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Competition law, known in the United States as Antitrust Law , has three main elements:
The substance, practice and Jurisprudence of competition law vary from jurisdiction to jurisdiction. Protecting the interests of consumers ( Consumer Welfare ) and ensuring that enterpreneurs 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 Privatisation of state owned assets and the establishment of independent sector regulators. 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. The economic theory behind competition law has over the last fifty years has been dominated by Neo-classical Economics . Under this theory, markets are seen as the most efficient method of allocating resources in general, but sometimes They Fail and regulation is necessary. The history of competition law reaches back further than the Roman Empire . The business practices of market traders, Guilds and governments have always been subject to scrutiny, and sometimes severe sanctions. Since the twentieth century, competition law has become global. The two largest and most influential systems of competition regulation are United States Antitrust Law and European Community Competition Law . National and regional competition authorities across the world have formed international support and enforcement networks. COMPETITION LAW HISTORY passed tough laws to stop price distortions]] Laws governing competition law are found in over two millennia of history. Roman Emperors and Mediaeval monarchs alike used the use of Tariff s to stabilise prices or support local production. The formal study of " Competition ", began in earnest during the 18th century with such works as Adam Smith 's The Wealth Of Nations . Different terms were used to describe this area of the law, including " Restrictive Practices ", "the law of monopolies", " Combination Acts " and the "restraint of trade". Roman legislation See Also: Roman law An early example of competition law is the ''Lex Julia de Annona'', enacted during the Roman Republic around 50 BC.This is Julius Caesar's time according to Babled in ''De La Cure Annone chez le Romains'' To protect the corn trade, heavy fines were imposed on anyone directly, deliberately and insidiously stopping supply ships.Wilberforce (1966) p.20 Under Diocletian in 301 AD an edict imposed the death penalty for anyone violating a tariff system, for example by buying up, concealing or contriving the scarcity of everyday goods.Wilberforce (1966) p.20 More legislation came under the Constitution of Zeno of 483 AD, which can be traced into Florentine Municipal laws of 1322 and 1325.Wilberforce (1966) p.22 This provided for confiscation of property and banishment for any trade combinations or joint action of monopolies private ''or'' granted by the Emperor. Zeno rescinded all previously granted exclusive rights.Wilberforce (1966) p.21 Justinian I subsequently introduced legislation to pay officials to manage state monopolies. As Europe slipped into the Dark Ages , so did the records of law making until the Middle Ages brought greater expansion of trade in the time of '' Lex Mercatoria ''. Middle ages See Also: Lex Mercatoria Guilds enacted the Statute of Labourers to cap wages, and provide double damages against infringers]] Legislation in England to control monopolies and restrictive practices were in force well before the Norman Conquest .Wilberforce (1966) p.21 The Domesday Book recorded that " Foresteel " (i.e. forestalling, the practice of buying up goods before they reach market and then inflating the prices) was one of three Forfeiture s that King Edward The Confessor could carry out through England. Pollock and Maitland , ''History of English Law'' Vol. II, 453 But concern for fair prices also led to attempts to directly regulate the market. Under Henry III an act was passed in 126651 & 52 Hen. 3, Stat. 1 to fix bread and ale prices in correspondence with corn prices laid down by the Assize s. Penalties for breach included Amercement s, Pillory and Tumbrel .51 & 52 Hen. 3, Stat. 6 A fourteenth century statute labelled forestallers as "oppressors of the poor and the community at large and enemies of the whole country."Wilberforce (1966) p.23 Under King Edward III the Statute Of Labourers of 134923 Edw. 3. fixed wages of artificers and workmen and decreed that foodstuffs should be sold at reasonable prices. On top of existing penalties, the statute stated that overcharging merchants must pay the injured party double the sum he received, an idea that has been replicated in Punitive Treble Damages under US Antitrust Law . Also under Edward III, the following statutory provision in the poetic language of the time outlawed trade combinations.27 Edw. 3, Stat. 2, c. 25 "...we have ordained and established, that no merchant or other shall make Confederacy, Conspiracy, Coin, Imagination, or Murmur, or Evil Device in any point that may turn to the Impeachment, Disturbance, Defeating or Decay of the said Staples, or of anything that to them pertaineth, or may pertain." Examples of legislation in mainland Europe include the ''constitutiones juris metallici'' by Wenceslas II of Bohemia between 1283 and 1305, condemning combinations 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 King Henry VIII reintroduced tariffs for foodstuffs. In 1553 King Henry VIII reintroduced tariffs for foodstuffs, designed to stabilise prices, in the face of fluctuations in supply from overseas. So the legislation read here that whereas, "it is very hard and difficult to put certain prices to any such things... is necessary because prices of such victuals be many times enhanced and raised by the Greedy Covetousness and Appetites of the Owners of such Victuals, by occasion of ingrossing and regrating the same, more than upon any reasonable or just ground or cause, to the great damage and impoverishing of the King's subjects."25 Hen. 8, c. 2. Around this time organisations representing various tradesmen and handicraftspeople, known as Guild s 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. Renaissance developments See Also: Renaissance ]] Europe around the 15th century was changing fast. 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 Licences, similar to modern Patent s had been introduced into England. But by the reign of Queen Elizabeth I, the system was reputedly much abused and used merely to preserve privileges, encouraging nothing new in the way of innovation or manufacture.according to William Searle Holdsworth , 4 Holdsworth, 3rd ed., Chap. 4 p. 346 When a protest was made in the House Of Commons and a Bill was introduced, the Queen convinced the protesters to challenge the case in the courts. This was the catalyst for the Case Of Monopolies or ''Darcy v. Allin''.(1602) 11 Co. Rep. 84b The plaintiff, an officer of the Queen's household, had been granted the sole right of making playing cards and 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 increases (2) quality decrease (3) the tendency to reduce artificers to idleness and beggary. This put a temporary end to complaints about monopoly, 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.e.g. one John Manley paid £10,000 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''(1685) 10 St. Tr. 371 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. In 1710 to deal with high coal prices caused by a Newcastle Coal Monopoly the New Law was passed.9 Anne, c. 30 Its provisions stated that "all and every contract or contracts, Covenants and Agreements, whether the same be in writing or not in writing... are hereby declared to be illegal." When Adam Smith wrote the '' Wealth Of Nations '' in 1776Adam Smith, An Enquiry into the Wealth of Nations'' (1776) he was somewhat cynical of the possibility for change. "To expect indeed that freedom of trade should ever be entirely restored in Great Britain is as absurd as to expect that Oceana or Utopia should ever be established in it. Not only the prejudices of the public, but what is more unconquerable, the private interests of many individuals irresistibly oppose it. The Member of Parliament who supports any proposal for strengthening this Monopoly is seen to acquire not only the reputation for understanding trade, but great popularity and influence with an order of men whose members and wealth render them of great importance." Restraint of trade See Also: Restraint of trade in the 17th century thought that general restraints on trade were unreasonable]] The English law of restraint of trade is the direct predecessor to modern competition law."the modern common law of England passed directly into the legislation and thereafter into the judge-made law of the United States." Wilberforce (1966) p.7 Its current use is small, given modern and economically oriented statutes in most common law countries. Its approach was based on the two concepts of prohibiting agreements that ran counter to public policy, unless the Reasonableness of an agreement could be shown. A restraint of trade is simply some kind of agreed provision that is designed to restrain another's trade. For example, in ''Nordenfelt v. Maxim, Nordenfelt Gun Co.''''Nordenfelt v. Maxim, Nordenfelt Gun Co.'' [1894 AC 535 a Swedish arm inventor promised on sale of his business to an American gun maker that he "would not make guns or ammunition anywhere in the world, and would not compete with Maxim in any way." To be consider whether or not there is a restraint of trade in the first place, both parties must have provided valuable Consideration for their agreement. In ''Dyer's'' case(1414) 2 Hen. 5, 5 Pl. 26 a dyer had given a bond not to exercise his trade in the same town as the plaintiff for six months but the plaintiff had promised nothing in return. On hearing the plaintiff's attempt to enforce this restraint, Hull J exclaimed, "per Dieu, if the plaintiff were here, he should go to prison until he had paid a fine to the King." The common law has evolved to reflect changing business conditions. So in the 1613 case of ''Rogers v. Parry'Rogers v. Parry'' (1613) 2 Bulstr. 136 a court held that a joiner who promised not to trade from his house for 21 years could have this bond enforced against him since the time and place was certain. It was also held that a man cannot bind himself to not use his trade generally by Chief Justice Coke . This was followed in ''Broad v. Jolyffe'Broad v. Jolyffe'' (1620) Cro. Jac. 596 and ''Mitchell v. Reynolds''''Mitchell v. Reynolds'' (1711) 1 P.Wms. 181 where Lord Macclesfield asked, "What does it signify to a tradesman in London what another does in Newcastle?" In times of such slow communications, commerce around the country it seemed axiomatic that a general restraint served no legitimate purpose for one's business and ought to be void. But already in 1880 in ''Roussillon v. Roussillon''''Roussillon v. Roussillon'' (1880) 14 Ch. D. 351 Lord Justice Fry stated that a restraint unlimited in space need not be void, since the real question was whether it went further than necessary for the promisee's protection. So in the ''Nordenfelt''''Nordenfelt v. Maxim, Nordenfelt Gun Co.'' AC 535 case Lord McNaughton rule that while one could validly promise to "not make guns or ammunition anywhere in the world" it was and unreasonable restraint to "not compete with Maxim in any way." This approach in England was confirmed by the House of Lords in ''Mason v. The Provident Supply and Clothing Co.''''Mason v. The Provident Supply and Clothing Co.'' [1913 AC 724 COMPETITION LAW TODAY Modern competition law begins with the United States legislation of the Sherman Act of 1890 and the Clayton Act of 1914. While other, particularly European, countries also had some form of regulation on monopolies and cartels, the US codification of the common law position on restraint of trade had a widespread effect on subsequent competition law development. Both after World War II and after the fall of the Berlin Wall competition law has gone through phases of renewed attention and legislative updates around the world. United States antitrust See Also: United States antitrust law was one of the greatest companies to be broken up under United States antitrust laws]] The American term Anti-trust arose not because the US statutes had anything to do with ordinary Trust Law , but because the large American corporations used trusts to conceal the nature of their business arrangements. Big trusts became synonymous with big monopolies, the perceived threat to democracy and the free market these trusts represented led to the Sherman and Clayton Act s. These laws, in part, codified past American and English Common Law of restraints of trade. Senator Hoar , an author of the Sherman Act said in a debate, "We have affirmed the old doctrine of the common law in regard to all inter-state and international commercial transactions and have clothed the United States courts with authority to enforce that doctrine by injunction." Evidence of the common law basis of the Sherman and Clayton acts is found in the ''Standard Oil'' case,''Standard Oil of New Jersey v. United States'' (1911) 221 U.S. 1 where Chief Justice White explicitly linked the Sherman Act with the common law and sixteenth century English statutes on engrossing.e.g. Under King Edward VI in 1552, 5 & 6 Edw. 6, c. 14 The Act's wording also reflects common law. The first two sections read as follows, "Section 1. Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine.... Section 2. Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine...." The Sherman Act did not have the immediate effects its authors intended, though Republican President Theodore Roosevelt 's federal government sued 45 companies, and William Taft used it against 75. The Clayton Act of 1914 was passed to supplement the Sherman Act. Specific categories of abusive conduct were listed, including Price Discrimination (section 2), exclusive dealings (section 3) and mergers which substantially lessen competition (section 7). Section 6 exempted trade unions from the law's operation. Both the Sherman and Clayton acts are now codified under Title 15 of the United States Code . Post war consensus See Also: Competition regulator , established following World War II , was the first Europe wide competition authority]] It was after the First World War that countries began to follow the United States' lead in competition policy. In 1923 Canada introduced the Combines Investigation Act and in 1926 France reinforced its basic competition provisions from the 1810 Code Napoleon. After World War II , the Allies, led by the United States , introduced tight regulation of cartels and monopolies in occupied Germany and Japan . In Germany, despite the existence of laws against unfair competition passed in 1909 (''Gesetz gegen den unlauteren Wettbewerb'' or ''UWB'') it was widely believed that the predominance of large cartels of German industry had made it easier for the Nazis to assume total economic control, simply by bribing or blackmailing the heads of a small number of industrial magnates. Similarly in Japan, where business was organised along family and nepotistic ties, the Zaibatsu were easy for the despotic government to manipulate into the war effort. Following, unconditional surrender tighter controls, replicating American policy were introduced. Further developments however were considerably overshadowed by the move towards Nationalisation and industry wide planning in many countries. Making the economy and industry democratically accountable through direct government action became a priority. Coal industry, Railroads , Steel , Electricity , Water , Health Care and many other sectors were targeted for their special qualities of being Natural Monopolies . Commonwealth countries were slow in enacting statutory competition law provisions. The United Kingdom introduced the (considerably less stringent) Restrictive Practices Act in 1956. Australia introduced its current Trade Practices Act in 1974. Recently however there has been a wave of updates, especially in Europe to harmonise legislation with contemporary competition law thinking. European Union law See Also: European Community competition law which covers EU competition laws]] In 1957 six Western European countries signed the Treaty Of The European Community (EC Treaty or Treaty of Rome), which over the last fifty years has grown into a European Union of nearly half a billion citizens. The European Community is the name for the economic and social pillar of EU Law , under which competition law falls. Healthy competition is seen as an essential element in the creation of a common market free from restraints on trade. The first provision is Article 81 EC, which deals with cartels and restrictive vertical agreements. Prohibited are... "(1) ...all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market..." Article 81(1) EC then gives examples of "hard core" restrictive practices such as price fixing or market sharing and 81(2) EC confirms that any agreements are automatically void. However, just like the Statute Of Monopolies 1623 , Article 81(3) EC creates exemptions, if the collusion is for distributional or technological innovation, gives consumers a "fair share" of the benefit and does not include unreasonable restraints (or disproportionate, in ECJ terminology) that risk eliminating competition anywhere. Article 82 EC deals with monopolies, or more precisely firms who have a dominant market share and abuse that position. Unlike U.S. Antitrust , EC law has never been used to punish the existence of dominant firms, but merely imposes a special responsibility to conduct oneself appropriately. Specific categories of abuse listed in Article 82 EC include price discrimination and exclusive dealing, much the same as sections 2 and 3 of the U.S. Clayton Act. Also under Article 82 EC, the European Council was empowered to enact a Regulation to control mergers between firms, currently the latest known by the abbreviation of ECMR "Reg. 139/2004". 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. Again, the similarity to the Clayton Act 's substantial lessening of competition. Finally, Articles 86 and 87 EC regulate the state's role in the market. Article 86(2) EC states clearly that nothing in the rules cannot be used to obstruct a member state's right to deliver public services, but that otherwise public enterprises must play by the same rules on collusion and abuse of dominance as everyone else. Article 87 EC, similar to Article 81 EC, lays down a general rule that the state may not aid or subsidise private parties in distortion of free competition, but then grants exceptions for things like charities, natural disasters or regional development. International enforcement See Also: World Trade Organization International Competition Network members have been recently discussing how future global competition law could look]] Competition law has already been substantially internationalised along the lines of the US model by nation states themselves, however the involvement of international organisations has been growing. Increasingly active at all international conferences are the 1947. Office Of Fair Trading Director and Professor Richard Whish wrote sceptically 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 Organisation , 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 Network see, http://www.internationalcompetitionnetwork.org/ (ICN) is a way for national authorities to coordinate their own enforcement activities. COMPETITION LAW THEORY Classical perspective See Also: Classical economics believed the Restraint Of Trade doctrine was justified to preserve Liberty and Competition ]] 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 good or bad by courts on an ''ad hoc'' basis 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. "A monopoly granted either to an individual or to a trading company has the same effect as a secret in trade or manufactures. The monopolists, by keeping the market constantly under-stocked, by never fully supplying the effectual demand, sell their commodities much above the natural price, and raise their emoluments, whether they consist in wages or profit, greatly above their natural rate."Smith (1776) Book I, Chapter 7, para 26 Smith also rejected the very existence of, not just dominant and abusive corporations, but Corporation s at all.Smith (1776) Book V, Chapter 1, para 107 However by the latter half of the nineteenth 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). "Again, trade is a social act. Whoever undertakes to sell any description of goods to the public, does what affects the interest of other persons, and of society in general; and thus his conduct, in principle, comes within the jurisdiction of society... both the cheapness and the good quality of commodities are most effectually provided for by leaving the producers and sellers perfectly free, under the sole check of equal freedom to the buyers for supplying themselves elsewhere. This is the so-called doctrine of Free Trade, which rests on grounds different from, though equally solid with, the principle of individual liberty asserted in this Essay. Restrictions on trade, or on production for purposes of trade, are indeed restraints; and all restraint, qua restraint, is an evil..."Mill (1859) Chapter V, para 4 Neo-classical synthesis See Also: Neo-classical economics argued competition drove progress capitalist democracies]] After Mill, there was a shift in economic theory, which emphasised a more precise and theoretical model of competition. A simple neo-classical model of free markets holds that production and distribution of goods and services in competitive free markets maximizes Social Welfare . This model assumes that new firms can freely enter markets and compete with existing firms, or to use legal language, there are no Barriers To Entry . By this term economists mean something very specific, that competitive free markets deliver Allocative , Productive and dynamic efficiency. Allocative efficiency is also known as Pareto Efficiency after the Italian economist Vilfredo Pareto and means that resources in an economy over the Long Run will go precisely to those who are Willing and Able to pay for them. Because rational producers will keep producing and selling, and buyers will keep buying up to the last Marginal Unit of possible output - or alternatively rational producers will be reduce their output to the margin at which buyers will buy the same amount as produced - there is no waste, the greatest number wants of the greatest number of people become satisfied and Utility is perfected because resources can no longer be reallocated to make anyone better off without making someone else worse off; society has achieved allocative efficiency. Productive efficiency simply means that society is making as much as it can. Free markets are meant to reward those who Work Hard , and therefore those who will put society's resources towards the Frontier Of Its Possible Production .for one of the opposite views, see Kenneth Galbraith , '' The New Industrial State '' (1967) Dynamic efficiency refers to the idea that business which constantly competes must research, create and innovate to keep its share of consumers. This traces to Austrian-American political scientist Joseph Schumpeter 's notion that a "perennial gale of creative destruction" is ever sweeping through Capitalist economies, driving enterprise at the market's mercy. Joseph Schumpeter , ''The Process of Creative Destruction'' (1942) 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 raise 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 Fail to be efficient for a variety of reasons, so the exception of competition law's intervention to the rule of '' Laissez Faire '' is justified. 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.14Clark, "Towards a Concept of Workable Competition" (1940) 30 Am Ec Rev p.241-256 This follows the theory that if one cannot achieve the ideal, then go for the second best optionc.f. Lipsey and Lancaster, "The General Theory of Second Best" (1956-7) 24 Rev Ec Stud 11-32 by using the law to tame market operation where it can. Chicago School See Also: Chicago School (economics) argues that competition law is fundamentally flawed]] A group of economists and lawyers, who are largely associated with the University Of Chicago , advocate an approach to competition law guided by the proposition that some actions that were originally considered to be anticompetitive could actually promote competition. The US Supreme Court has used the Chicago School approach in several recent cases ''Continental T.V., Inc. v. GTE Sylvania Inc.'', 433 U.S. 36 (1977), ''Broadcast Music Inc. v. Columbia Broadcasting System, Inc.'', ''NCAA v. Board of Regents of Univ. of Oklahoma'', ''Spectrum Sports Inc. v. McQuillan'', ''State Oil Co. v. Khan'', ''Verizon v. Trinko'', and ''Leegin Creative Leather Products, Inc. v. PSKS, Inc.''. One view of the Chicago School approach to antitrust is found in United States Circuit Court of Appeals Judge Richard Posner's books''Antitrust law''Posner, ''Antitrust Law'' (2001) 2nd ed., ISBN 9780226675763 and ''Economic Analysis of Law''Posner, ''Economic Analysis of Law'' (2007) 7th ed., ISBN 9780735563544 Posner once worked in the Department of Justice's antitrust division, has long been a professor at the University of Chicago Law School, and is likely the most widely cited antitrust scholar and jurist in the United States.Posner (2001) p.24-25 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, Robert H. ''The Antitrust Paradox'' (1978) New York Free Press ISBN 0465003699 Bork argued that both the original intention of antitrust laws and economic efficiency was 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 Running through the different critiques of US antitrust policy is the common theme that government interference in the operation of free markets does more harm than good. Frank Easterbrook , ''The Limits of Antitrust'', 63 U. Tex. L. Rev. 1 (1984). "The only cure for bad theory", writes Bork, "is better theory". Bork (1978) p.405 The late Harvard Law School Professor Philip Areeda, who favours more aggressive antitrust policy, in at least one Supreme Court case challenged Robert Bork's preference for non intervention.''Brooke Group v. Williamson'' 509 US 209 (1993) Current issues The most significant issue in competition law globally is currently anti-cartel enforcement. In the summarised why Congress allows punitive damages in ''Hawaii v. Standard Oil''''Hawaii v. Standard Oil Co. of California'' 405 U.S. 251, 262 (1972). "Every violation of the antitrust laws is a blow to the free-enterprise system envisaged by Congress. This system depends on strong competition for its health and vigor, and strong competition depends, in turn, on compliance with antitrust legislation. In enacting these laws, Congress had many means at its disposal to penalize violators. It could have, for example, required violators to compensate federal, state, and local governments for the estimated damage to their respective economies caused by the violations. But, this remedy was not selected. Instead, Congress chose to permit all persons to sue to recover three times their actual damages every time they were injured in their business or property by an antitrust violation." There is continued scepticism about the effectiveness of competition law in achieving economic progress and its interference with the provision of Public Services in some countries. France's president Nicholas Sarkozy called recently for the reference in the preamble to the Treaty Of The European Union to the goal of "free and undistorted competition" to be removed.''Removal of competition clause causes dismay'', Tobias Buck and Bertrand Benoit, Financial Times p.6 June 23 , 2007 Though competition law itself would have remained unchanged, the other goals of the preamble which include "full employment" and "social progress" have the perception of greater specificity and as being ends in themselves, while "free competition" is merely a means. COMPETITION LAW PRACTICE Collusion and cartels See Also: Collusion Cartel philosopher Adam Smith was an early enemy of cartels]] The core of competition policy has, since the 1980s, been the '' (1776) Adam Smith pointed out the cartel problem, but did not advocate legal measures to combat them. "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary."Smith (1776) Book I, Chapter 10 , para 82 Nowadays a far stricter approach is taken. Under EC law cartels are banned by Article 81 EC , whereas under US law the Sherman Act prohibitions of section 1. To compare, the target of competition law under the Sherman Act 1890 is every "contract, combination in the form of trust or otherwise, or conspiracy", which essentially targets anybody who has some dealing or contact with someone else. In the mean time, Art. 81 EC makes clear who the targets of competition law are in two stages with the term agreement "undertaking". This is used to describe almost anyone "engaged in an economic activity",''Hoefner v Macroton GmbH'' but excludes both employees, who are by their "very nature the opposite of the independent exercise of an economic or commercial activity",per AG Jacobs, ''Albany International BV'' [1999 and public services based on "solidarity" for a "social purpose".''FENIN v. Commission'' [2004] Undertakings must then have formed an agreement, developed a "concerted practice", or, within an association, taken a decision. Like US antitrust, this just means all the same thing;per AG Reischl, ''Van Landweyck'' [1980] there is no need to distinguish an agreement from a concerted practice, because they are merely convenient labels any kind of dealing or contact, or a "meeting of the minds" between parties. Covered therefore is a whole range from a strong handshaken written or verbal agreement to a supplier sending invoices with directions not to export to its retailer who gives "tacit acquiescence" to the conduct.''Sandoz Prodotti Farmaceutica SpA v. Commission'' [1990] Less of a consensus exists in the field of Vertical Agreement s. These are agreements not between firms at the same level of production, but firms at different levels in the Supply Chain , for instance a supermarket and a bread producer. Recently the United States Supreme Court has become more skeptical of antitrust cases predicated on agreements between companies that are not directly in competition with one another, such as a clothing manufacturer and a clothing retailer, while maintaining the strict prohibition against agreements that limit competition between companies at the same level of the supply chain, such as agreements between two retailers or between two distributors. Vertical agreements may still be illegal, but the burden of proving them illegal was raised by a number of recent cases from the Per Se Illegal standard to a more demanding Rule Of Reason standard. Dominance and monopoly See Also: Dominance (economics) Monopoly to efficiency that monopolies cause]] When firms hold large market shares, consumers often risk paying higher prices and getting lower quality products than compared to competitive markets. However, the existence of a very high market share does not always mean consumers are paying excessive prices since the threat of new entrants to the market can restrain a high-market-share firm's price increases. Competition law does not make merely having a monopoly illegal, but rather abusing the power the a monopoly may confer, for instance through exclusionary practices. First it is necessary to determine whether a firm is dominant, or whether it behaves "to an appreciable extent independently of its competitors, customers and ultimately of its consumer."C-27/76 ''United Brands Continental BV v. Commission'' 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'' If a firm has a dominant position, because it has beyond a 39.7% market sharethis was the lowest yet market share of a "dominant" firm, in BA/Virgin 2004 then there is "a special responsibility not to allow its conduct to impair competition on the common market"''Michelin'' [1983 Same as with collusive conduct, market shares are determined with reference to the particular market in which the firm and product in question is sold. Then although the lists are seldom closed,''Continental Can'' 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 Tying one product into the sale of another can be considered abuse too, being restrictive of consumer choice and depriving competitors of outlets. This was the alleged case in ''Microsoft v. Commission'' Case T-201/04 ''Microsoft v. Commission'' Order, 22 December 2004 leading to an eventual fine of €497 million for including its Windows Media Player with the Microsoft Windows platform. A refusal to supply a facility which is essential for all businesses attempting to compete to use can constitute an abuse. 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 were 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. C-30/87 ''Corinne Bodson v. SA Pompes funèbres des régions libérées'' ECR 2479 A more tricky issue is Predatory Pricing . This is the practice of dropping prices of a product so much that in order one's smaller competitors cannot cover their costs and fall out of business. The Chicago School holds predatory pricing to be impossible, because if it were then banks would lend money to finance it. However in ''France Telecom SA v. Commission''Case T-340/03 ''France Telecom SA v. Commission'' a broadband internet company was forced to pay €10.35 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 crossed subsidised 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 offering rebates to industrial customers who export sugar that your company sells, but not to Irish customers, selling in the same market as you are in.''Irish Sugar'' 1999 Mergers and acquisitions See Also: Mergers and acquisitions , valued at $165,747,000,000 was between AOL and Time Warner in 2000]] A merger or acquisition involves, from a competition law perspective, the concentration of economic power in the hands of fewer than before.Under EC law, a concentration is where a "change of control on a lasting basis results from (a) the merger of two or more previously independent undertakings... (b) the acquisition... if direct or indirect control of the whole or parts of one or more other undertakings." Art. 3(1), Regulation 139/2004, the European Community Merger Regulation This usually means that one firm buys out the Share s of another. The reasons for oversight of economic concentrations by the state are the same as the reasons to restrict firms who abuse a position of dominance, only that regulation of mergers and acquisitions attempts to deal with the problem before it arises, ''ex ante'' prevention of creating dominant firms.In the case of ''Gencor Ltd v. Commission'' [1999 ECR II-753 the EU Court Of First Instance wrote merger control is there "to avoid the etablishment of market structures which may create or strengthen a dominant position and not need to control directly possible abuses of dominant positions" In the United States merger regulation began under the Clayton Act, and in the European Union, under the Merger Regulation 139/2004 (known as the "ECMR"The authority for the Commission to pass this regulation is found under Art. 83 TEC). Competition law requires that firms proposing to merge gain authorisation from the relevant government authority, or simply go ahead but face the prospect of Demerger should the concentration later be found to lessen competition. The theory behind mergers is that transaction costs can be reduced compared to operating on an open market through bilateral contracts.1 Concentrations can increase Economies Of Scale and scope. However often firms take advantage of their increase in market power, their increased market share and decreased number of competitors, which can have a knock on effect on the deal that consumers get. Merger control is about predicting what the market might be like, not knowing and making a judgment. Hence the central provision under EU law asks whether a concentration ''would'' if it went ahead "significantly impede effective competition... in particular as a result of the creation or strengthening off a dominant position..."Art. 2(3) Reg. 129/2005 and the corresponding provision under US antitrust states similarly, "No person shall acquire, directly or indirectly, the whole or any part of the stock or other share capital... of the assets of one or more persons engaged in commerce or in any activity affecting commerce, where... the effect of such acquisition, of such stocks or assets, or of the use of such stock by the voting or granting of proxies or otherwise, may be substantially to lessen competition, or to tend to create a monopoly.Clayton Act Section 7, codified at 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) Something called the required that a joint venture with a competitor Bertelsmann be ceased beforehand. The EU authorities have also focussed lately on the effect of Conglomerate Merger s, where companies acquire a large portfolio of related products, though without necessarily dominant shares in any individual market.e.g. ''Guinness/Grand Metropolitan'' {Link without Title} 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. SEE ALSO
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