European Competition Policy During the Crisis: The Approach of the European Commission

AuthorAna Balcells Cartagena

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1. Introduction: questions to answer and structure followed

It will come to no surprise to anyone that we are living a time of crisis. The European Union is experiencing the worse economic and financial crisis of its history since the year 2008 and after four years submerged in this economic turmoil the Member States of the European Union do not seem to be closer to getting to the end of this period.

The current times of crisis have left their stamp on every aspect of the European policies and, in numerous cases, these policies have been modified or even suppressed in order to cope with the new situations that have aroused. This article will deal with the specific field of European Competition policy and will try to deeply analyze how it has been reshaped to fit in the crisis requirements.

We will see how, as the area of competition policy is closely related to trade and this to businesses’ performance, it has been strongly touched by the current crisis. One of the main challenges the crisis has brought to the Commission in this field has been a massive pressure to relax or even eliminate the enforcement of its competition rules during the duration of the recession. It is a generalized reaction to turn to protectionist arguments in times of economic turmoil and these last years have not been an exception. We will see how governments and companies have increased incentives to regard competition rules as an obstacle to economic recovery.

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The main goal of this article is to analyze what has been the reaction of the Commission through its Directorate-General for Competition to these new challenges. To address such a broad topic, we will develop the whole analysis on the basis of two questions. First of all, we will try to answer what has been the Commission’s position on the debate of whether the implementation of competition rules should be softened during the crisis. Then, in more concrete terms, we will focus on the areas of mergers, cartels and state aid to see if the Commission has been able to adequately react to the new urges brought by the crisis.

To do so, the structure of this article will go from broad issues to more concrete ones. Indeed, the first part will deal with the overall European competition policy, its goals and effects, and with the protectionist pressures that have recently reappeared. The second part of the article will go deeper into the analysis of three of the main topics of competition policy, mergers, cartels and state aid, and will present the approach of the Commission to each of them during the last years.

1.2. Introductory remarks: some clarifications

Before entering into the body of the article, it would be advisable to clarify how some aspects are going to be addressed. The first remark has to do with time limitations in the analysis intended in the article. As the main topic, the way the Commission has reacted to the crisis through its competition policy, is an on-going issue that by no means can be considered finalized, the article presented will focus on the period from 2008 to 2011.

Additionally, it is important to clarify that the notion of crisis that serves as the basis in the analysis refers to the crisis as an economic and financial turmoil and leaves aside the aspect of the sovereign debt crisis. Similarly, due to the broad and wide topic that the article covers, it will only go into the concrete analysis of three of the main areas of competition policy, that is, mergers, cartels and state aid.

Finally, the orientation of the whole analysis presented needs to be clarified. It is important to highlight that the point of view presented here is the one of the European Commission and so the study is not going to try to reach a conclusion on whether the measures adopted were right and effective or not. This is due to two main reasons. Firstly, this is based

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mainly on primary sources produced by the Commission. Moreover, due to the fact that this issue is still on going and that effects will take some time to arise, it is not possible at this time to produce a conclusion on the rightfulness of the Commission’s way of proceeding. Therefore, while some secondary sources will be used to identify some risks and criticisms, the main objective of the article is to analyze how the Commission has adapted its competition policy to the special challenges that arrived with the crisis.

2. Overall competition policy during the crisis: has the commission relaxed the enforcement of the competition rules?

Since the year 2008 Europe has been living the most raw and intense economic and financial crisis in history. This economic turmoil has had consequences in every aspect of the European policies and EU competition policy is not an exception. In this first section of the article we are going to try to answer the first question that presented above of whether the Commission has consider it necessary to relax the enforcement of its competition rules due to the arrival of the current crisis.

In order to reach a conclusion on the issue, we will first give a general presentation on what competition policy is and what are its main goals and effects. Then we will proceed to observe where and how competition policy is regulated at the European level and to identify those voices that seek a relaxation of these rules during the current times. We will finally present the point of view of the Commission on the topic through the statements made by its most important authorities during the past years.

2.1. European competition policy: what is it and why is it desirable?

European competition law consist of rules enacted at the European level that are intended to protect the process of competition in the internal market in order to maximize consumer welfare1. Besides the European competition policy, every Member State has their own system of

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competition law for the distortions that only produce effects in their national market. Competition law has grown at a phenomenal rate in recent years, not only geographically but it is now applied to many economic activities that once were regarded as natural monopolies or the preserve of the state such as telecommunications, energy or postal services, to mention some of them.

Competition has been defined as “the effort of two or more parties acting independently to secure the business of a third party by offering the most favorable terms”2. Contrary to what the general public tends to think, European Competition policy is not a directed to the protection of consumers but it has, as its main goal, the defense of competition in the internal market and only indirectly it reflects positively on consumer welfare.

At the simplest, the benefits of competition are lower prices, better products, wider choice and greater efficiency than what would be obtained under conditions of monopoly. Consumer welfare, which is specifically concerned with gains to consumers as opposed to society at large, is also maximized in perfect competition. A related benefit of competition is that it may have the dynamic effect of stimulating innovation as competitors strive to produce new and better products for consumers3.

In the basic diagram below4it can be seen how perfect competition provides a far better allocation of resources than a monopoly.

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If a monopoly reduces output from the equilibrium at Q1 to Q2 then it can sell this at a higher price P2. This results in transfer of consumer surplus into extra producer surplus. But because price is now about the cost of supplying extra units, there is a loss of allocative efficiency. This is shown in the diagram by the shaded area, which is not transferred to the producer, merely lost completely because output is lower than it would otherwise be in a competitive market.

Therefore, it is clear that the role that competition policy plays of keeping markets competitive is vital to ensure that consumer welfare is maximized and that...

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