence ofexternalities,barriers to entryof the market, and thefree rider problem.Markets mayfailto be efficient for a variety of reasons, so the exception of competition law's intervention to the rule oflaissez faireis justified ifgovernment failurecan be avoided. Orthodox economists fully acknowledge thatperfect competitionis 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 optionby using the law to tame market operation where it can.

Chicago school

Robert Bork

See also:Chicago school of economicsandNeoclassical economics

A group of economists and lawyers, who are largely associated with theUniversity of Chicago,advocate an approach to competition law guided by the proposition that some actions that were originally considered to be anticompetitive could actually promote competition.TheU.S. Supreme Courthas 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 JudgeRichard Posner's booksAntitrust LawandEconomic Analysis of Law.

Robert Borkwas highly critical of court decisions on United States antitrust law in a series of law review articles and his bookThe Antitrust Paradox.Bork argued that both the original intention of antitrust laws and economic efficiency was the pursuitonlyof consumer welfare, the protection of competition rather than competitors.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 SchoolprofessorPhilip Areeda,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

Main articles:CollusionandCartel

Scottish EnlightenmentphilosopherAdam Smithwas an early enemy of cartels.

Dominance and monopoly

Main articles:Dominance (economics)andMonopoly

The economist's depiction ofdeadweight lossto efficiency that monopolies cause

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. Market dominance is connected with decreased innovation and increased political connectedness.

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 ofconsumer choiceand depriving competitors of outlets. This was the alleged case inMicrosoft v. Commissionleading to an eventual fine of million for including itsWindows Media Playerwith theMicrosoft Windowsplatform. 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 namedCommercial Solvents.When it set up its own rival in thetuberculosisdrugs 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 ispredatory pricing.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, inFrance Telecom SA v. Commissiona 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 isprice discrimination.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

Main article: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 thesharesof 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 anteprevention 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 increaseeconomies of scaleand 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 concentrationwould,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,

No person shall acquire, directly or indirectly, the whole or any part of the stock or other share capital... of the assets of one or more persons engaged in commerce or in any activity affecting commerce, where... the effect of such acquisition, of such stocks or assets, or of the use of such stock by the voting or granting of proxies or otherwise, may be substantially to lessen competition, or to tend to create a monopoly.

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.TheHerfindahl-Hirschman Indexis 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, oroligopolythrough "economic links"can arise, whereby the new market becomes more conducive tocollusion.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 inAOL/Time WarnertheEuropean Commissionrequired that a joint venture with a competitorBertelsmannbe ceased beforehand. The EU authorities have also focused lately on the effect ofconglomerate 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 withintellectual property,such ascopyright,trademarks,patents,industrial design rightsand in some jurisdictionstrade secrets.It is believed that promotion ofinnovationthrough 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,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, seeMillennium Prize Problems.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.

See also

• Consumer protection
• European Union competition law
• The History of the Standard Oil Company(book)
• Institute for Consumer Antitrust Studies
• Irish Competition law
• List of competition regulators
• List of countries' copyright length
• Relevant market
• Resale price maintenance
• Sherman Antitrust Act
• SSNIP
• United States antitrust law
• Megacorporation

References

• Bork, Robert H.(1978)The Antitrust Paradox,New York Free PressISBN0-465-00369-9
• _____ (1993).The Antitrust Paradox(second edition). New York: Free Press.ISBN0-02-904456-1.
• 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,2nd Edition.Abstract.
• Mill, John Stuart(1859)On Liberty
• Posner, Richard(2001)Antitrust Law,2nd ed.,ISBN978-0-226-67576-3Preview.
• _____ (2007)Economic Analysis of Law7th ed.,ISBN978-0-7355-6354-4
• Prosser, Tony (2005)The Limits of Competition Law,ch.1
• Rubinfeld, D.L. (2001), "Antitrust Policy",International Encyclopedia of the Social & Behavioral Sciences,pp. 553–560,doi:10.1016/B0-08-043076-7/02299-3,ISBN9780080430768
• Schumpeter, Joseph(1942)The Process of Creative Destruction
• Smith, Adam(1776)An Enquiry into the Nature and Causes of the Wealth of Nationsonlinefrom the Adam Smith Institute
• Wilberforce, Richard,Alan Campbell and Neil Elles (1966)The Law of Restrictive Practices and Monopolies,2nd edition, London: Sweet and MaxwellLCCN66-70116
• 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,ISSN1554-6853,available athttps://web.archive.org/web/20071127034131/http:// globalcompetitionpolicy.org/
• Elhauge, Einer, Geradin, Damien (2007)Global Competition Law and Economics,ISBN1-84113-465-1
• Faull, Jonathan, Nikpay, Ali (eds) (2007) "Faull & Nikpay: The EC Law of Competition,"ISBN978-0-19-926929-7
• 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 athttps://web.archive.org/web/20080724022203/http:// antitrustworldwiki /

External links

• United Nations set of principles on competition (The UN Set)
• Intergovernmental Group of Experts on Competition Law and Policy