Corporate and Insolvency Law for

Economics
Academic Year 2022-2023
kk
Prof. Maurizio Irrera
Prof.ssa Irene Pollastro

Competition Law & Economics

Part 1
- schemes -

Dipartimento di Scienze economico-

sociali e matematico-statistiche
 Introduction

Law & Economics is the application of economic theory and economic methods to the
analysis of law.

Competition law is, in many ways, the night-watchman of a market economy. It is

the field of law that promotes and seeks to ensure an optimal functioning of the market,
by regulating competition and anti-competitive conducts undertaken by companies
in the market.

Competition law does not strive to achieve moral goals, nor does it carry any moral
baggage other than the promotion of competition.

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 Market optimal functioning

Economics aim at achieving an optimal operation of the market in terms of:

➢ productive efficiency: goods and services are produced as low cost as possible,
with no more materials than it is absolutely necessary;
➢ allocative efficiency: available resources are intended for the production of
what consumers prefer most.
➢ dynamic efficiency: companies are driven by competition to be innovative and
to strive to create new products.

In the European Union (the EU), competition law has the further goal of
promoting the functioning of the internal market.

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 Market forms

Economic theory distinguishes between a number of different market forms:

➢ “perfect competition” market, which is characterized by: i) infinite number of
producers and buyers; ii) homogeneous products; iii) full information
disposability; iv) low barriers to the entrance;
➢ monopoly market, in which: i) there is only one producer that puts relevant
products on to the market; ii) the producer can ask for a price significantly higher
with respect to the equilibrium price (see also the mirror image of monopsony,
in which there is only one buyer and he has thus the possibility to dictate the
condition of purchase);
➢ oligopoly, in which limited number of sellers or producers that can influence
market conditions.

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 Identification of the relevant market and the
market share

To identify the relevant market, three important factors have to be taken into
account:
➢ product market: only producers of identical or similar products or services can
come into competition with each other;
➢ geographic market: undertaking is always active in a particular geographic area;
➢ time-related market: the temporal dimension is sometimes important to define
the relevant market.
The “market share” is the percentage, out of total purchases of a customer of a
product or service, that goes to a company. It can determine whether or not
competition rules are applicable and/or particular agreements have the effect of
restricting competition and/or certain agreements fall under a block exemption
(abuse of dominant position; M&A).

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 The price mechanism and the Economic Theory of
Regulation

Markets can only function if the formation of prices takes place freely.
Competition law is a form of regulation of the economy by the government. By
regulation. This leads to the restriction of the freedom to trade of businesses and/or
consumers. According to the theory of “public interest”, the regulation is required if
there is one of the following four situation of market failure:
I. a single company holds a dominant position;
II. external effects can cause a market to fail;
III. public goods of which consumption is general;
IV. information asymmetry.
In the 1980s, a new vision of regulation was developed, as a result of the
liberalization process that was carried out by various EU Member States in certain
sectors. In this vision, the transition from a regulated to a liberalized market requires
the accompaniment of a specially designed form of regulation.
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 Competition’s law objects

The core conducts that are taken into account for competition law regulation are:

⚫ the prohibition of anti-competitive agreements (collusions and cartels);

⚫ the prohibition of the abuse of a dominant position (dominance and monopoly);
⚫ the control of concentrations (mergers and acquisitions).

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 Prohibition of anti-competitive agreements

The prohibition on agreements that affect competition has a central place in EU

competition law. The basic provision is the Art. 101 TFEU (Treaty on the
Functioning of the European Union). The prohibition on restrictions of competition
under Article 101 TFEU only applies where there is some collusion. The collective
term ‘collusion’ cover an agreement, a decision of an association of
undertakings or a concerted practice, that have as their object or effect the
prevention or distortion of competition.
All the collusive practices are secret (and sometimes illegal) actions aimed i) at
limiting open competition by deceiving, misleading, or defrauding others of their
legal rights, ii) or at obtain an objective forbidden by law typically by defrauding or
gaining an unfair market advantage. Usually these results are obtained through: i)
prices fixing: Article 101 (1)(a)TFEU; ii) limits to production or restrictions of
outputs: Article 101 (1)(b) TFEU; iii) market sharing: Article 101 (1)(c) TFEU.
Exceptions: de minimis rule; rule “of reason”.
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 Prohibition of anti-competitive agreements
Block exemptions

Article 101(1) TFEU covers both the clauses of agreements which have anti-
competitive effect between Member States, and clauses of purely national
agreements.
In the EU system, a breach of the prohibition leads to the voidness of the relevant
agreements and decisions. It is up to the national court to decide whether or not the
agreement or decision is to be held void in full.

Block exemptions provide that, for certain clearly defined groups of agreements,
the prohibition of Article 101 TFEU does not apply. A large number of block
exemptions have been adopted in EU competition law. This has occurred through
the adoption of Regulations, which have direct application in all Member State legal
systems.

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 Prohibition of anti-competitive agreements
Art. 101(3) TFEU

In the EU systems there exists the possibility for the provisions of Article 101(1) to
be declared inapplicable, but only if the economic and social advantages outweigh
the negative effect upon competition. The four conditions for an exemption are
provided by section Article 101( 3) TFEU:
(a) the arrangement must contribute to the improvement of production or
distribution or to the promotion of technical or economic progress;
(b) a fair share of the resulting benefit must be enjoyed by consumers;
(c) the arrangement must not impose any restrictions upon the undertakings
concerned that are not indispensable to the achievement of these goals;
(d) the arrangement must not give the undertakings concerned the possibility of
eliminating competition in respect of a substantial part of the goods or services
in question.

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 Types of anti-competitive agreements

Horizontal arrangements concern dealings between parties at the same level of the
production and distribution chain (e.g. Belasco case).

Vertical arrangements are agreements reached between undertakings at different

levels of the production and distribution chain (e.g. agency agreements; franchising
agreements; export bans)

Undertakings can be natural or legal persons, private companies or state

companies, producers, distributors, service providers or professionals: indeed,
according to the UK Competition and Markets Authority (the CMA), the term
includes any person capable of carrying on commercial or economic activities
relating to goods or services.

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