prompt examples
• What have competition agencies learned from merger decisions in financial services sectors? How have
they dealt with interactions between, and evolution of, financial markets?
• How does state ownership affect competition? Should bringing a number of individual firms under public
control be treated as a notifiable “merger operation”?
• How can competition policy seek to improve competitive conditions in the financial sector, such as by
reducing switching costs or improving the availability of credit data?
• Should competition authorities extend the conception of consumer welfare to include macroeconomic
benefits from ensuring system stability?
− How does the role of competition agencies interact with the role and remit of authorities and regulatorsresponsible for financial services, securities and commodities exchanges, monetary policy, financial stability and accounting standards? What should be the respective responsibilities and scope of coordination between competition agencies and these regulators?
-Should competition agencies develop in-house expertise about financial markets?
− What are the legal and practical impediments to competition agencies and financial sector regulators
sharing information and market analysis and working together to formulate policy initiatives and
interventions? How best can competition agencies engage in coordinated competition advocacy?
− As the institutions for overseeing and regulating financial markets are improved, how can the policy
goals of market competition and financial system security be best co-ordinated?
the 2EPCOND
THE UA MUST GIVE CONSUMERS A FAIR SHARE OF THE BENEFITS
what is a ‘FAIR SHARE’ (of the benefit)?: Since the consumer welfare standard test applies to the EP, the fair share requirement must mean that buyers must be fully compensated…. by how much, is also a political decision.
2 Types of welfare test: THE TYPE OF TEST TO BE APPLIED IS A POLITICAL CHOICE
a. The [total = societal] welfare standard test: the relevant element is the change in the sum: [CS + PS]…..The test is passed if PS increases more than CS decreases… thus the change of size of CS is not decisive. large CS losses do not automatically make an ua ineligible for EP….however, this is not consistent with the 2ndcond, where there is a limit to the max. CS decrease, because 2ndcond requires that buyers get a fair share of the benefits. thus, it would be contra legem (wrong interpretation) to apply this test to the EP
b. The Consumer welfare standard test (consumer surplus = the sum of buyer’s welfare) : automatically applies to eaf, because this test is imposed by the 2ndcond…
The more types of buyers allowed by this test, the more beneficiaries …. thus, the more likelihood that the au will be cleared, despite of its anticomp effects.
types of buyers (receiving benefits):
compaffected (current) buyers
this test treats all affected buyers equally. what matters is that they benefit as a group.
eg an anticomp au raises prices but also product quality, in a way that CS (ew) increases for affected buyers, as a group. …but poorer buyers will be worse off, if they do not need more product quality…. thus, parliament (legitimised to redistribute wealth) can choose to apply a different test that does not treat all affected buyers equally. eg a test requiring the welfare of only the poorest buyers is increased.
future buyers [are eligible into the 2epcond]
eg. anticomp ua that improves innovation, only harms current buyers, and benefits future buyers.
eg. bank selfregulation produces benefits that will mainly only be enjoyed by future buyers, and future citizens.
benefits for future buyers are eligible, but at a discounted rate [relative to current buyers].. only gov can decide how fut benefits must be valued…usually, present benefits are valued more, than equal future benefits….the rate by which fut benefits are discounted, is a political decision [should be on the law…but is not…not even on caselaw. ecj usually holds that future benefits of innovation may outweigh today’s anticomp effects.
also, the political decision should be that the CS of fut buyers must be considered, ow, society’s prosperity would be badly affected, because innovation (=dynamic efficiency), is the greatest contributor to society’s wealth…..CL’s overarching goal is the max. ew)
[noncompaffected buyers, but who are related to the compaffected market] = nearly all society
is it fair that ‘nearly all society’ enjoy a welfare benefit, thanks to compaffected buyers suffering a compharm?.
ec/cma: is not fair….thus, the benefits for this type of buyers are not eligible for balancing…. but this means that ebwpiaus that benefit citizens in general, are not EP eligible…. thus, selfregulation (internalises negative externalities, thus generating ebwpiaus) is also not EP eligible….because the internalisation of negative externalities imply that some costs not born by buyer or producer, but by others, are now in the price. thus causing price increases, without direct benefits for the buyers. this is a decrease in ew….iow, the whole societal welfare increase, due to the internalisation, will rarely land with the buyers, and therefore, cannot be used to outweight anticompeffects…. the current political choice, is that those who are harm must be compensated. this implies that societal welfare increase(due to the internalisation of neg. externalities ), cannot be decisive in the 2epcond.
mastercard I v ec, case:
the offering of credit card services involves 2 types of bank customers:[2sidedmarket]: merchants, and consumers. … May anticomp harm on merchants, be outweighed by consumer benefits?: ecj held that this is possible, as long as merchants receive, at least, ‘appreciable objective advantages’. but, in this case, they didnt, so the ua was blocked.
i disagree here with ecj, because:
1- the harm to merchants must be fully compensated, eg. via subsidies
2-by determining a welfare distribution, in the 2epcond, ecj made a polical decision, acting ultravires.
3-the ecj decision leaves room for private parties to decide when the benefits for the harmed buyers, are sufficiently appreciable.
4-the appreciability test also applies if the buyers in 2 different markets , are the same persons… iow, even if the buyers are the same persons, the ec insists that they need to receive at least appreciable advantages…. this is wrong, because it should not matter what the nature of the ew compensation is…..iow, for ec, the decisive element is the identity of the buyers, and not the affected markets….egs:
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- star alliance case: some airlines cooperated. ec held that the anticomp harm would affect a different route , than the routes that would benefit from the coop..however, since there was ‘considerable commonality’, between passengers enjoying the benefits, and those suffering the anticomp harm, ec allowed the balancing.
- dutchcma has balanced price increases for electricity consumers, v environ.benefits…perhaps because all citizens are electricity consumers.
- dutchcma held that all mortgage consumers are also taxpayers, and therefore it considered the potential costs for taxpayers, even though not all taxpayers are actual or potential mortgage consumers
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[noncompaffected buyers who are not related at all to the affected markets] = all of society
<> padi’s standi in EEACs
can the benefits that society at large get [from the anticomp ua] , be AGGREGATED to the ‘appreciable advantages’ that affected consumers receive [from the anticomp ua] , to outweigh the anticomp harms?
in the past, ec said yes…eg: ceced case: ec held that ‘the environ.benefits for society allow consumers a fair share of the benefits, even if no benefits accrued to individual buyers’…..but now ec/cma has changed opinion to a ‘more economic view’
conclusion:
a cocon should only be EP eligible if at least fully compensates any aticomp harm. thus, compensation should land with those harmed, since ow, there would be wealth redistribution [<> unfair.enrichment>>o.2restitute] between different buyer groups. the compensation may also benefit future buyers. this implies wealth redistribution from current buyers to future buyers. this is demolegitimate because is in the law.
ew benefits must not go to buyers who are non-victims [eg society at large]. they should not be EP eligible…thus, rms [other than the ep], should be used to solve conflicts between a measure pursuing ew improvements to byers who are non-victims buyers (eg all of society), and the cartel prohibition.
THE 3EPCOND:
‘THE COMP RESTRICTION MUST BE INDISPENSABLE TO ATTAIN THE BENEFITS’
eaf applies the suitability test: the claimed benefits are only eligible, if there is a causal link [between the comprestriction, and the claimed benefits]..iow, the comprestriction must be reasonably necessary to produce the claimed benefits….
Caselaw applies the ‘nolessrestrictivealternative’ test = proportionality test. my opinion is that this test should not be applied to 3epcond.
the proportionality test checks whether there are less restrictive alternatives to achieve the benefits of the 1epcond.
case slovak banks, ecj held that it was not indispensable that the incumbent banks formed a collective boycott v a new financial institution, to stop it from operating (allegedly, illegally). the banks could have lodged a complaint with the FSA, and therefore, no comprestriction (boycott) was needed. thus, the agreement to boycott was illegal.
why courts should not be using the proportionality test [=need to check for alternatives]:
which only considers buyer benefits, and not the benefits for the colluding undertakings….thus, this test does not always lead to a win-win situation where both buyers and sellers win, because if less comprestrictive alternatives are available to buyers, but barely benefit the undertakings, the undertakings will not enter into the ua [because undertakings are under no obligation to implement less comprestrictive alternatives when available…. so, if their intended coop is not EP eligible, ew is not maximised, because, undertakings will decide not to enter into the ua, which will make also buyers also worse off, since they would have benefited from it]….. iow, the EP is not always allowed, if buyers are better off with the anticomp ua, but only if the anticomp ua can deliver the max.ew possible…..iow, a better world is being denied by the courts, in their impossible pursuit of a perfect world…..iow: current caselaw is refusing [only on basis of 3epcond violation], the EP eligibility of comprestrictions that produce more ew benefits for buyers, than ew losses…[ 1epcond and 2epcond are complied, and also 4epcond (market rivalry)]…. consequently, buyers may be worse off if EP eligibility is refused, because of a 3epcond violation….. conclusion: the suitability test should be applied, instead of the prop.test.
ec applies 2 tests [to the 3epcond]:
- can the benefits be achieved via less comprestrictive alternatives?…if it is shown that the coop sought is not required [because less comprestrictive alternatives exist], this test fails
- suitability test [above]…my opinion: since the more intrusive a comprestriction, the easier is to find less comprestrictive alternatives.. the 1st test should be abolished.
dutchcma: dutch mortage code case: cma denied the EP eligibility of particular mortgage selfregulations, on the basis that they were not indispenable.
conclusion:
the law is currently interpreted wrongly (contra legem), by applying the prop.test, because insisting on a less comprestrictive alternative, may make the undertakings not to enter into the ua, thus abandoning a ew increase for buyers. this result is contrary to the carter prohibition goal [ the furtherance of ew].
THE 4EPCOND
THE UA MAY NOT ELIMINATE A SUBSTANTIAL PART OF COMPETITION
Market rivalry maximises ew, but if restrtictin it brings even more ew,,, then, market rivalry may be restricted.
But, since market rivalry is a strong incentive for innovation, some level of market rivalry must always be preserved.
thus, the eaf 4epcond test: a marketrivalryrestriction is EP eligible, if it does not eliminate innovation [on a key product feature] beyond the short term.
caselaw:
an ua does not always fail this test, if one of the undertakings is dominant…. therefore, an ua that eliminates comp to the same degree as a dominant firm [eg an ua covering over 50% of that market, does not violate the 4epcond per se.
On the other hand, an ua may also violate the 4epcond, if it restricts under 100% of that market (because the ua ‘MAY NOT ELIMINATE A SUBSTANTIAL PART OF the products… it does not say ‘of all products’).
ec holds that , besides to considering the combined market share of the undertakings, it is also necessary to consider which competitive parameter/s are covered by the ua…eg if the ua allows market rivalry to remain (wrt other product features), competition survives, and so does the ua….. thus, anticomp selfregulation agreed between banks offering products need not violate the 4epcond. if the selfregulation leaves enough room for comp [on non regulated product features], the 4epcond is complied, even if the ua covers 100% of that market.
however, art 101.3 ec guidelines: ‘the 4epcond is not complied, if the ua eliminates comp in one of its most important expressions, particularly when eliminates price competition, or comp on innovation and development of new products’.
Also, when deciding if 4epcond is complied, we also need to consider if the threat of new market entrants imposes real comp pressure. if the barriers to entry are low, the threat of port. comp may force the suppliers (ua undertakings) to offer comp prices and innovation, even if comp among them is eliminated.
this strict opinion of ecj and ec, that 4epcond is not complied, if price competition is restricted, is not part of the eaf.
my opinion: price comp could even be totally eliminated, if enough sizeable benefits flow from the price restriction, [ie, if buyers are better off if the comprestriction is implemented]…. ew generated today, may not outweigh tomorrow’s innovation [dynamic (efficiency = ew)]… thus, the decisive element (for the 4epcond test], should be the degree of market rivalry needed to ensure enough innovation. the 4epcond requires balancing market rivalry v ew losses, and ew losses implies a balancing of ew decresses and increases. it must be4 clear how market rivalry can be balanced v ew increases, and when ew increases can trump market rivalry.
in the eaf, the 4epcond is meant to protect market rivalry, to safeguard ew in the longer term. thus, is ok to ban an au that eliminates innovation [on a key product future], beyond the short term.
conclusion:
innovation is the main force of ew growth, but the high uncertainty of innovation benefits, makes it imprudent to allow them to outweigh anticompeffects…iow, innovation benefit’s uncertainty means they are not ebwpiuas for the 1epcond. …thus, a comprestriction must never block innovation [on a key product feature], beyond the short term. this is the 4epcond in the eaf.
THE LOAD
THE LEGITIMATE [OBJECTIVE = nebwpiua] ANCILLARITY DOCTRINE
comprestricting uas [eg DAUs = decisions of associations of undertakings, like the dutchbar, or a trade association etc], that:
1-are inherent to the pursuit of a legitobjective [whether ebwpiua, or nebwpiua ], but this legitimacy does not depend on the endorsement by a demolegitimised body….although the legitobjective may need to have public law nature…. load should not be applied to ebwpiuas, because the EP is better designed for them, and also because load does not guarantee that buyers will be compensated for the anticompharm, while EP will.
AND
2- are [‘ancillary’=proportionate] to such pursuit,
…are LOAD eligible (ie, are compatible with the cartel prohibition)…
load should not , in its balancing, prioritise a ‘legitobjective’, over competition, or over the max.ew, because the 2 latter are demolegitimised….unless the legitobjective is also demolegitimised.
suddenly the ecj created the possibility that anticom uas may be allowed, if they are legitimate nebwpiuas, without a proper balancing,[ since it sidetracks all other RMs].
the ecj created (the load = the light balancing between uas pursuing regulatory interests v 101.1 tfeu)…LOAD originated in the wouters case, further developed in caselaw. wouters case:
2 dutch lawyers wanted to join , as partner lawyers, an accountancy firm, but the dutch bar blocked it, by applying a dutchbar regulation blocking bar members from joining partnerships of nonlawyers, without the dutch bar approval. the lawyers claimed that such dutchbar regulation violated eucl, and the right of establishment and the freedom to provide services. the dutch court referred some preliminary questions to the ecj. ecj replied: the regulation was not contrary to the cartel prohibition, because , even though it could be anticomp, it pursued a legitimate objective….but ecj did not define which are legitimate objectives.
ecj uses the proportionality (nolessrestrictivealternative) test:
(wouters): if the [comprestrictions = anticomp ua] are [proportionate (ancillary) = they do not ‘go beyond what is necessary’], it is then assumed that there are no less restrictive alternatives…. so the anticomp ua is cleared.
– api case, ecj held: to achieve the legitimate objective, there were less restrictive alternatives [than the anticomp ua], thus the ua was blocked.
-to date, these legitimate objectives have been accepted in ecj caselaw:
- the proper practice of the legal profession (wouters case)
- the fair conduct of professional sport and the protection of professional athletes health ( the meca medina case). this ecj decision is remarkable, since this legitimate objective need not be set by gov, or other demolegitimised body…in this case the legitobjectives were set by the ioc (intl. olympic commitee) regulation which pursued the legitobjective of combatting doping.
- the quality guarantee of chartered accountants services (the otoc case). this ecj decision is remarkable, since how to achieve this legitimate objective is typically assessed by the EP. ecj held that the legitobjectives could have been achieve via less restrictive alternatives [than the anticomp ua], thus the ua was blocked.
- the quality guarantee of geologists’ services (the italian geologists case)
thus, ecj does not require, for an objective to be legit, that it is endorsed by a demolegitimised body [in the meca case, the ecj accepted the ioc regs as legitobjs]….but, to be legit, the objective may need to have a public law nature.
dutch caselaw : ‘only objectives that , directly or indir, are pursued by public law, are legitimate enough to be load eligible. eg friesian horses case, the court held that combatting the inbreeding of friesian horses was not a legitobjective, since it was not an important public interest, that resembles the nebwpiuas in the wouters, or mecamedina judgments’….’mainteining and improving culture, history and heritage are not load eligible.
uas involving a group of banks agreeing on selfregulation, does not have public law status, but the selfregulation itself [ = both ejwpiuas and nejwpiuas] may be within the public law status, and thus load eligible…..however, compliance with banking regulations is not a legitobjective that can be pursued by anticomp uas for collective action [eg coercion, or boycott]. in slovak banks case, ecj held: it is for public authorities and not for decision by private undertakings, or by daus, to ensure compliance with statue (law)….iow, anticomp uas for collective action to ensure compliance with the law, are outside the scope of the cartel prohibition, [ cannot be banned on anticomp grounds].
LOAD AS AN IMRoRD (INTERNAL MARKET Rol DOCTRINE]
cassis de dijon case: ecj held:
memberstates may pursue nebwpiuas, even if they violate any of the 4 freedoms.[free movement of goods, people, capital and services]…[.iow, the balancing is not done by any rm, but by the memberstates discretion…also, this is no longer about: anticomp harm v nebwpiuas….but about: harmto4freedoms v nebwpiuas]. an importer of liqueur was prohibited to sell it in germany, since a german law said that liquers needed min 25%alcohol to be sold in germany. this liqueur had less alcohol. ecj held that, since there was no eu law requiring min.alcohol contents, memberstate laws violating the free movement of alcohol, could be accepted (as a legitimate objective), but only if such violation is necessary to wpis. ecj held that the german law was ;not necessary to wpis, thus, this importer could sell in germany, and germany had to change this law.
should some private bodies (eg regulators), also enjoy this possibility?… maybe.
The imrrd has today developed into an EP for national uas that pursue legitimate objectives but violate any of the 4 freedoms, provided that some conditions are met [see pg.196].
diff:
a. load: applies, even if there is no increase in competition. there is no counterfactual analysis, it just excludes cl, if the proportionality test is passed.
b. commercial ancillary doctrine (cad): comprestricting uas do not violate the cartel prohibition, if : a/is needed for the success of a larger project that does not limit competition, and b/is directly related to this project, and c/is proportionate…..thus, cad only applies if the main project increases competition.
in wouters, ecj imported the imrrd, into 101.1 tfeu [cartel prohibition]….this is wrong because it bears the risk that it is applied by private parties…we need to diff:
- imrrd: is directed at memberstates. they have demolegitimacy [assumed to act in wpi], thus they can trump one policy over another.
- cartel prohibition: is directed at privateparties. they lack demolegitimacy, and are assumed to act in their own interest, not in wpi.
some authors defend the ecj decision in wouters, saying that states today delegate its regulatory powers to private bodies, to develop and execute both economic and noneconomic policies. [ebwpis, and nebwpis.]…thus, they say, delegated regulations are load eligible, in the same way as statemember’s (gov) laws are imrrd eligible…….but this is wrong, because it mixes up 2 different concepts:
a. the jurisdictional issue:
the exercise of statepowres is excluded from cl….the scope of cl is limited to economic activites…. thus:
-both govs and private parties(via delegated regulatory powers), non acting as an undertaking, can exercise statepowers, because they are not subject to cl, because they are not performing economic activities, and are therefore not subject to the cartel prohibition.
-both govs and private parties(via delegated regulatory powers) , acting as an undertaking, cannot exercise statepowers, because they are subject to cl, because they are performing economic activities, and are therefore subject to the cartel prohibition.
b. the constitutional issue:
only public bodies with enough* demolegitimacy (never private bodies even if have delegated regulatory powers, they cannot balance public policies), may prioritise wpis, so that legitobjectives may set aside laws….an express gov statement prioritising the legitobjective over comp, is the only way to solve the constitutional issue…but, since govs fail to make such express prioritisation, load should not be applied (to make such prioritisation) to conflicts between the cartel prohibition v wpi, because there are laws [the EP in 106.2 tfeu] for that… thus, courtmade load is obsolete.
load violates b., as it allows private parties to receive the power to prioritise wpis.
<> * padi could challenge such sufficiency
load should just be applied to anticomp selfregulation by a gov.act which explicitly sets aside cl, in order to attain a wpi
load should not be applied to conflicts between the cartel proibition v selfregulation aimed at ebwpiuas, because it would deprive the EP of use.
using load, when EP is available, may affect consumers’ ew, because product/service quality improvements do not give ew to poorer consumers. this will punish those suppliers by market selfcorrection. … but if the anticomp ua will prevent this selfcorrection. … thus, load may prevent the balancing of various types of ews of an agreement, and this is against the law’s goal.
the application of load to ebwpiuas does not guarantee that buyers are compensated for anticompharm, unlike under the EP.
the ALBANY DOCTRINE, is similar to LOAD, but we must rejected for similar reasons that we reject the load….mainly, that private parties are not demolegitimised to decide on welfare redistributions.
albany case: company albany did not want to affiliate to the pension fund, even though the minister made affiliation compulsory. albany said the compulsory affiliation was contrary to the eu cartel prohibitions, , as in was an anticomp ua ( some employers associations and trade unions of employees, agreed betweeen themselves, to restrict other employers from competing for employees on the basis of attractive pension schemes) …. ecj held that such collective bargaining uas are outside cl. no proportionality test is required.
no similar caselaw exists giving cl immunity to banking regulation uas.
Exit Strategies for Competition
1. Exit from Government Actions
a) Sell public stakes in nationalized institutions:
• within a time frame that is reasonable, transparent and foreseeable to limit the time in which there are
potential distortions to competition;
• ensuring that competition laws apply to ensure government divestments do not reduce market competition;
• ensuring that any structural competition problems present (e.g. from excessive market power) are
eliminated prior to or during privatization.
b) Provide capital or other special aids as deemed appropriate while:
• providing incentives, particularly financial incentives, that will encourage benefitting institutions to prefer
private investment;
• regularly reviewing the need for state funds and guarantees, as well as whether state funding and
guarantees are handicapping a speedy return to normal market conditions;
• conditioning aid to non-financial firms on restructuring to ensure a viable future business plan;
• limiting the extent to which state subsidies can be used for purposes that were unintended by the
government;
• limiting the role of the government in day-to-day operational details of supported firms; and
• ensuring financial incentives are present for the firms receiving support to redeem state investments or state
sponsored loans.
c) Reduce provision of capital or other special support when:
• systemic concerns are less present;
• institutions are solvent and more liquid; and
• lending to the real economy starts returned to normal.
d) Stop provision of capital or other special support when:
• systemic concerns are not present;
• institutions are clearly solvent and liquidity problems are resolved;
• counter-party confidence is returned;
• a firm’s business is fundamentally not viable for the future; and
• lending to the real economy is operating normally.
e) Review financial market regulations and regulatory structures for unintended or unnecessary restrictions oncompetition…This could occur when institutions find a way to borrow at below normal market rates in one jurisdiction,and move funds for activities in another jurisdiction.
Exit from anticompetitive private action
a) Avoid anticompetitive business structures by preferring international bank takeovers of domestic banks
where domestic takeovers risk increasing map
b) To the extent that anti-competitive megamergers have already occurred, promote new entry that can reduce
competitive concerns of such mergers by:
• Reducing regulatory barriers to entry to banking, both in formal regulation and process;
• Increasing the availability of fine-grained credit-rating information available about SMEs and consumers;
and
• Ensuring that switching costs are limited, for example by implementing a regime that reduces the nonpecuniary costs of switching financial institutions (e.g., by implementing “switching packs”)
c) Consider, at an internationally coordinated level, whether structural separation is necessary for investment
banking activities that are situated within a bank. If no structural separation is in place, investment banks
may effectively gain access to low cost central bank lines of credit and to guarantees unavailable to
independent investment banks. Allowing investment banks operating within a bank to benefit from a
bank’s low overall interest rates distorts competition with independent investment banks and creates a
potentially dubious incentive for risky activities to be hidden, non-transparently, within larger, less risky
entities. One possible solution that avoids creating an international Glass-Steagall Act would be to promote
a non-operating holding company structure where the components of financial institutions, including banking and investment banking arms, are subsidiaries of a non-operating parent and borrow in their own name with no recourse to the parent or other members of the group