1. Vinod K. Jain Associate Professor and Director, MBA Program University of Maryland University College American Chamber of Commerce in Poland Competing in European Union: The Rules of the Game © 2005 Vinod K. Jain Vinod K. Jain April 13, 2005 University of Maryland University College Polish-American Management Center, University of Lodz

2. Ronald Coase (1991 Nobel Prize winner in economics) once said that he had gotten tired of antitrust because when the prices went up the judges said it was monopoly, when the prices went down they said it was predatory pricing, and when they stayed the same they said it was tacit collusion.

3. Changing Competitive Dynamics in the EU 1 May 2004: Accession of 10 new Member States into the EU Population increase by 25% GDP increase by 5% Adoption of Regulation 1/2003 A fundamentally new approach for the application of competition rules throughout EU25 Implications for business

4. What does a countrys competition policy typically involve? Economic objectives - maintaining competitive markets by prohibiting: Price fixing Market-sharing cartels Monopolization activities of individual companies Abuse of dominant position Mergers that reduce competition Other objectives - social, political, strategic … e.g., to eliminate any discrimination in the economic system based on national grounds

5. Typical Objectives of a Countrys Competition Policy To increase economic welfare (total surplus) Total Welfare = Consumer Welfare + Producer Welfare Total Surplus = Consumer Surplus + Producer Surplus To increase consumer welfare (consumer surplus) Fairness and equity Toward consumers and rivals Defense of smaller firms

6. Other Objectives of Competition Policy Social and political objectives: e.g., promotion of market integration (EU) e.g., Ford/VW joint venture (Portugal) Strategic objectives: Supporting a national champion e.g., Sanofi-Synthélabos acquisition of Aventis (France) Allowing export cartels e.g., Export Trading Company Act (USA) Protectionist goals e.g., anti-dumping laws Subsidizing domestic firms e.g., state aid to companies

7. Competition Policy in the EU Two main objectives: To maintain competitive markets for the benefit of both consumers (especially consumers) and producers To promote the integration of the European market

8. EU Competition Law (in Brief) Maintaining competitive markets: Actions such as the following are prohibited Price fixing Market-sharing cartels Abuse of dominant position Mergers that create or reinforce a dominant position Promoting integration of the EU market: Some prohibited actions Distribution and licensing agreements that prevent parallel trade between Member States Agreements between competitors to keep out of each others territories

9. Microsoft Fined EUR 497m for abusing its dominant position Ordered to sell the Windows software without Media Player in the European Union Ordered to disclose more Windows code to rival software makers New name for Microsoft Windows (without the Media Player): Windows XP Home Edition N Abuse of Dominant Position

10. Cartels Actions of the European Commission Coats (UK) and Prym (Germany) fined EUR 30m each for maintaining a cartel in the market for haberdashery products A third cartel member, Entaco, received immunity Actions of the Czech competition authority Fined six fuel retailers Kc 300m for maintaining a cartel Fined six building societies Kc 500m for cartelization

11. Mergers and Acquisitions GE-Honeywell merger Approved by the Federal Trade Commission and Department of Justice in the U.S. Disallowed by EC Suedzucker (Germany) + Louise Sucre (France) Merger allowed by the EC Disallowed by the Czech competition authority

12. Vertical Restraints Johnson & Johnson was fined PLN 3.8m in Poland for placing price and geographic restrictions on wholesalers for dialysis drug, Eprex

13. EU laws are so extensive and complex that it may take State competition authorities and courts years to fully understand them, much more to fully enforce them It could lead to heterogeneous application of competition laws in Member States It may also cause confusion for foreign companies doing business in the new Member States Key to success in the CEE countries – know and obey the rules of the competitive game Concluding Remarks