Product Code Database
Competition law is the field of law that promotes or seeks to maintain market competition 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 act of pushing for antitrust measures or attacking monopolistic companies (known as trusts) is commonly known as trust busting.
The history of competition law reaches back to the Roman Empire. The business practices of market traders, 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 and European 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 of nation-states. 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 in competition cases based on so-called "effects doctrine".JG Castel, 'The Extraterritorial Effects of Antitrust Laws' (1983) 179 Recueil des Cours 9 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 Organization. These obligations were not included in GATT, but in 1994, with the conclusion of the Uruguay Round of GATT multilateral negotiations, the World Trade Organization (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.
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 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 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.see, Organisation for Economic Co-operation and Development's Regulation and Sectors page. Robert Bork 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.Bork (1993), p. 56
In continental Europe, competition principles developed in lex mercatoria. 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's legislation against state monopolies; and under Emperor Charles V in the Holy Roman Empire 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 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 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.
Europe around the 16th century was changing quickly. The New World 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 had been introduced into England. But by the reign of Queen Elizabeth I, the system was reputedly heavily abused and used merely to preserve privileges. It did not promote innovation or help improve manufacturing.according to William Searle Holdsworth, 4 Holdsworth, 3rd ed., Chap. 4 p. 346 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,(1602) 11 Co. Rep. 84b 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 were (1) price increase, (2) quality decrease, (3) the rise in unemployment and destitution among artificers. This put an end to granted monopolies until King James I began to grant them again. In 1623 Parliament passed the Statute of Monopolies, which for the most part excluded patent 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.For example one John Manley paid p.a. from 1654 to the Crown for a tender on the "postage of letters both inland and foreign" Wilberforce (1966) p. 18 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.(1685) 10 St. Tr. 371
The development of early competition law in England and Europe progressed with the diffusion of writings such as The Wealth of Nations by Adam Smith, who first established the concept of the market economy. At the same time industrialization replaced the individual artisan, or group of artisans, with paid laborers 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 the French Revolution 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 labor 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 misdemeanors". 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, ideas of competition lost favor, and it was felt that companies had to co-operate by forming cartels to withstand huge pressures on prices and profits.
While the development of competition law stalled in Europe during the late 19th century, in 1889 Canada 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 Sherman Act of 1890. Likely the most famous legal statute on competition law, 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 recognized principles of common law".
In the European Union, the so-called "Modernization Regulation",Office of Fair Trading, Modernisation: Understanding competition law , p. 4, published December 2004, accessed 27 November 2023 Regulation 1/2003, established that the European Commission was no longer the only body capable of public enforcement of European Union competition law. This was done to facilitate quicker resolution of competition-related inquiries. In 2005 the Commission issued a Green Paper 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 analyzed by Whelan, these types of sanctions engender a number of significant theoretical, legal and practical challenges.Peter Whelan, The Criminalization of European Cartel Enforcement: Theoretical, Legal and Practical Challenges , Oxford University Press, 2014
Antitrust administration and legislation can be seen as a balance between:
Chapter 5 of the post-war Havana Charter contained an Antitrust codesee a speech by Wood, The Internationalisation of Antitrust Law: Options for the Future 3 February 1995, at http://www.usdoj.gov/atr/public/speeches/future.txt but this was never incorporated into the WTO's forerunner, the General Agreement on Tariffs and Trade 1947. Office of Fair Trading Director and Richard Whish wrote skeptically that it "seems unlikely at the current stage of its development that the WTO will metamorphose into a global competition authority".Whish (2003) p. 448 Despite that, at the ongoing Doha round of trade talks for the World 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 established International Competition Networksee, http://www.internationalcompetitionnetwork.org/ (ICN) is a way for national authorities to coordinate their own enforcement activities.
The classical perspective on competition was that certain agreements and business practice could be an unreasonable restraint on the individual liberty 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 (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 (1859).
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 by creating a deadweight loss. Sources of this market power are said to include the existence of externalities, barriers to entry of the market, and the free rider problem. Markets may market failure to be efficient for a variety of reasons, so the exception of competition law's intervention to the rule of laissez faire is justified if government failure 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".Whish (2003), p. 14. This follows the theory that if one cannot achieve the ideal, then go for the second best optioncf. by using the law to tame market operation where it can.
Robert Bork 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.Bork (1978), p. 406. The common theme linking the different critiques of US antitrust policy is 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, who favors more aggressive antitrust policy, in at least one Supreme Court case challenged Robert Bork's preference for non-intervention. Brooke Group v. Williamson, .
The consumer welfare standard , influenced by the Chicago School and Robert Bork, has become the dominant antitrust enforcement principle since the 1980s, but has drawn increasing criticism from modern movements like the New Brandeis movement.
One of the deciding factors on determining an abusive monopoly is if the firm behaves "to an appreciable extent independently of its competitors, customers and ultimately of its consumer".C-27/76 United Brands Continental BV v. Commission 1978 ECR 207 Under EU law, very large market shares raise a presumption that a firm is dominant,C-85/76 Hoffmann-La Roche & Co AG v. Commission 1979 ECR 461 which may be rebuttable. AKZO 1991 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". Michelin 1983 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. Although the lists are seldom closed, Continental Can 1973 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.Art. 82 (b) Porto di Genova 1991 Another example of abuse is the act of tying one product into the sale of another, causing a restriction of consumer choice and depriving competitors of outlets. This was the alleged case in Microsoft v. Commission, which led to an eventual fine of €497 million for including its Windows Media Player with the Microsoft Windows platform. Abuses can also be constituted as a refusal to supply, when the facility is essential to all competing businesses. One example was in a case involving a medical company named Commercial Solvents. Commercial Solvents 1974 When it set up its own rival in the tuberculosis drugs market, Commercial Solvents was 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. 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.see, e.g. Posner (1998) p. 332; "While it is possible to imagine cases in which predatory pricing would be a rational stragy, it should be apparent by now why confirmed cases of it are rare." However, in France Telecom SA v. CommissionCase T-340/03 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" AKZO 1991 para 71 and was being cross-subsidized to capture the lion's share of a booming market. One last category of pricing abuse is price discrimination.in the EU under Article 82(2)c) 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. Irish Sugar 1999
Certification bodies can engage anti-competitive actions. Reduced competition in health care can worsen health economics and health care quality.
The question of 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.see, for instance para 17, Guidelines on the assessment of horizontal mergers (2004/C 31/03) The Herfindahl index is used to calculate the "density" of the market, or what concentration exists. It is also important to consider the product in question and the rate of technical innovation in the market.C-68/94 France v. Commission 1998 ECR I-1375, para. 219 A further problem of collective dominance, or oligopoly through "economic links" Italian Flat Glass 1992 ECR ii-1403 can arise, whereby the new market becomes more conducive to collusion. It is relevant how transparent a market is, because a more concentrated structure could make it easier for firms to coordinate their behavior. Transparency also allows for informed predictions of whether firms can deploy effective deterrents and are safe from a reaction by their competitors and consumers.T-342/99 Airtours plc v. Commission 2002 ECR II-2585, para 62 The entry of new firms to the market and any barriers that they might encounter should also be considered. Mannesmann, Vallourec and Ilva 1994 CMLR 529, OJ L102 21 April 1994 In the US, if firms are observed to be creating a concentration leading to a noncompetitive environment, a defensible stance is that they create efficiencies enough to outweigh any detriment. This is of similar reference to the "technical and economic progress" as mentioned in Art. 2 of the ECMR.see the argument put forth in Hovenkamp H (1999) Federal Antitrust Policy: The Law of Competition and Its Practice, 2nd Ed, West Group, St. Paul, Minnesota. Unlike the authorities however, the courts take a dim view of the efficiencies defense. Another possible defense might be that the firm which is being taken over is about to fail or go insolvent, and the resulting competitive state would not be lessened. Kali und Salz AG v. Commission 1975 ECR 499 This is known as the "failing firm defense" and has been a regular feature of the U.S. Horizontal Merger Guidelines since 1982. Mergers vertically in the market are rarely of concern, although in AOL/Time Warner Time Warner/AOL 2002 4 CMLR 454, OJ L268 the European Commission required that a joint venture with a competitor Bertelsmann be ceased beforehand. The EU authorities have also focused on the effect of conglomerate mergers, where companies acquire a large portfolio of related products, though without necessarily dominant shares in any individual market.e.g. Guinness/Grand Metropolitan 1997 5 CMLR 760, OJ L288; Many in the US disapprove of this approach, see W. J. Kolasky, Conglomerate Mergers and Range Effects: It's a long way from Chicago to Brussels 9 November 2001, Address before George Mason University Symposium Washington, DC.
Concerns also arise over anti-competitive effects and consequences due to:
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. 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).
In many of Asia's developing countries, including India, Competition law is considered a tool to stimulate economic growth. In South Korea 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's Competition Ordinance came into force in the year 2015.
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, 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 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'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.
Today, the Treaty of Lisbon prohibits anti-competitive agreements in Article 101(1), including price fixing. 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 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. Articles 106 and 107 provide that member states' 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 cases on competition law include Consten & Grundig v Commission and United Brands v Commission.
Canada's competition laws are primarily governed by the Competition Act, a federal statute that regulates business practices to maintain fair competition in the marketplace. The Act includes both criminal and civil provisions aimed at preventing anti-competitive behavior such as Conspiracy, Bid rigging, abuse of dominance, and deceptive marketing. The Competition Bureau, an independent law enforcement agency, administers and enforces the Act, with cases adjudicated by the Competition Tribunal and courts.
The evolution of competition law in Canada dates back to the Anti-Combines Act of 1889, one of the earliest antitrust laws worldwide, which prohibited business conspiracies and agreements that restrained trade. Over time, this early law was replaced and updated by various laws including the Combines Investigation Acts of the early 20th century. The modern Competition Act replaced the Combines Investigation Act in 1986, introducing provisions for civil review of mergers and anti-competitive practices under a balance of probabilities standard, along with maintaining criminal sanctions for serious offenses like conspiracy and bid-rigging.
Since then, the Act has undergone multiple amendments to improve enforcement, clarify provisions, and adapt to new market challenges. While initially enforcement was exclusive to government authorities, more recent amendments have allowed for limited private rights of action. The Competition Act and its enforcement framework emphasize preventing undue lessening of competition while balancing economic efficiency and consumer protection.
|
|
