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Example research essay topic: Dominant Position Anti Competitive - 1,933 words

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The European Union (EU) has had a direct and profound effect on the economies of member states. The main objective of the EU is to enhance the allocation efficiency of the economies of the member states by removing barriers to the movement of goods, services, and production. The regulation of competition is administered by the EUs competition policy. The aim of the policy is to create and maintain a system permitting undistorted competition within an economic region. The notion of pure competition in the EU is governed by The European Commission. They are the guardians of competition and exist within the structure of competition policy.

The importance of a policy regulating competition was recognized early, and explicitly outlined in Articles 85 - 94 in the Treaty of Rome. The purpose was to prevent private economic actors and national public authorities from dividing up the large European market, thus jeopardizing or even canceling the benefits of integration. Nonetheless, even in the most ideal economic conditions, economists accept that perfect competition cannot be achieved. Consequently, the concept of workable competition has been developed.

Although not perfect, firms and governments are encouraged to work towards the most competitive structure possible. This structure can be achieved by policing business within the European Union, and thereby eliminating practices deemed as anti competitive. The EU competition policy secures the benefits of European integration by effectively regulating anti competitive practices, namely monopolistic behavior, mergers and state aids, however does not ensure that Europe will remain competitive in international markets. One of the most commonly recognized forms of anti competitive activity is monopolistic behavior. Identified as a company who has established a dominant position in its respective industry, and abuses their position in a manner that may have an effect on trade between member states. Forms of abuse of dominant position include unfair pricing, exclusion or limitation of supply, and discrimination among trade partners.

The rules of competition regulating monopolistic behavior are outlined in Article 82 (formerly Article 86) of the EC treaty. It reads: Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market in so far as it may affect trade between Member States. Although Article 86 does not define what a dominant position is, past decisions by the Commission suggest that a firm with less than 40 % of the market will not be regarded as dominant. The Commission refers to The European Commission, who police EU competition rules. In cases of possible monopolistic activity, the Commission must assess the degree of market dominance by deciding the boundaries of the relevant market both in terms of the products involved and its geographic extent. The boundaries are ambiguous at times as high market share does not automatically give monopoly power.

However, the dominant position itself is not illegal, only the abuse of dominance. Abuse of dominance is formally defined as, the conduct of a firm that may influence the structure of the relevant market or its degree of competition, even if such conduct is favored by a provision of national law. Those found guilty of abusing dominant position, can receive a penalty from the Commission, which may consist of various fines or dividing the company. Before taking a decision, the Commission gives the firm and Member State the opportunity to explain their position at specially organized hearings. Also, the firms or Member States that are subject to the Commissions decision may challenge the decision before the Court of First Instance.

It is also possible for individuals or firms that believe they are the victims of anti-competitive behavior to take their case before the national courts. Although many European firms have criticized the Commission, the Commission has been praised internationally for its development of one of the most extensive and sophisticated competition enforcement programs. It is evident that the Commission closely monitors many firms that may be a threat to the EU. This includes firms attempting to amalgamate in hopes of achieving dominant position in a particular industry and market. A merger is when a firm acquires exclusive control of another firm or of a firm it controlled jointly with another firm, or where several firms take control of a firm or create a new one. The Treaty of Rome contained no specific powers to control mergers, therefore the Commission attempted to create a merger regime using Articles 85 and 86.

They claimed that a firm in a dominant position which took over a rival, was guilty of an abuse. Regulating mergers have become more structured since regulation (EEC) No 4064 / 89, which gives the Commission the power to examine mergers before they take place, in order to decide whether they are compatible with the internal market. This involves defining the relevant product market, defining the relevant geographic market, and assessing the compatibility of the merger with the internal market on the basis of the principle of dominant position. If a particular merger creates or strengthens a dominant position that may impair competition in the EU or a substantial part of it, the proposal can be prohibited indefinitely. Surprisingly there have been a low number of cases in which the merger has been prohibited, or changes have been required.

This is to the credit of those who have requested mergers, and the soundness of their proposals. However, when the Commission has been called on to enforce the EU competition policy specifically on the subject of mergers, they have been subject to controversy. The major issue concerns the criteria that the Commission uses for considering the desirability of mergers. The Commission often restricts criteria to the issues relating to competition, but it is necessary to evaluate other surrounding issues in order to ensure a suitable decision.

An inappropriate judgment by the Commission could potentially produce a dominant firm in the market, with intentions to abuse their dominance. With pressures from both potential monopoly situations and proposed mergers, the Commission spends much of its time focusing on firms within the EU. Still, the Commission must not situate their attention solely on private firms, but also the governments of Member States. Governments grant subsides, known as state aid, to domestic firms that may correct market failures, steer their economies, or attain social objectives by influencing private economic decision-making.

The Commission worries that assistance from national governments to their domestic firms, will affect trade between member states. As outlined in Article 87 (formerly Article 92) of the treaty, Subsidies (state aids) which distort competition by favoring certain enterprises and giving them an artificial advantage are considered incompatible with the common market, and the Commission can require such aid to be abolished or modified. Although Article 92 condemns all state aids which distort competition, it is difficult to enforce controls on state aid and impossible to ban it completely. Any advantage granted by the State or through State resources is considered as State aid where it confers an economic advantage on the recipient, it is granted selectively to certain firms or to the production of certain goods, it could distort competition, or it affects trade between Member States. The commission must ensure that Member States only grant aid that is compatible with the common market.

This includes aid having a social character granted to individual consumers provided that it is granted without discrimination related to the origin of the products concerned, aid to make good the damage caused by natural disasters or exceptional occurrences, aid granted to areas of a country affected by the division of the country, aid to promote the development of certain activities or regions, aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State, aid to promote culture and heritage conservation or any other categories of aid specified by the Council. The key tasks for EU competition policy include differentiating between such purposes and minimizing the extent to which aid distorts the European economy. If necessary, the actions of member governments must be prohibited while constantly monitoring each member state. The individual governments are generally unable to regulate themselves due to their close involvement as subsidizers and decision-makers. A solution to each governments dilemma is notifying the Commission of any plans to provide aid, which allows the Commission to review the proposal and proceed to modify or suppress support when necessary. Member States in violation of the EU competition policy section regarding state aids can be subject to fines in addition to the annulment or modification of aid granted.

The Commission has the authority to penalize those who infringe on the EU competition policy and in fact are encourage to do so. This maintains harmony in the common market and promotes workable competition within the EU. However, this is the same EU competition policy that suppresses the growth of potential multinational firms. As previously mentioned, a firm with less than 40 % of market share is not considered dominant. Once a firm is identified as dominant, the Commission closely monitors it. In fear of being accused of abusing dominant position, firms are accordingly hesitant to conduct business as though they would otherwise.

If a dominant firm is involved, simple aspects of competition may be interpreted as abusing dominant position. In terms of potential international advancement, the firm is contained by EU competition policy. Certain mergers and acquisitions may also be seen as abuse when evaluation criteria is restricted to issues relating to competition. It is necessary to evaluate other surrounding issues in order to ensure a suitable decision.

The governments must make serious decisions as well. Subsidizing domestic firms operating in internationally competitive markets that would otherwise go bankrupt is a violation of EU competition policy. The EU believes that these anti competitive policies will create European champions and allow them to thrive in international markets. The reality, the firms involved are struggling amongst their international competitors. This is due to the direct and indirect results of the EU competition policy and applicable anti competitive policies. It is generally agreed that EU competition policy is necessary to secure the benefits of European integration.

However, there is an ongoing controversy about whether encouraging competition under such strict anti competitive policies in the EU, is the best means of ensuring that Europe is competitive in international markets. Nonetheless, it is beyond dispute that some sort of competition policy will continue at the European level. The controversy and discussions are based on the application of rules derived from a model of perfect competition. Although economists agree that workable competition is much more realistic, the aim of anti competitive policies is still to promote perfect competition. This clash is to blame for the weak presence of European firms in international markets. Ignorant to the international focus, the Commission persistently disputes issues concerning the development and implementation of effective policies.

Consequently, the EU will increase undistorted competition but fail to grow along side their international competitors. Bibliography: Bibliography Healey, Nigel. The Economics of the New Europe. Routledge: London, 2000. Molle, Willem. The Economics of European Integration.

Second Edition. Dartmouth Publishing Co. : Aldershot, 1996 Nicoll, William and Salmon, Trevor. Understanding The New European Community. Harvester Wheatsheaf: Nempstead, 1994 Wallace, Helen and Wallace, William.

Policy making in the European Union. Third Edition. Oxford University Press: Oxford, 1997. Wallace, Helen and Wallace, William. Policy making in the European Union. Fourth Edition.

Oxford University Press: Oxford, 2000. Weidenfeld, Wessels. Guide to European Integration. Oxford University Press: Oxford, 1999. SCAD plus. web


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