Chapter 2: Why Competition?

Competition Policy and Anti-trust Policy

Competition is a situation in which numerous undersized companies provide identical

goods at a cost equivalent to MC. In contrary to this situation is monopoly in which cost

is inflexible exceeding MC. Oligopoly comes in between these two acute conditions. This

situation is near to monopoly when few sellers occupy the market.

“Competition is a process, wherein the long-run as well as short-run may appear poles

apart. It is a practice in which corporations compete with diverse weapons not merely

cost”.

Competition should not constantly be perceived as a static condition but a practice or a

process. A perfect competition involves industrial strategies and policies1.

Competition and Fiscal Performance

Despite the extensive harmony in statement that competition enhances static competence,

there is an unending discussion on whether competition is required for a vibrant

competence as well as development. A regular microeconomics reveals the significance

of competition causing fixed distribution along with dynamic proficiency. Nonetheless,

incentive is one of the key contributions of competition to growth. Normally, competency

study was built on fixed welfare assessments, presenting that reserve share is most

favorable during the choices of agents, drawing on souk details.

1
The Benefits from Competition: some illustrative UK cases. DTI Economics Paper No. 9. Pg. 2&3.
The impact of competition on static efficiency has been criticized, generally centers

round the hypothesis of accurate statistics and costless dealings. It was claimed that

competition in data irregularities is incomprehensible; moreover the fallout, normally

examined by chief agent’s paradigms, are vague. If incentives are warped, the cost roles

are not essentially reduced and competence may be incapacitated.

Some other researchers concentrate on the link between competition and incentives to

proceed. Competition has generally been observed as a setting where financial rents fade

away. Here, this has been discussed that there would be “no incentives to innovate”.

The modern study, though, opposes this research. Nickell and Blundell (1999) affirm

constructive relationships among competition, efficiency development and modernism or

innovation. Aghion has indicated an inverse-U correlation involving product market

competition and copyright action in the instance of United Kingdom corporations.

Excessive competition may damage innovation in so far as inadequate competition may

make.

Carlin states that development of retailing is associated with several competitors with an

‘elasticity of demand’ meter. The companies with competitors who struggle for a market

share have indicated rapid growth rates in trade than those with no competitors.

All these studies convey essentially a similar thought that market control is not

essentially an outcome of anticompetitive performance, and rigorous markets may

generate competent results when novelty, system effects and focused capital are
concerned. These results are central to the debate in the field of antitrust of US and

Europe these days2.

Competition policy plays a vital role in increasing the output as well as the opportunities

for the development of an economy. It is only a successful competition which offers

noteworthy profits for clients through minor costs and enhanced and improved quality of

commodities along with services. Once markets run properly, the companies flourish

through fulfilling customers’ requirements accurately and successfully than their

opponents, by means of novelty, improved output and a lesser price base. The current

financial catastrophe has upset reliance in markets as well as in competition policy. There

are allegations that unregulated competition has added to the disaster. Fiscal recession,

even though short-term, enhance security demands to calm down competition with

permanent consequences.

Throughout a financial crisis, reducing, delaying, or abolishing competition policy, can

unintentionally damage customers along with manufacturers by decelerating, instead of

encouraging financial upturn and revival. A successful competition as well as

competition policy should be a way out to formulate markets in a way to run in an

improved way in the coming days3.

2
Competition Policy in Times of Crisis. Concurrences N° 2-2009. Pg. 19.
3
The case for competition policy in difficult economic times. Fingleton, John. Pg. 1.
Competition Advocacy

Competition advocacy performs a strategic function in transferring a comprehensible idea

in relation to the profits as well as significance of competition since we are confronted

with a grave financial depression. Competition advocacy is imperative due to three

reasons; one is a common requirement; second is a specific requirement developing from

the launch of autonomous competition authorities; and lastly, for the reason that we are

encountered with a severe financial crisis.

The institutional formation of United Kingdom is a bit tough to appreciate. The primary

and leading UK competition authority is OFT. It possesses wide-ranging customer

safeguard potential as well. It employs Articles 81 and 82 of the European Commission

Treaty along with their United Kingdom national counterparts. The OFT evaluates

mergers and markets and then gives its verdict if any additional scrutiny is required.

The advocacy position of OFT is vital. It acts normally and unofficially to improve

community knowledge of the advantages of competition. OFT has an official

responsibility in producing bids or providing counsel to government on existing

regulations or planned modifications to them. For instance, it provides its assistance on

achievement of the competition in RIA.4

4
Regulatory impact assessments are prepared to provide information on the costs, benefits and
risks of planned regulations and help policy makers to think through the consequence of
proposals and encourage informed public debate.
Other advocates of competition involve the sectoral regulators who possess synchronized

authorities to implement competition. They carry out their duties in maintaining a proper

equilibrium between regulation and competition. Regulation can occasionally reduce the

efficiency of competition. The Better Regulation Executive (BRE)5 is linked to the

perfection of regulation and the overview along with innovation of present regulation to

minimize obligations on businesses, in particular SMEs. It has esteem to the doctrine of

answerability, precision, obligation, relativity and stability in performing its duties.

In a wider sense, there are also other advocates involved in the public debate on

competition issues. These include researchers, correspondents, professional consultants

and client corporations. They perform in a better way to contribute to the formation of

competition proposals with the help of public forums and discussions at conferences and

roundtables, editorials, research and reviews. Next comes CC which undertakes the cases

of mergers as well as markets from OFT and sectoral regulators6.

Competition Policy

Competition policy is a means to United Kingdom Government’s goal of supporting a

persuasive and viable economy. Competitive companies offer low prices and alternatives

of commodities and services to the customers. This way, a globally competitive market

guides towards financial development and success. Competition policy maintains an

ample official agenda equally in United Kingdom and European Union7.

5
part of the UK Department for Business, Enterprise and Regulatory Reform (BERR)
6
Competition Advocacy in Time of Recession. The UK Competition Commission’s Approach. Talk given by
Peter Freeman1 International Competition Forum, Warsaw 15 April 2009. Pg. 1 & 2.
7
Ibid.
Competition8 law has dominated a key position in the English law for decades. It

presented a basis for the growth of antitrust policy. The current constitutional competition

policy initially became known in the outcome of the World War II, but the introduced

laws were under-enforced, uncertain and biased. In reality, it was merely in 2000 with the

emergence of the Competition Act 1998, and in 2002 with the enactment of the

Enterprise Act that the UK noticed the achievement of a series system of law. This

system demonstrates the encouragement of competition and fiscal competence.

Generally, Wilks justifies that the density as well as vagueness of UK competition

authorities and legislation, exposed weird dynamics of policy. The policy9 did not

develop from a comprehensible pattern or a strategic image. But UK policy came into

force gradually and forcefully10.

UK Legal Framework

In the current history, the Government of United Kingdom has renovated competition law

which at the moment involves two Acts or laws:

The Competition Act 1998

The Enterprise Act 2002

The Competition Act

8
The words “Competition” and “Antitrust” mean more or less the same thing. It is divergence in
terminology between Americans and the European Community. Whilst, the word Antitrust is used in
the US, Competition is preferred in the EC. At this junction it is pertinent to state that the two words
will be used inter-changeably and they mean the same thing in this work.
9
The policy was not forged in a furnace of public outrage (as in the US); this was not
imposed as part of the fruits of victory (as in Japan); neither was it conceived as part
of a vision of political and economic integration (as with the EEC).
10
The Evolution of Competition Law and Policy in the United Kingdom. Sott, Andrew. Pg. 2&4.
The Competition Act bans concurrences, trade performances and actions that aim to

produce a destructive and harmful consequence on competition in the United Kingdom.

Corporations that violate the Act can be penalized. There we find two diverse

prohibitions. Firstly, the Chapter I prohibition; it contains anti-competitive contracts

which produce a considerable impact on competition. It comprises complicity by

competitors on clients, markets, costs or productivity. Secondly, the Chapter II

prohibition; It evades leading firms in the market from exploiting that condition through

biased and voracious pricing. Intrinsically, these reflect the requirements of Articles 81

and 82 in the European Union legislation.

Competition Act makes use of considerable penalties for anti-competitive actions and

disclosure to probable declarations for compensation from individuals who have been

debilitated by such actions. It does utilize a mercy policy for those who assist the

competition establishment to have their penalties minimized by even 100%.

The Enterprise Act

The Government of United Kingdom, after four years, realized the need for strict

authority for examination and the Enterprise Act came into force.

The further actions to tackle anti-competitive activities explained in the Enterprise Act11

take in: firstly, an illegal league crime holding a punishment of up to five years detention

and/or an unrestricted charges; it aims at persons and works together with the

Competition Act’s civil act dealings in opposition to firms engaged in cartel accords;
11
The Enterprise Act introduced important changes to the powers and procedures for
investigating potentially uncompetitive situations. It also established a mechanism for appeals to
a specialist competition court for parties affected by merger and market investigations. I will return
later to the respective roles and responsibilities of the different competition authorities.
Secondly, exclusion of firm administrators for infringe of UK or EU competition law;

and lastly, improved authority to inspect anti-competitive actions, for example, the

control to force individuals to supply proof, moreover, to go through confidential

organizations to look for verification. These powers are besides present authorities in the

Competition Act.

European Union

The competition authorities of United Kingdom work inside the boundaries of the EU

where there have been essential modifications to competition law as well as policy. The

latest alterations were initiated in May 2004 and were consistent with the growth of

numerous 15 to 25 member states. These alterations embrace: the Modernisation

Regulation which decentralized the application of EU competition law; and restructuring

of the EC Merger Regulation.

Articles 81 and 82 were enforced in a completely diverse structure. They forbid in that

order anti-competitive concurrences and exploitation of market authority. National

competition authorities as well as national courts are engaged in implementation of these

regulations.

A precise target of these alterations is to facilitate the EC to contemplate capital on grave

violations of competition law, for example pan-European cartels, along with additional

severe destructive neglect of market control12.

12
Competition Policy in the UK and its Implications for Japanese Competition Policy. Speech by
Christopher Clarke.
Competition law recounts involvement in the souk and restrictions on the autonomy of

firms to employ various systems, considered to be in the limits of business. Competition

can be illustrated as the fight or strife for power and dominance in the bazaar. Despite

lawmaking mechanisms, the magistrates perform a major part in formation and growth of

the competition establishment in the US and the EC.

Anti-trust Policy

Antitrust has been identified as a review of competition, which reassures competitive

markets by means of communication between sellers and buyers. The analysis of antitrust

involves the evaluation of the correlation among all the stakeholders in the market, the

price and number of commodities manufactured.

The antitrust policy of United States is based on the theory that market competition will

lead to a prosperous and well-off society. The arrival of the antitrust law has been

progressive and exposed to numerous modifications over time. Initially, US antitrust law

introduced competition through control on monopoly and cartel practices.

Presently, the focal point of this law is on restricting concentrations of business

autonomies and improving effectiveness. Significantly the accomplishment credit of the

US antitrust establishment goes to the primary antitrust law. Senator John Sherman

designed and supported it to restrain the reprehensible practices of monopolies. It was

enacted in 1890 and identified as the

Sherman Act. The primary objective of this Act is the access motivation to open market,

industrial autonomy and liberty for free decision-making.

Other US central antitrust laws contain the Clayton Act13 and the Robinson-Patman Act14.

The European Commission competition law targets chiefly at producing and preserving a

single or shared market so as to merge nationwide markets into a single market. One

more target of EC competition policy is competence guiding towards user benefits.

EC Competition law contains 9 articles (Articles 81-89), mentioned in Chapter 1 of Title

VI of the European Community Treaty15. Article 3 (1)(g) maintains that the practices of

the EC shall comprise of the establishment of a scheme making sure that the internal

market competition is not vague. The European Community Merger Regulation

(“ECMR”) is likewise imperative in EC competition law.

The vital competition law requirements leading activities in the EC is mentioned in

Articles 81 and 82 of the EC Treaty. Article 81 (1) hits principally at cartels and bans as

being unsuited to the shared market intrigue actions amid undertakings that may have an

impact on business among member states. Article 81 (2) asserts as negate any

concurrence that breaches Article 81 (1) at the same time as Article 81 (3) offers the

Commission the authority to grants a person and impede immunities to various limiting

accords banned under Article 81 (1). Article 82 forbids the violent exploitation of leading

13
This Act, which was passed, to deal with the inadequacies and lacunas in the Sherman Act was also
designed to prevent anticompetitive conducts and monopolisation). The Clayton Act also provides
damages remedy for injuries arising from antitrust violations, and also permits injunctive relief.
14
The Act was enacted to regulate pricing and other practices in distribution of goods. For the purpose
of this paper, we shall limit our discussions to the Sherman Act. Reference will however be made to the
Clayton and Robinson-Patman Acts when necessary.
15
Usually referred to as the Treaty of Maastricht, which created the European Union came in to force
on November 1, 1993. This treaty supplemented three earlier treaties. On May 1, 1999, the Treaty of
Amsterdam came into force to replace the Treaty of Maastricht and renumbered most of the articles to
what it is today. The articles on competition law remained unchanged safe for the changes in the
numbering.
status by undertakings. It elucidates to tackle both independent leading position as well as

shared dominant position where more than one undertaking is concerned16.

REFERENCES

DTI Economics Paper No. 9. 2004. The Benefits from Competition: some illustrative UK
cases. Retrieved from http://www.bis.gov.uk/files/file13299.pdf
DTI ECONOMICS PAPER NO. 9 , 2004, pg 2, 3

16
THE LEGALITY OF OPEC UNDER US ANTITRUST LAW AND EC COMPETITION LAW. Esan, O.
Adenike. Pg. 3-5.
Fingleton, John. The case for competition policy in difficult economic times. 2009. 2009-
10-09 Information by the Chairman of the ICN Steering Group Mr. John Fingleton.
Retrieved from http://www.konkuren.lt/en/relevant/other_2009-10-09.pdf

Concurrences N° 2- 2009. Competition Policy in Times of Crisis. David Spectre.

Retrieved from
http://ec.europa.eu/dgs/competition/economist/competition_policy_in_times_of_crisis.pd
f

Freeman, Peter. 2009. Competition Advocacy in Time of Recession. The UK

Competition Commission’s Approach. Talk given by Peter Freeman1 International
Competition Forum, Warsaw 15 April 2009. Retrieved from http://www.competition-
commission.org.uk/our_role/speeches/pdf/freeman_warsaw_150409.pdf

Scott, Andrew. 2009. The Evolution of Competition Law and Policy in the United
Kingdom. LSE Law, Society and Economy Working Papers 9/2009. London School of
Economics and Political Science. Law Department. Retrieved from
http://eprints.lse.ac.uk/24564/1/WPS2009-09_Scott.pdf

Speech by Christopher Clarke. ‘Competition Policy in the UK and its Implications for
Japanese Competition Policy’. The UK Competition Regime. Recent Changes and Future
Challenges. Deputy Chairman. UK Competition Commission. Tokyo. 6 December 2004.
Retrieved from
http://www.competition-
commission.org.uk/our_role/speeches/pdf/tokyo_speech_201204.pdf

Esan, O. Adenike. THE LEGALITY OF OPEC UNDER US ANTITRUST LAW AND

EC COMPETITION LAW. Retrieved from
http://www.dundee.ac.uk/cepmlp/car/html/car8_article11.pdf