generally, but in 1998 they were reduced to €3.5 billion and €100 million, respectively, for mergers affecting the competitive situation in three (or more) EU countries in cases where the combined turnover of the companies exceed €25 million in each of the three countries.
Generally, where EU competition laws apply, they take precedence over the national competition laws of member countries. However, a subsidiarity provision can be invoked, which permits the competition authority of a member country to request permission from the EU Competition Directorate to investigate a particular dominant firm or merger case if it appears that the ‘European dimension’ is relatively minor compared to its purely local impact.
competition policy (UK) covers six main areas of application under UK COMPETITION LAWS:
(a) MONOPOLIES/MARKET DOMINANCE. The COMPETITION ACT 1998 prohibits actions that constitute the ‘abuse’ of a dominant position in a UK market. The OFFICE OF FAIR TRADING (OFT) is responsible for the referral of selected goods and services monopolies (both private and public sectors) to the COMPETITION COMMISSION for investigation and report and the implementation (where it sees fit) of the Commission’s recommendations.
A dominant position is defined as a situation where one firm controls 40% or more of the ‘reference’ good or service. (Under previous legislation, market dominance was defined in terms of a 25% market share). Abuse consists of acts that are harmful to the interests of consumers and other suppliers, e.g. charging excessive prices to secure monopoly profits and imposing restrictive terms and conditions on the supply of goods (see EXCLUSIVE DEALING, TIE-IN SALES, etc). The term ‘abuse’ can be broadly equated with that of conduct contrary to the ‘public interest’ – the benchmark used in previous legislation.
Defining the ‘reference’ market to establish evidence of market dominance can be problematic since it raises the issue of how widely or narrowly the boundaries of ‘the market’ are to be delineated (see MARKET, MARKET CONCENTRATION). Thus, the drinks market could be divided as between alcoholic and non-alcoholic drinks, and further divided into sub-markets as between, for example, the various types of alcoholic drink – the beer/lager market, spirits market, wine market, etc. Establishing abuse can also be a ‘grey area’. For example, high prices and profits may be condoned because they reflect exceptional innovation; on the other hand, low profits may not be a sign of effective competition but reflect the fact that the firm is grossly inefficient;
(b) ANTI-COMPETITIVE AGREEMENTS/RESTRICTIVE TRADE AGREEMENTS. The Competition Act 1998 prohibits outright agreements between firms (i.e. COLLUSION) and CONCERTED PRACTICES that prevent, restrict or distort competition within the UK. The Office of Fair Trading is responsible for monitoring ‘suspected’ cases of firms operating agreements illegally and can refer them for further investigation by the Competition Commission. The prohibition applies to both formal and informal agreements, whether oral or in writing, and covers agreements that involve joint price-fixing and common terms and conditions of sale, market-sharing and coordination of capacity adjustments, etc. (Under previous legislation it was possible to obtain exemption from prohibition if it could be demonstrated that an agreement conferred ‘net economic benefit’ – see RESTRICTIVE TRADE PRACTICES ACTS, RESTRICTIVE PRACTICES COURT.)
Although anti-competitive agreements are technically illegal, nonetheless there is much evidence that many such agreements have been driven ‘underground’ and are continuing to be operated in secret. This problem has been addressed by the authorities in encouraging ‘whistleblowers’ to come forward and supply them with information about illegal activities and also provisions in the Competition Act 1998 that allow officials to enter business premises without warning and to seize incriminating documentation. Under the ENTERPRISE ACT 2002, participation in illegal agreements has now been made a criminal offence, punishable by imprisonment;
(c) MERGERS AND TAKEOVERS. Originally, under the FAIR TRADING ACT 1973, the Office of Fair Trading (OFT), acting alongside the Secretary of State for Industry, could refer mergers and takeovers to the Competition Com-mission for investigation and report where (1) the combined firms already had or would have had a market share of 25% or over in a ‘reference’ good or service; (2) the value of assets being combined exceeded £70 million. Clause (1) effectively covered horizontal mergers and takeovers (see HORIZONTAL INTEGRATION) and clause (2) vertical and conglomerate mergers and takeovers (see VERTICAL INTEGRATION, DIVERSIFICATION/CONGLOMERATE INTEGRATION). Under the ENTERPRISE ACT 2002, the OFT was given sole responsibility for merger/takeover references but subject to an appeals procedure in disputed cases (see COMPETITION APPEALS TRIBUNAL).
Mergers and takeovers nowadays are mainly evaluated in terms of their likely competitive effects. Unlike in dealing with established monopolies, where past conduct can be scrutinised to establish harmful effects, mergers and takeovers are about the future, and predicting the likely future effects of a merger/takeover is problematic. Faced with this difficulty, the Commission tends to ‘play safe’ and recommend the blocking of most mergers/takeovers that reduce competition by significantly increasing the level of MARKET CONCENTRATION;
(d) RESALE PRICE MAINTENANCE (RPM). Manufacturers’ stipulation of the resale prices of their products is generally prohibited in the UK, although under the RESALE PRICES ACTS it is possible for a manufacturer to obtain exemption by satisfying the Competition Commission that, on balance, RPM confers net economic benefit. The OFT is responsible for monitoring manufacturers’ policies towards retail prices and can take action against ‘suspected’ cases of manufacturers attempting (illegally) to enforce RPM. Manufacturers can, however, take action against retailers who use their products as LOSS LEADERS;
(e) ANTI-COMPETITIVE PRACTICES. Various trade practices, such as EXCLUSIVE DEALING, REFUSAL TO SUPPLY, FULL-LINE FORCING, etc., may be investigated both by the OFT itself and (if necessary) by the Competition Commission, and prohibited if they are found to be unduly restrictive of competition;
(f) CONSUMER PROTECTION. The OFT is also charged with protecting consumers’ interests generally, both by taking action against unscrupulous trade practices, such as false descriptions of goods and weights and measures, denial of proper rights of guarantee to cover defective goods, etc., and by encouraging groups of suppliers to draw up voluntary codes of ‘good’ practice.
Where a particular dominant firm or merger case falls within the competition rules of both the UK and the European Union (see COMPETITION POLICY (EU)), EU law takes precedence. However, a subsidiarity provision can be invoked that permits the OFT to request permission from the EU competition authorities to investigate a particular dominant firm or merger case if it appears that the ‘European dimension’ is relatively minor compared to its purely local impact.
Fig. 26 Competitive advantage (of countries). The Porter ‘diamond’.
competitive advantage (of countries) the resources and capabilities possessed by a country that underpin its competitiveness in international trade (see COMPARATIVE ADVANTAGE). Countries per se do not trade – only persons and firms do. Persons and firms may possess their own unique resources and capabilities, which give them a competitive advantage over others. See COMPETITIVE ADVANTAGE (OF FIRMS). This can be enhanced by firms being able to contribute, and tap in, to a country’s resources and capabilities. Michael Porter has developed the so-called ‘diamond’ framework, which encapsulates this potential, consisting of four elements: factor endowments, demand conditions, infrastructure and firm strategy/structure/rivalry. See Fig. 26.
A basic starting point is a country’s factor endowments, such as plentiful (i.e. cheap) labour or skilled labour, raw materials and capital stock, together with its underlying scientific and technological infrastructure. With regard to demand conditions, it is not so much the size of the home
