Competition Law
It does not regulate the market place. We are best served by market operators to be selfish- we give
them freedom to do so and by doing so they serve our ends. The market ought to be free, it should
be unfettered, which ensure the maximisation of economic welfare. Competition is a good thing- it
maximises consumer welfare, effective resource allocation, innovation etc.- it is not the protection of
the consumer but the protection of the market.
GENERAL
Why competition law? Competition is the regulation of the market- thus what is the market? A
market is where producers or suppliers vie with each other for the loyalties of persons who want to
but it. What is the relevant market? Are there distinct market for different goods and services i.e.
does a whisky producer compete with a bike manufacturer? Is it a product market i.e. categorised by
the product? Small but Significant Normal Increase in Price (SSNIP) test used by economists to see if
products fall in the same market i.e. will an increase in price for a reasonable period of time cause
people to abandon the product and go to a similar product- if this is true then the products are
categorised in the same market and if not then they are not products of the same market.
Once you have got you market, you will have producers and suppliers in the market- giving a
spectrum where at one end you have monopolies and the other side you have perfect competition
i.e. several suppliers and producers etc- this practically does not exist- what we see in reality is in
between the 2 ends.
The mischief that ought to be cured:
1. Monopoly- single producer or supplier- forces of competition do not exist- absolute market
power and we do not like monopolies economically- but they can deliver good things sometimes.
2. Cartels- where firms collude with each other to twist the market- undertakings that will disrupt
the market- they agree not to compete as by doing so they all benefit- the market does not benefit.
3. Oligopoly
4. Mergers and takeovers
Where does competition law come from?
Early recognition of the problems:
De Dardanariis (Corp. Jur. Civ. Dig. XLVII-XI-6 ; de extraordinariis criminibus)
‘Praeterea debebis custodire, ne dardanarii ullius mercis sint, ne aut ab his, qui coemptas merces
supprimunt, aut a locupletoribus, qui fructus suos aequis pretiis vendere nollent, dum minus uberes
proventus exspectant, ne annona oneretur’. Poena autem in hos varie statuitur; nam plerumque, si
1
,negotiantes sunt, negotiatione eis tantum interdicitur, interdum et relegari solent, humiliores ad
opus publicum dari.
Edictum Diocletiani De Pretiis Rerum Venalium (AD 301)
For who is so hard and so devoid of human feeling that he cannot, or rather has not perceived, that
in the commerce carried on in the markets or involved in the daily life of cities immoderate prices are
so widespread that the unbridled passion for gain is lessened neither by abundant supplies nor by
fruitful years; so that without a doubt men who are busied in these affairs constantly plan to control
the very winds and weather from the movements of the stars, and, evil that they are, they cannot
endure the watering of the fertile fields by the rains from above which bring the hope of future
harvests, since they reckon it their own loss if abundance comes through the moderation of the
weather….
And a concern for the general interest in mankind bids us, our peoples, to set bounds to the avarice
of these men, who are always eager to turn every gift from the heavens to a pecuniary gain ....
For who does not know how in their boldness, which undermines the public good, ... the profiteer
takes it in his heart to price his goods not just four times or eight times the norm, but such that the
human tongue scarcely has words for their prices and their deeds ....
Since we were justly and properly aroused by these things and since humanity itself seemed to be
crying out for help, we have decided ....
And it is our will that if any person struggles against the provision of this law, he shall be put to death
for his boldness.
The Anglo-Saxon Chronicle (1125): a solution for Sir Fred Goodwin?
In this year sent the King Henry, before Christmas, from Normandy to England, and bade that all the
mint-men that were in England should be mutilated in their limbs; that was, that they should lose
each of them the right hand, and their testicles beneath. This was because the man that had a pound
could not lay out a penny at a market. And the Bishop Roger of Salisbury sent over all England, and
bade them all that they should come to Winchester at Christmas. When they came thither, then
were they taken one by one, and deprived each of the right hand and the testicles beneath. All this
was done within the twelfth-night. And that was all in perfect justice, because that they had undone
all the land with the great quantity of base coin that they all bought.
Las Siete Partidas (1265) de Alfonso X, el Sabio (1221-1284)
Quinta Partida, Título VII, Ley II
Cómo los mercadores non deben poner cotos entre sí sobre la cosas que vendieren
Concerning the combinations and agreements which merchants enter into with one another, by
making oaths and forming brotherhoods
2
,Merchants enter into combinations and agreements amongst themselves taking oaths, and forming
brotherhoods for the purpose of aiding one another, establishing prices as to how much a yard they
shall pay for every kind of cloth, and also how much they will give according to the weight and
measure of other articles, and no less. Moreover, artisans enter into combinations amongst
themselves as to the price they will pay for each of the articles which they make use of in their
trades....
and for the reasons that many wrongs have resulted therefrom, we decree that any brotherhoods,
contracts, or combinations, such as those aforesaid or any similar to them shall be established with
the knowledge and consent of the king, and that if this is done without said knowledge and consent,
they shall not be valid; and also that all those who establish any in this way from this time forward,
shall forfeit all their property to the king, and that in addition to this they shall be banished forever
from the country.
Mitchell v Reynolds (1711), per Lord Macclesfield
In all restraints of trade, where nothing more appears, the law presumes them bad; but if the
circumstances are set forth, that presumption is excluded, and the court is to judge of those
circumstances, and determine accordingly; and if upon them it appears to be a just and honest
contract, it ought to be maintained.
Adam Smith, The Wealth of Nations (1776)
The price of monopoly is upon every occasion the highest which can be got.
The monopolists, by keeping the market constantly under-stocked, by never fully supplying the
effectual demand, sell their commodities much above the natural price, and raise their emoluments,
whether they consist in wages or profit, greatly above their natural rate.
It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but
from their regard to their own interest.
The interest of the dealers ... in any particular branch of trade or manufactures, is always in some
respect different from, and even opposite to, that of the public. To widen the market and to narrow
the competition, is always in the interest of the dealers. To widen the market may frequently be
agreeable enough to the interest of the public; but to narrow the competition must always be against
it, and can serve only to enable the dealers, by raising their profits above what they naturally would
be, to levy, for their own benefit, an absurd tax upon the rest of their fellow citizens.
People of the same trade seldom meet together, even for merriment and diversion, but the
conversation ends in a conspiracy against the public, or in some contrivance to raise prices.
Note:
(UK got the law on competition law from the Germans, who in turn got it from the Americans, by way
of the Americans forcing them to adopt the Sherman Act) The Germans inspired the rest of the EU in
3
, 1950s to ensure that the EC Treaty has provisions dealing with competition. UK technically stole the
terms of the Competition Act from the treaty.
Cartels
[W]e can infer that overcharges imposed on EU consumers by cartels in the 2002-2007 period are way
larger than penalties imposed on the detected cartels. Assuming a 30% detection rate and the
most―generous estimate of the ratio between penalties and overcharges (70%), the total overcharge
from EU-wide (detected and undetected) cartels would reach €29.7 billion; if the deadweight loss is
calculated under textbook assumptions of linear demand, constant unit costs and unitary elasticity (i.e.
50% of the overcharge), the total impact of EU-wide cartels over the period 2002-2007 would reach
€44.6 billion, of which approximately €14.9 billion is the net loss to society from reduced output
(allocative inefficiency), whereas €29.7 billion is the transfer from buyers to sellers (cartelists). Based
on this calculation, the lower-bound estimate yearly impact of EU-wide cartels would be €8.9 billion, of
which €5.95 billion would represent the net transfer from sellers to buyers, and €2.97 billion the
deadweight loss. This, as recalled, is a very conservative estimate. If we assume that the detection rate
of cartels per given year is in line with the majority of estimates, i.e. around 15%, and the ratio
between penalties and overcharges is 30%, then the estimated (upper-bound) yearly impact of EU-
wide cartels would reach €138.7 billion.
- Centre for European Policy Studies, Making antitrust damages actions more
effective in the EU (2007)
‘The competitor is our friend, the customer our enemy.’
- Dwayne (sic) Andreas of Archer Daniels Midland,
Lysine cartel (1995)
‘Such agreements [cartels] can lead to a more ordered organisation of production and can check
wasteful and excessive competition…. They can lead to a rapid improvement in techniques and a
reduction in cost, which, in turn, with enlightened administration of industry, can provide a basis of
lower prices to consumers. They can spread the benefits of inventions from one country to another
by exchanging research results, by the cross-licensing of patents, and by the provision of important
‘know-how’ to the working of these patents.’
- Lord McGowan, Chairman of ICI (House of Lords
Debates, 1944)
‘Die Kartelle sind die Krebsgeschwüre der offenen Marktwirtschaft.’
- Commissioner Mario
Monti (2000)
‘… the supreme evil of antitrust.’
4
It does not regulate the market place. We are best served by market operators to be selfish- we give
them freedom to do so and by doing so they serve our ends. The market ought to be free, it should
be unfettered, which ensure the maximisation of economic welfare. Competition is a good thing- it
maximises consumer welfare, effective resource allocation, innovation etc.- it is not the protection of
the consumer but the protection of the market.
GENERAL
Why competition law? Competition is the regulation of the market- thus what is the market? A
market is where producers or suppliers vie with each other for the loyalties of persons who want to
but it. What is the relevant market? Are there distinct market for different goods and services i.e.
does a whisky producer compete with a bike manufacturer? Is it a product market i.e. categorised by
the product? Small but Significant Normal Increase in Price (SSNIP) test used by economists to see if
products fall in the same market i.e. will an increase in price for a reasonable period of time cause
people to abandon the product and go to a similar product- if this is true then the products are
categorised in the same market and if not then they are not products of the same market.
Once you have got you market, you will have producers and suppliers in the market- giving a
spectrum where at one end you have monopolies and the other side you have perfect competition
i.e. several suppliers and producers etc- this practically does not exist- what we see in reality is in
between the 2 ends.
The mischief that ought to be cured:
1. Monopoly- single producer or supplier- forces of competition do not exist- absolute market
power and we do not like monopolies economically- but they can deliver good things sometimes.
2. Cartels- where firms collude with each other to twist the market- undertakings that will disrupt
the market- they agree not to compete as by doing so they all benefit- the market does not benefit.
3. Oligopoly
4. Mergers and takeovers
Where does competition law come from?
Early recognition of the problems:
De Dardanariis (Corp. Jur. Civ. Dig. XLVII-XI-6 ; de extraordinariis criminibus)
‘Praeterea debebis custodire, ne dardanarii ullius mercis sint, ne aut ab his, qui coemptas merces
supprimunt, aut a locupletoribus, qui fructus suos aequis pretiis vendere nollent, dum minus uberes
proventus exspectant, ne annona oneretur’. Poena autem in hos varie statuitur; nam plerumque, si
1
,negotiantes sunt, negotiatione eis tantum interdicitur, interdum et relegari solent, humiliores ad
opus publicum dari.
Edictum Diocletiani De Pretiis Rerum Venalium (AD 301)
For who is so hard and so devoid of human feeling that he cannot, or rather has not perceived, that
in the commerce carried on in the markets or involved in the daily life of cities immoderate prices are
so widespread that the unbridled passion for gain is lessened neither by abundant supplies nor by
fruitful years; so that without a doubt men who are busied in these affairs constantly plan to control
the very winds and weather from the movements of the stars, and, evil that they are, they cannot
endure the watering of the fertile fields by the rains from above which bring the hope of future
harvests, since they reckon it their own loss if abundance comes through the moderation of the
weather….
And a concern for the general interest in mankind bids us, our peoples, to set bounds to the avarice
of these men, who are always eager to turn every gift from the heavens to a pecuniary gain ....
For who does not know how in their boldness, which undermines the public good, ... the profiteer
takes it in his heart to price his goods not just four times or eight times the norm, but such that the
human tongue scarcely has words for their prices and their deeds ....
Since we were justly and properly aroused by these things and since humanity itself seemed to be
crying out for help, we have decided ....
And it is our will that if any person struggles against the provision of this law, he shall be put to death
for his boldness.
The Anglo-Saxon Chronicle (1125): a solution for Sir Fred Goodwin?
In this year sent the King Henry, before Christmas, from Normandy to England, and bade that all the
mint-men that were in England should be mutilated in their limbs; that was, that they should lose
each of them the right hand, and their testicles beneath. This was because the man that had a pound
could not lay out a penny at a market. And the Bishop Roger of Salisbury sent over all England, and
bade them all that they should come to Winchester at Christmas. When they came thither, then
were they taken one by one, and deprived each of the right hand and the testicles beneath. All this
was done within the twelfth-night. And that was all in perfect justice, because that they had undone
all the land with the great quantity of base coin that they all bought.
Las Siete Partidas (1265) de Alfonso X, el Sabio (1221-1284)
Quinta Partida, Título VII, Ley II
Cómo los mercadores non deben poner cotos entre sí sobre la cosas que vendieren
Concerning the combinations and agreements which merchants enter into with one another, by
making oaths and forming brotherhoods
2
,Merchants enter into combinations and agreements amongst themselves taking oaths, and forming
brotherhoods for the purpose of aiding one another, establishing prices as to how much a yard they
shall pay for every kind of cloth, and also how much they will give according to the weight and
measure of other articles, and no less. Moreover, artisans enter into combinations amongst
themselves as to the price they will pay for each of the articles which they make use of in their
trades....
and for the reasons that many wrongs have resulted therefrom, we decree that any brotherhoods,
contracts, or combinations, such as those aforesaid or any similar to them shall be established with
the knowledge and consent of the king, and that if this is done without said knowledge and consent,
they shall not be valid; and also that all those who establish any in this way from this time forward,
shall forfeit all their property to the king, and that in addition to this they shall be banished forever
from the country.
Mitchell v Reynolds (1711), per Lord Macclesfield
In all restraints of trade, where nothing more appears, the law presumes them bad; but if the
circumstances are set forth, that presumption is excluded, and the court is to judge of those
circumstances, and determine accordingly; and if upon them it appears to be a just and honest
contract, it ought to be maintained.
Adam Smith, The Wealth of Nations (1776)
The price of monopoly is upon every occasion the highest which can be got.
The monopolists, by keeping the market constantly under-stocked, by never fully supplying the
effectual demand, sell their commodities much above the natural price, and raise their emoluments,
whether they consist in wages or profit, greatly above their natural rate.
It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but
from their regard to their own interest.
The interest of the dealers ... in any particular branch of trade or manufactures, is always in some
respect different from, and even opposite to, that of the public. To widen the market and to narrow
the competition, is always in the interest of the dealers. To widen the market may frequently be
agreeable enough to the interest of the public; but to narrow the competition must always be against
it, and can serve only to enable the dealers, by raising their profits above what they naturally would
be, to levy, for their own benefit, an absurd tax upon the rest of their fellow citizens.
People of the same trade seldom meet together, even for merriment and diversion, but the
conversation ends in a conspiracy against the public, or in some contrivance to raise prices.
Note:
(UK got the law on competition law from the Germans, who in turn got it from the Americans, by way
of the Americans forcing them to adopt the Sherman Act) The Germans inspired the rest of the EU in
3
, 1950s to ensure that the EC Treaty has provisions dealing with competition. UK technically stole the
terms of the Competition Act from the treaty.
Cartels
[W]e can infer that overcharges imposed on EU consumers by cartels in the 2002-2007 period are way
larger than penalties imposed on the detected cartels. Assuming a 30% detection rate and the
most―generous estimate of the ratio between penalties and overcharges (70%), the total overcharge
from EU-wide (detected and undetected) cartels would reach €29.7 billion; if the deadweight loss is
calculated under textbook assumptions of linear demand, constant unit costs and unitary elasticity (i.e.
50% of the overcharge), the total impact of EU-wide cartels over the period 2002-2007 would reach
€44.6 billion, of which approximately €14.9 billion is the net loss to society from reduced output
(allocative inefficiency), whereas €29.7 billion is the transfer from buyers to sellers (cartelists). Based
on this calculation, the lower-bound estimate yearly impact of EU-wide cartels would be €8.9 billion, of
which €5.95 billion would represent the net transfer from sellers to buyers, and €2.97 billion the
deadweight loss. This, as recalled, is a very conservative estimate. If we assume that the detection rate
of cartels per given year is in line with the majority of estimates, i.e. around 15%, and the ratio
between penalties and overcharges is 30%, then the estimated (upper-bound) yearly impact of EU-
wide cartels would reach €138.7 billion.
- Centre for European Policy Studies, Making antitrust damages actions more
effective in the EU (2007)
‘The competitor is our friend, the customer our enemy.’
- Dwayne (sic) Andreas of Archer Daniels Midland,
Lysine cartel (1995)
‘Such agreements [cartels] can lead to a more ordered organisation of production and can check
wasteful and excessive competition…. They can lead to a rapid improvement in techniques and a
reduction in cost, which, in turn, with enlightened administration of industry, can provide a basis of
lower prices to consumers. They can spread the benefits of inventions from one country to another
by exchanging research results, by the cross-licensing of patents, and by the provision of important
‘know-how’ to the working of these patents.’
- Lord McGowan, Chairman of ICI (House of Lords
Debates, 1944)
‘Die Kartelle sind die Krebsgeschwüre der offenen Marktwirtschaft.’
- Commissioner Mario
Monti (2000)
‘… the supreme evil of antitrust.’
4
