THE GOALS OF COMPETITION LAW AND THE ROLE OF LEGAL INSTITUTIONS - Week 2 - Prof. Valerio Cosimo Romano

I. Introduction (1/2) Nowadays there is no agreement on a single, unifying antitrust goal. Most scholars claim that competition policy should aim at economic objectives such as: Different kinds of efficiency: productive, allocative and dynamic efficiency. Total and consumer welfare. Other scholars claim that the main goal of antitrust is protection of the competitive process and individual economic freedom (rather than total or consumer economic welfare). Other scholars claim that competition law should aim at non-economic objectives and consider other goals of public interest.

I. Introduction (2/2) EU competition rules are strictly linked to the functioning of the (common) Internal Market. This approach may entail a difficult trade-off between market integration and efficiency (absent in US antitrust law). Antitrust goals prevailing in one jurisdiction are not necessarily equally important as antitrust goals prevailing in other countries. For example, competition laws of China, Russia and South Africa include many non-economic factors. Political objectives include fairness consideration and industrial policy objectives.

II. Conflicting concepts of efficiency and the ensuing welfare trade-offs (1/2) Three different kinds of efficiency may be relevant for the design of competition rules: Productive efficiency; Allocative efficiency; Dynamic efficiency. Productive Efficiency: Implies that output is maximized by using the most effective combination of inputs. The goal of productive efficiency implies that firms which are more efficient should not be prevented from taking business away from less efficient ones.

Static efficiency is contrasted with dynamic efficiency! II. Conflicting concepts of efficiency and the ensuing welfare trade-offs (2/2) Allocative Efficiency: This is a static concept. Set of products, production technologies, production factors and preferences are assumed as given and constant. Static efficiency is contrasted with dynamic efficiency! Dynamic Efficiency: Achieved through invention, development and diffusion of new products and production processes that better satisfy consumer preferences and increase social welfare. Vague concept (loosely indicates optimal technological progress).

III. Consumer welfare Guidelines on the application of Article 101(3) TFEU: “The objective of Article 81 EC is to protect competition on the market as a means of enhancing consumer welfare and of ensuring an efficient allocation of resources” - Paragraph 13 - Nowadays: consumer welfare become the most articulated goal of antitrust law in the US. Consumer welfare: competition law should maximize consumer surplus or at least guarantee that consumer surplus is not reduced. Use of competition law as an instrument of redistribution.

IV. Enhancing consumer’s choice Alternative view: link between the notion of consumer welfare and the concept of consumer sovereignty and takes explicit account of non-price criteria that shape consumers’ choices. Consumer welfare Consumer sovereignty Consumer choice: state of affairs where the consumer has the power to define his or her own wants and the ability to satisfy these wants at competitive prices (Lande 2001).

V. The goals of EU competition law (1/2) There is no unifying economic goal in EU competition law. Uniting principle may be found in the political aim to achieve an internal market (Article 3 (3) TFEU). Competition law is not a goal in itself but is linked inextricably to the objectives of the European Union. Neither the protection of competition nor the safeguarding of consumers’ interests is mentioned in the current text of the TFEU.

V. The goals of EU competition law (2/2) Goal of market integration: elimination of economic frontiers between two or more economies. Neither Member States (MSs) nor private firms may engage in practices in conflict with or undermining the unification of the EU market. MSs should not maintain or issue regulations that hinder the free movement of goods, services, persons or capital. Firms should not agree to restrictive business practices that could form effective barriers against competition originating in other Member States. Appropriateness of market integration as goal of competition law can be doubted. It is highly questionable whether competition law is an appropriate tool to further market integration.