This article is written by Vanya Verma from O.P. Jindal Global University. This article talks about competition regulations by the European Commission, its legal basis, objectives, competition policy tools, enforcement, the role of the European Parliament and finally the contribution of competition policy in improving the lives of citizens along with recent efforts in sanctioning cartels in consumer sensitive sectors.

Introduction

The primary goal of the European Union Competition Laws is to ensure that the Union’s internal market functions properly as a fundamental driver for the well-being of the European Union (EU) individuals, enterprises, and society as a whole. To that purpose, the Treaty on the Functioning of the European Union (TFEU) provides measures aimed at preventing restrictions on and distortions of competition in the internal market. More precisely, it does so by outlawing anti-competitive agreements between undertakings and abuse of market position by dominant undertakings, both of which potentially harm trade between the Member States. Furthermore, mergers and acquisitions with an EU dimension are scrutinised by the European Commission (‘the Commission’) and may be blocked if they would significantly reduce competition. Further, the State’s help to individual companies or products is forbidden when it causes market distortions, but it can be authorized in certain circumstances. Competition rules apply to public companies, public services, and services of general interest, subject to certain limitations and exceptions.

Legal basis

Objectives

The primary goal of the EU Competition Rules is to ensure that the internal market functions properly. The effective competition allows enterprises to compete on an equal footing among the Member States, while also putting pressure on them to continuously try to provide the greatest products at the best prices to the consumers. This, in turn, fuels long-term economic growth and innovation. The EU’s competition policy is continuously being tested by societal, economic, geopolitical, and technical changes. The new European Commission, which began work in December 2019, is working on a comprehensive review of EU antitrust, mergers, and State aid policies. Furthermore, the COVID-19 epidemic created particular problems and challenges to firms, consumers, and the economy as a whole and required a range of measures in the field of competition to enable an adequate response to these challenges.

Download Now

Competition policy tools

The State aid regulations aim to avoid unnecessary state interference whenever preferential treatment of certain enterprises or sectors distorts, or is likely to distort, competition and has a negative impact on cross-border commerce. Services of General Economic Interest (SGEI) are of particular importance to residents and are subject to specific rules in the context of State aid, to encourage social and territorial cohesion, a high level of quality, safety and affordability, and fair treatment.

  1. A comprehensive ban on anti-competitive agreements (Article 101 TFEU)

Article 101 TFEU– Companies agreeing to restrict competition instead of competing with each other would disrupt the level playing field, causing harm to customers and other firms. As a result, all agreements between undertakings that have their goal or effect a distortion of competition and have the potential to affect trade between the Member States are illegal [101 (1)] and instantly nullified [101 (2)]. Explicit agreements (such as cartels) and deliberate methods for setting pricing, controlling production output, or partitioning the market among enterprises fall under this category (also called territorial protection clauses). These types of agreements are always regarded as anti-competitive and are thus, strictly prohibited.

  1. Prohibition of abuse of a dominant position (Article 102 TFEU)

If a corporation in a dominant position in a market abuses that position (for example, by charging customers exorbitantly high rates), it will harm both customers and competitors. As a result, such conduct is illegal by EU Competition Law. The 2004 Microsoft Decision was one of the most well-known incidents of misuse of dominant position. Microsoft had abused its dominant position in PC operating systems by withholding essential interoperability information from competitors, leaving rival operating system suppliers unable to compete effectively, according to the Commission. A dominant position is defined as “a position of economic strength enjoyed by an undertaking that allows it to prevent effective competition from being maintained in the relevant market by allowing it to act to a significant degree independently of its competitors, customers, and ultimately consumers.” A non-exhaustive list of examples of abusive behaviour can be found in Article 102 TFEU.

  1. Merger control procedure

Mergers and acquisitions can benefit businesses and the economy as a whole by bringing efficiencies, synergies, and economies of scale to the table. They can, however, undermine competition if they result in the strengthening of market power or increased market concentration. As a result, certain mergers and acquisitions must be reviewed and may not be completed until approval is given. Concentrations that would severely restrict effective competition in the common market or a major portion of it, in particular through the formation or strengthening of a dominating position, must be declared incompatible with the common market [Article 2(3)] under Regulation (EC) No 139/2004. If the resulting firm would exceed specified criteria (so-called “concentrations with a Community dimension”), the Commission must be notified. Mergers can be reviewed by National Competition Authorities if they fall below certain thresholds. If a company is situated outside the EU and does business in the internal market, the merger control regulations apply to them equally as well.

  1. Prohibition of State Aid (Article 107 TFEU)

Article 107 TEFU– The Treaty on the Functioning of the European Union (TFEU) establishes a general prohibition of state aid [107 (1)] to prevent competition distortions in the internal market caused by the provision of selective advantages to specific enterprises. All non-repayable subsidies, subsidised loans, tax and tariff exemptions, and loan guarantees granted by the Member States are prohibited.

The TFEU allows for some exceptions to this general prohibition if they can be justified by specific overarching policy objectives [107(2) and (3)], such as mitigating major economic disruptions or serving the common interest of Europe. The State Aid Temporary Framework measures to support the economy in the current COVID-19 outbreak, which was adopted to address severe economic disruptions caused by the epidemic, is a recent example. Similar efforts were taken in the past during the global financial crisis to avert substantial negative spillover consequences for the entire financial system as a result of a single financial institution’s failure.

  1. Public Services of General Economic Interest (SGEIs)

Certain vital services (such as energy, postal service, and rail transportation) are still provided by public companies or undertakings managed by public authorities in the several Member States. These services are classified as services of general economic interest (SGEIs) and are governed by specific rules in the EU State assistance framework. Article 36 of the Charter of Fundamental Rights, too, recognizes the access that European citizens should have to SGEIs, intending to promote social and territorial cohesion within the Union.

Enforcement of competition rules

To ensure that the competition policy objectives are met, strict and effective enforcement of EU competition rules is required. The Commission is the key authority in charge of ensuring that these standards are followed correctly, and it has extensive inspection and enforcement powers.

Furthermore, beginning 1st May 2004, the competition authorities of the Member States assumed some competition enforcement powers in the context of antitrust (Articles 101 and 102 TFEU). The strengthened enforcement function of national antitrust authorities and courts was enabled by Council Regulation (EC) No 1/2003, which was further enhanced by Directive (EU) 2019/1. Effective coordination between national and European competition enforcement authorities is critical in such a decentralized enforcement environment. As a result, the European Competition Network (ECN), which includes national competition agencies as well as the Commission, provides a platform for information exchange aimed at increasing coordination in the enforcement of competition regulations.

The Actions for Damages Directive was enacted in 2014 to increase the deterrent effect of unlawful agreements (cartels and misuse of a dominant position) while also providing improved consumer protection. It makes getting compensation for harm caused to citizens or other enterprises as a result of a violation of competition law easier.

Legal and regulatory framework for blockchain by the European Commission

To avoid legal and regulatory fragmentation, the EU strongly supports EU-wide blockchain legislation. In order to promote investments and assure consumer and investor protection, the Commission adopted a comprehensive package of legislative measures for the regulation of crypto-assets.

This package changes certain financial market laws for crypto-assets and establishes a legal framework for financial supervisors’ regulatory sandboxes in the EU for employing blockchains in trading and post-trading of the securities.

The European Central Bank (ECB) and European Commission agencies are working together to examine a wide variety of policy, legal, and technical issues around the potential implementation of a digital Euro. They’re thinking about it in terms of their different mandates and the independence guaranteed by the treaties. The European Commission and the European Central Bank issued a joint statement outlining their collaboration on a digital Euro.

Previously, crypto-assets that met the criteria for being classified as “financial instruments” under the Markets in Financial Instruments Directive were subject to EU securities market regulations.

However, these laws existed before the advent of crypto-assets and Distributed Ledger Technology (DLT). This may hamper innovation. As a result, the Commission suggested a pilot regime for market infrastructures that want to experiment with trading and settling financial instrument transactions in crypto-asset form. The pilot programme provides for exceptions to existing norms and allows authorities and businesses to explore innovative blockchain-based solutions.

The Commission recommended a new framework for crypto-assets that do not qualify as “financial instruments,” such as utility tokens or payment tokens. All other EU and national rules now controlling the issuance, trading, and storage of such crypto assets will be replaced by this framework.

The Markets in Crypto-Assets Regulation (MiCA) will promote innovation while also safeguarding consumers and crypto-currency exchanges’ integrity. This includes prohibitions on insider trading and front-running. Entities that issue crypto-assets, organisations that provide services surrounding these crypto-assets, firms that operate digital wallets, and cryptocurrency exchanges are all included by the proposed Regulation.

The Commission’s press release and accompanying press memorandum provide additional details. A sandbox is a facility that brings together regulators, businesses, and technology specialists to test new ideas and uncover roadblocks to their implementation.

In collaboration with the European Commission, the European Blockchain Partnership is developing a pan-European regulatory sandbox for use cases both within and outside of the EBSI, such as data portability, business-to-business data spaces, smart contracts, and digital identification. This will include topics such as health, the environment, mobility, and energy, among others. By 2021/22, the sandbox is expected to become operational.

Contribution of the competition policy in improving living conditions of the citizens

Competition policy is inextricably linked to all other policy programs developed by the European Commission and the Member States to strengthen the European single market and improve the lifestyle of the individuals.

The European Commission has developed a general benchmarking technique to quantify the results achieved in terms of competition protection and growth. The observable customer gains from cartel actions implemented in 2011 are in the range of €2.8 billion to €4.2 billion, according to this Benchmarking Research. For 2011, the range of observable customer advantages resulting from the European Commission’s action in the form of a decision blocking or clearing a horizontal merger subject to remedies is €4.0 billion to €5.8 billion.

Several examples of how the European Commission has utilized the competition tool to directly or indirectly address and improve the condition of consumers will be described in the following sections.

  1. Liberalisation
  • Transport, energy, postal services, and telecommunications services have not always been as competitive as they are now in the EU. The European Commission has played a key role in the opening of certain markets (also known as liberalisation).
  • Previously, services like these were the exclusive realm of national organisations with exclusive rights to deliver a certain service in the EU Member States. Consumers can now choose from a variety of alternative service providers and products once these markets are opened up to international competition. They also benefit from decreased rates and new services that are typically more efficient and consumer-friendly than previous services.
  • Network operators in the railway, energy, and gas industries are now compelled to provide equitable access to their networks to competitors. In many businesses, ensuring that all suppliers have equal access to the network is essential so that consumers can choose the supplier with the best terms. Average prices have reduced significantly in the two areas that were first opened to competition (air transportation and telecoms).
  • When markets open up, the European Commission’s State aid control system should prevent the Member States from receiving help that essentially reverses the market opening. For example, this has been a challenge, in the postal industry, where markets have been gradually liberalised up to complete opening by the 3rd Postal Directive.
  1. Telecom
  • In Europe today, there are more than 250 million daily internet users, and almost everyone owns a mobile phone. To provide innovative, affordable services to European customers, competition rules work together with the telecom sector.
  • The European Commission has worked successfully to boost competition in the telecoms sector, attracting new entrants from across Europe, compelling incumbent providers to raise their service standards and lower their prices, and enforcing competition laws to keep telecom operators competitive.
  • In the European Union, mobile has become the most cost-effective method of supplying consumers with basic telephone services. This is mostly due to mobile telecommunications networks’ cost advantage, which stems from the low marginal cost of acquiring a new customer (the access radio network is shared between subscribers, whereas a fixed-line connecting a subscriber offers less possibility for shared access costs, especially if the subscriber is located in a rural area).
  • Although affordability must be seen in the context of individual national circumstances, the EU average price of a low usage basket of mobile services has reduced by 30% since 2006, to €9.09 in 2013. The Commission’s Flagship Initiative on a Digital Agenda for Europe, which was launched in August 2010, intends to bring the gap between roaming and national tariff to zero by 2015.
  • On January 1, 1998, the European Commission fully opened the telecommunications sector to competition, with notable outcomes. The impact of market liberalisation on the telecommunications sector can be seen in price movements. Consumers in the EU15 spent roughly 27% less for the same telecoms services in 2006 than they did ten years before, equating to a 40% reduction in real terms.
  1. Energy
  • The energy sector is another sector that is close to the customer. Energy bills represent a considerable portion of a household’s budget, especially for low-income families. The first electricity and gas directives were approved by the European Commission in the late 1990s, to progressively inject competition into the electricity and gas markets.
  • In 2003, the second series of liberalisation directives were passed. These stipulated that by July 2004, all non-residential gas and electricity markets will be liberalised. The deadline for private households was July 2007. Businesses and private consumers were supposed to be allowed to choose their power and gas suppliers freely in a competitive marketplace after these dates.
  • However, a sector enquiry of the gas and electricity markets conducted by the European Commission in 2005 and released in January 2007 indicated that severe competition barriers still exist. The energy inquiry was launched in response to consumer and new entrant concerns over the growth of wholesale gas and electricity markets, as well as limited customer choice. 
  • The European Commission has taken action under competition rules to address the issues uncovered during the investigation (antitrust, merger control, and state aid). Since the end of the energy sector competition inquiry in 2007, ten key antitrust judgements have been made in the energy industry.
  • The findings of the competition sector inquiry were used in the preparation of the third package of directives to liberalise gas and electricity markets, which were adopted in 2009, to ensure that consumers benefit fully from the liberalisation in terms of secure, competitively priced, and sustainable energy. The need to reinforce existing laws on separation of supply and network businesses, for example, was a clear message from the inquiry, as was the need to reduce barriers to cross-border energy market competition.
  • Even though energy prices in the EU have continued to climb, improved competition in the energy markets has kept prices in check. Indeed, consumer energy prices have risen at a slower rate than the cost of energy sources such as oil, gas, and coal in recent years.
  1. Pharmaceuticals
  • Without a question, the pharmaceutical industry is vital to consumers and the underprivileged members of society. There are tens of thousands of prescription and non-prescription medicines available, and as the population ages, more people are taking more medicines. In 2010, each European spent roughly € 390 on pharmaceuticals on average. This number is likely to climb in the future, especially with Europe’s ageing population.
  • The European Commission decided in 2008 to start an in-depth sector inquiry to determine if Europe is optimising innovation and affordability in this industry, based on strong indications that competition in this sector remained insufficient. This is significant because more innovation and more cheap drugs will result in improved quality of life for individuals and cost savings for governments. The sector is described in detail in the final report from 2009. It investigates how firms interact with patent and other regulatory systems, as well as the means through which medications reach customers. 
  • The most crucial finding was that generic drugs take much too long to reach the market. When patents for brand-name (also known as originator) drugs expire, consumers typically have to wait 7 months for cheaper generic medicines to become available. One explanation is that pharmaceutical corporations employ several strategies to extend the commercial life of their products. Prices fall when brand-name drugs are forced to compete with generics. Furthermore, more people may be treated, as they may only have access to generic versions of medicine in some cases, such as in poorer Member States.
  • This shows that since the sector investigation report in 2009, originator and generic businesses have become more aware of which types of settlements can lead to antitrust scrutiny, namely, so-called pay-for-delay settlements. This is good news for consumers, as cheaper drugs will benefit them.
  • Complementary measures have also been created outside of the scope of competition legislation. EU countries have been urged to take action against deceptive campaigns questioning the quality of generic medicines, to implement mechanisms to significantly speed up approval procedures for generic medicines, such as immediate/automatic pricing, to streamline trials that test the added value of medicines, and to implement measures that support the rapid uptake of generic medicines and lower prices.
  • All of these steps should benefit consumers by allowing them to obtain safe, innovative, and economical drugs more quickly.
  1. Financial services
  • The European Commission undertook a financial sector investigation in 2005. The investigation looked into the EU markets for payment cards and fundamental retail banking services, such as current accounts and related services. The investigation’s findings revealed fragmented markets and locations where markets aren’t working as well as they could, raising the cost of retail banking services for European businesses and individuals unnecessarily.
  • The European payment card sector is vast and provides a mechanism for consumers to make payments worth €1 350 billion per year. Banks earn an estimated €25 billion in fees each year from such transactions. For consumers, this is a significant sector, though most consumers are unaware of the impact because the fees are hidden and only passed on indirectly by merchants as increased costs. 
  • The retail banking industry in the EU generates €250-275 billion in gross revenue per year, which is equivalent to 2% of EU GDP. Markets are generally fragmented along national borders, due to variables such as legislative, legal, and cultural variations.
  • The sector investigation discovered evidence of competition issues in various areas that directly harm consumers. When taking out a mortgage or a loan, for example, the majority of banks in most Member States force their customers to acquire additional goods such as current accounts or insurance. In many countries, there isn’t much of a choice: all of the major banks bind the same goods together. This raises competition problems if such institutions are in a position to set prices on these product markets.
  • Furthermore, the investigation discovered several unjustified barriers to transferring bank accounts that hinder competition. Switching is discouraged by a lack of price transparency and excessive costs for keeping and cancelling accounts. Consumers keep their current accounts with the same bank for roughly 10 years on average, compared to nearly 8 years for SMEs, according to the study. The investigation also revealed that banks are more profitable on average in regions with low client mobility.
  • Following the release of the sector investigation report, several market participants have taken voluntary steps to resolve the most significant issues raised. The European Commission’s follow-up efforts focus on competition law enforcement where impediments remain. The European Commission, for example, has opened many investigations in the sector of payment cards to lower prices for merchants and customers. Visa barred a bank from becoming an acquirer in the Visa/Morgan Stanley case, 2011 limiting competition in this sector. 
  • Big banks prohibited smaller banks from issuing less expensive cards in the Carte Bancaire case, 2014 to the prejudice of all cardholders. Finally, the Commission determined that the costs paid between banks for each card payment were excessive in the MasterCard case 2012. In the case of Visa, similar actions are presently underway. Meanwhile, both card programmes have agreed to reduce their cross-border transaction fees.
  • The European Commission recently addressed the critical issue of access to financial services, which is not directly related to competition policy. Access to a bank account has become a must for fully engaging in modern economic and social life, where cash usage is steadily declining. According to recent statistics, over 30 million European Union consumers over the age of 18 do not have a bank account. It is estimated that between 6 and 7 million of the 30 million ‘unbanked’ persons do not have a bank account because they have been denied access to one. In light of this, the European Commission released a Recommendation in 2011 aimed at improving the situation.
  1. Food
  • In response to growing concerns about the functioning of the food supply chain, the European Commission established an internal Food Task Force under the Directorate-General of Competition in early 2012. The Food Task Force was established for a two-year term, coinciding with a growing political focus on the sustainability of farming and transformation sectors, as well as worries about the impact of rising food prices on people’s decreased budgets in the current economic climate.
  • Secondly, the European Commission strengthened its communication with NCAs on food-related concerns in the framework of the European Competition Network, given the national or regional scope of food retail markets. Members of the ECN discussed information on recent enforcement, monitoring, and advocacy efforts at the national and EU levels as well as policy challenges posed by recurring commercial behaviours that could disrupt food supply chains.
  • The European Commission has also been active in the investigation of suspected infringements involving the food sector NCAs around the EU, for their part, have become more active in recent years in investigating food markets on a domestic level, with a special focus on potential infringements stemming from supply chain activities.
  • The European Competition Network (ECN) released a report in May 2012 that provided a comprehensive review of all competition law enforcement (antitrust proceedings and mergers) and market monitoring measures done by the NCAs and the Commission between 2004 and 2011. Since 2004, NCAs have enforced competition law and monitored markets in the food sector, resulting in more than 180 antitrust proceedings, close to 1,300 merger rulings, and more than 100 monitoring activities.
  • These cases covered a wide range of industries, with a focus on cereals and cereal-based products, milk and dairy, fruits and vegetables, and retail sales of everyday consumer items, and they covered all levels of the food supply chain. In terms of sector inquiries and market studies, NCAs have often assessed price formation by focusing on specific stages of the food supply chain, such as retail (including relationships between retailers and their suppliers) or specific product sectors (such as milk and dairy products, fruits and vegetables, and cereals).
  • In light of NCAs’ ongoing investigations at the national level, the European Commission’s Food Task Force reflects an enhanced and complementary effort to root out and sanction competition law violations in the EU’s food industry. The Food Task Force may be able to combine the dual duties of leading the enforcement vanguard and serving as effective mission control, providing information to NCAs to enable successful national enforcement in domestic or local markets.
  • In addition, the Food Task Force has been following and contributing to ongoing debates on CAP reform, with one of the important parts being the application and possible revision of competition rules in the sector.
  • Finally, in December 2012, the Food Task Force issued a request for tender for an economic assessment of the food retail sector. The goal of this research was to collect quantitative evidence on the evolution of choice and innovation at this level of the food supply chain, as well as to examine the factors (ranging from the retailer and supplier concentration to shop and socio-demographic characteristics) that have the greatest impact on the evolution of choice and innovation in the food retail sector. This study was launched in response to claims from industry stakeholders and policymakers that retailers’ business strategies are stifling investment in innovation and limiting customer choice. The study is also expected to provide more insight into the competitive landscape of local retail marketplaces in various EU member states.

Conclusion

Despite the difficulty of quantifying and indicating precisely how strong or direct the link is, the European Commission believes that competition policy can contribute significantly to consumer welfare.

Lower consumer pricing for goods or services of particular importance to consumers is a result of competition policy, which includes the opening of markets to competition, the dismantling of cartels, and the banning of anti-competitive mergers. It will also be fueled by the ban of “bad” state assistance that distorts competition and the promotion of “good” help that promotes economic growth, job creation, and innovation.

Throughout the debate on the relationship between competition policy and consumer welfare, it is important to remember that European competition policy is not a stand-alone policy; rather, it is a component of and contributes to the European Commission’s overall policy objectives, which are to get Europe out of the economic crisis by stimulating economic growth and improving job opportunities for the benefit of consumers.

References

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join: https://t.me/joinchat/L9vr7LmS9pJjYTQ9

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

RELATED ARTICLESMORE FROM AUTHOR

LEAVE A REPLY

Please enter your comment!
Please enter your name here