Competition Policy in the EU
PART A
There are four major tenants of the EU competition policy (European Commission, 2006). These include antitrust and cartels, merger controls, liberalization, and state aids. There are important points that need to be taken into consideration in each tenant.
On antitrust and cartels, it is illegal for businesses in Europe to collude with one another to carve up markets of fix prices between them. Businesses should not abuse their power in driving out competitors if they have dominant positions in a certain market. In addition, large businesses must not exploit the weaker ones through the negotiation of position of smaller suppliers and customers. Some exceptions, however, do exist. The European Commission can permit firms to join together to create a single technical norm for the whole market (European Commission, 2006). Smaller firms can also be allowed to cooperate in case this action reinforces their capacity to compete with stronger firms in the market. Example: The EU has narrowed car prices differences across the region through bringing enormous transparency in pricing. The Commission has authorized car dealers to carry out repairs and sell parts, and made dealerships of multi-car possible. Dealers are able to carry out business operations in more than one EU state from October 1, 2005. The Commission is now working to restructure all tax systems in order to develop a single market to eliminate price differences between countries (European Commission, 2006).
On merger control, the Commission can impose or ban conditions on takeovers and mergers of a company by another in case the enlarged firm would too effortlessly have the ability to squeeze competitors. Such conditions apply to cases where mergers leave only a few operators, leading to invention and innovation being stifled, or consumer price or price competition being reduced. Example: The Commission deals with larger cross-border mergers and takeovers (European Commission, 2006). Member states are left to make decisions if the effect of a merger of large firms with global operations will be limited to one country.
On liberalization, the policy holds that monopolies are infrequently justified in an open economy as they seem to lead to poor service and high prices, and hinder innovation. Exceptions are allowed for uneconomic services that are regarded as a basic right. If there is no natural monopoly, the selection of a company to offer the service should be made in a transparent manner. Example: The Commission has ensured fair competition between new entrants and older players in the electricity and gas markets and has brought prices to consumers (European Commission, 2006). The Commission has put up action to generate change in professional services where obstacles to operations across borders have been sluggish to come down.
On State aids, the Commission follows closely how much support state governments make accessible to business. The Commission looks at types of aids including grants and loans, tax breaks, services and goods made available at certain rates and at guarantees of loans that make the loanee a better credit risk (European Commission, 2006). Aid to companies or businesses that cannot stand on their own are not allowed according to the policy. Temporary aid is allowed but the business in hardship has to prove that it can become competitive when given the loan. Often, aid for regional development, small and medium sized enterprises, and research and innovation, are allowed since they serve overall goals of EU. Aids to low-cost airlines, public services including broadcasting are allowed, although governments have to be careful not to misappropriate funds.
PART B
Efficient and effective competition is viewed as critical to an open market economy by the European Commission. It improves quality, expands customer choice, and cuts prices. Competition results in the flourishing of technological innovation (Philipsen, 2010). However, the EU policy may cause concern among American firms carrying out global business operations in the EU. Some of these concerns are related to the fact that competition policies between the two countries are different.
The limitation of allowing large companies in the EU can hinder the generation essential economies of scale for American businesses; therefore, increase the competitiveness of the EU on the globe stage. As there are cartels and antitrust imposed by the Commission, American businesses cannot expand their operations within the region. Thus, this becomes a major concern on deciding whether or not to operate in the EU for American businesses (Philipsen, 2010). It is unimaginable to think that a high quality producer such as Europe does not allow European champions (large companies) to control the market except under certain few exceptions. For instance, large American companies in the EU may impose certain conditions on suppliers that may hinder their freedom to carry on business with other firms. Under this policy, such companies may be fined for such practices as they are breaching the policy. This reduces the desire to operate in the region.
It is evident that the EU competition policy ensures that businesses do not misuse their power in the market. In this case, free competition exists over monopolies and cartels. However, an ambiguous situation arises when the history of the policy is looked at. The question of whether the competition policy has actually achieved the desired goals or not is arises among businesses in the EU. There is also a potential major concern on the adjustment cost of former monopolistic markets liberalization as it may be particularly high taking into account the labor market rigidities (Aydin & Thomas, 2012). With the high cost related to the high unemployment level, market liberalization can, therefore, result in a general negative effect on the growth of not only EU businesses, but other businesses with global operations within the region (Philipsen, 2010). The European Commission has often been criticized for being too lenient in some cases and too strict in others. This might create a major concern for American businesses as there are many uncertainties involved in operating in the EU under the policy. Significant growth for companies may be restricted due to control of mergers and takeovers, and this might create the fear for the American businesses that desire to operate in EU.
Another significant concern for American businesses is on the deprivation firms within the EU to follow principles acknowledge by a majority of firms across the world, and this hinders businesses in EU to expand fully their competitive benefits (Aydin & Thomas, 2012). The EU should work on ensuring that competition is not stifled to an unaccepted level. Combining an efficient competitive policy with an effective industrial policy is probably not a simple task. However, this can aid in bringing the country’s economic prosperity back on track.
References
European Commission. (2006, March 1). Competition Policy in the European Union. — EUbusiness. Retrieved March 3, 2014, from http://www.eubusiness.com/topics/competition/competition-policy-in-the-european-union
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