A preliminary definition. Antitrust law is a set of legal rules aimed at preventing some firms' practices that may worsen market well-functioning, as it results from consumer welfare variations. These are the 3 Pillars of Antitrust Law: - **Arrangements or Agreements** (prohibition, the rules prevent companies entering anti-competitive agreements). - **Monopolization or Abuses of Dominance** (prohibition, sanctions are taken not when a company is dominant in the market, but when the company try to impose unreasonable conditions to do business with them). - **Mergers** (control of, the mergers between big companies are to be evaluated by a commission). **The U.S. Sherman Act of 1890** **Section 1. Anticompetitive Agreements**. Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof , shall be punished by fine not exceeding \$10,000,000 if a corporation, or, if any other person, \$350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court. **Section 2. Monopolization Conduct.** Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding \$10,000,000 if a corporation, or, if any other person, \$350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court. **The Treaty of the Functioning of the EU.** **Article 101** - The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States, and which have as their object or effect the prevention, restriction or distortion of competition within the internal market \.... - Any agreements or decisions prohibited pursuant to this Article shall be automatically void - The provisions of paragraph 1 may, however, be declared inapplicable in the case \[\... the agreement \...\] contributes to: - Improving the production or distribution of goods or \[\...\] promoting technical or economic progress. - while allowing consumers a fair share of the resulting benefit, and - which does not impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; - \[\... and which does not \...\] afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question. **Article 102**. Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States. Such abuse may, in particular, consist in: - directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; - limiting production, markets or technical development to the prejudice of consumers; - applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; - making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. **Mergers in the U.S.** The Sherman Act covered price fixing, other anticompetitive agreements, and monopolization, not mergers and acquisitions of competitors. Thus, corporations wishing to coordinate price had the option of merging into a single firm to «eliminate» any form of competition \... forever.\ Indeed, after the enactment of the Sherman Act, a sharp increase in the number of mergers was registered. Therefore, **Section 7 of the Clayton Act of 1914** extended antitrust to cover **mergers** reducing competition (many amendments and other acts to fill many loopholes in the legislation). It says:*"No person engaged in commerce or in any activity affecting commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no person subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another person engaged also in commerce or in any activity affecting commerce, where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly".* **Mergers in EU, Reg. 139/2004** The Treaty did not contain any rules on mergers (concentrations) \[\...\] and the introduction of a merger control regime was delayed until 1989 because of a series of conflicts and deep differences between the Member States about the scope, objectives and procedures for assessing when a merger should considered unlawful (Reg. n. 4064/89, now Reg. 139/2004). Thus, nowadays, Article 2, Reg. 139/2004 states that *"a concentration which would significantly impede effective competition, in the common market or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position, shall be declared incompatible with the common market".* **Why do we care about U.S. and EU antitrust laws?** - Since antitrust law **was born** in the U.S., the main principles and notions of antitrust law come from the U.S. experience and, by tradition, had been affecting the antitrust experiences of many other jurisdictions around the world. - Still nowadays, the legal decisions of the U.S. antitrust institutions are **landmarks**. - Yet, in the last 20-25 years, the jurisdictions of many countries in South America, Africa and Asia **have been reproducing** the EU competition law approach, mainly because it is easier to copy and implement than the U.S. one. - Since the U.S. and EU markets are rich, advanced and innovative, the U.S. and EU antitrust institutions: - focus on **very important cases.** - **deal in advance** with many competitive problems that other jurisdictions will face only afterwards. ![[Bocconi/Bocconi - European and International Information Law & Data Economy/Images - Bocconi European and International Information Law & Data Economy/image5.png]] In the U.S. 95% of the Antitrust cases are moved by class-actions. While in EU the 90% of Antitrust cases are moved by authorities. In the U.S. courts, antitrust law can determine criminal sanctions towards individuals, while this is not possible in EU. **Firms' Practices** Antitrust rules about agreements, monopolistic practices, and merger and acquisitions address only **firms' conduct**, and not what governments may decide. In other words, both US and EU antitrust laws are concerned with **privately initiated restraints** of competition and not with those restraints compelled by, or effectively controlled by, the government and its branches. Therefore, firms are liable as long as they have room to decide their own behavior: firms are not liable for antitrust violations when their infringing practices strictly result from statutes, laws, regulations, or when their infringing practices are ratified by governments. **Market Structure and its legal "Sovra-Structure"** You can imagine a market as a circle where undertakings are free to adopt their business strategies and different behaviors. **The area of the circle can be restricted by the State through laws & regulations**. They can set the playground, by limiting access conditions, exit conditions, and more in general fixing the rules of the game. In regulated markets, the very same regulation may prevent firms from behaving competitively. In this case, firms do not have to bear the responsibility for a behaviour which is prescribed by the law. **Then, it is true that antitrust people can do something against anticompetitive laws:** - **Advocacy**. In many countries, competition authorities can (ex-ante) act as consultants of governments and parliaments and (ex post) recommend to modify, repeal, revise laws that unduly restrict competition on the market (where unduly means that the restriction of competition is not justified by the pursuit of different goals, like for example health, national security, media pluralism). - **Infringing procedure.** In Europe, the Commission can start infringing procedures against Member States that enact or maintain laws which are not in line with the principles laid down by the Treaties. - **Disapplication**. National judges may avoid applying rules which conflicts with EU competition law **The main goal of Antitrust Law** The main aim of competition law is to protect competition in the market as a means of enhancing consumer welfare and of ensuring an efficient allocation of resources. A market performs well if it awards market power to the firms that are performing the best. **Antitrust law protects the well-functioning of the market**: - When does the market work well? - It works well if it awards market power to the **best firms**. - Who are the best? The **best firms** are those that: - Increase their **efficiency**, so to reduce their **costs** and **prices** and increase their **output** *(the demand of the product in the market is increased, but the prices and costs are not)*; - Increase the **quality** and **variety** of their products/services; - Are more **innovative**, *that is the innovation they generate on the market*. **Short Run Effects** Antitrust institutions know that firms are worsening market well-functioning when their practices limit output and increase market price! (These are called the "**short run effects**"). Thus, antitrust law forbids the practices that may reduce market output and increase market price, just because these practices (are assumed to) drive the market away from a better state of the world. **Long Run Effects** Antitrust institutions endorse those economic theories showing that, over the long run: - Consumers benefit from varied and good products, that is, from **increasingly larger ranges of products of better and better quality** and - **Innovation** increases consumer welfare much more than any policy aimed at pushing prices down to marginal costs. Therefore, antitrust law forbids the practices that reduce product quality, consumers' choice (that is, product variety), and that reduce innovation! (These are called "**long run effects**"). Pay attention: In practice, many cases are decided on the basis of short run effect. Yet, sometimes (for example, when inventions are involved) long run effects are taken into consideration. In cases of conflicts, often (not always) the effects on innovation are deemed more important than effects n market output and price. For example, the practices promoting innovation are deemed lawful even when they make market price increase. **In Summary**, the practices that may worsen market well-functioning are the practices that may harm consumer welfare over the short and long run, that is, the practices that may: - Increase market price - Reduce market output - Worsen product quality - Worsen product variety - Lower innovation rate **Antitrust law aims at preventing these practices.** **But are (and have always been) the goals the same?** We do not have time to examine in depth, but: - History of Antitrust is very long (much longer that 120 years...) - Goals of Antitrust legislations were (and still are, at a certain extent) manifold. - The Antitrust enforcement is influenced by the goals of antitrust legislations, but also by many different "socio-political" issues (favor for innovation, crisis, views about the role of the State, confidence in the redeeming virtues of the market, economic structure of a certain country...) **For Example...** The Sherman Act served: - To control the (excessive) economic power of big companies and group of companies - holding companies and trusts in order to assure economic and political freedom (political antitrust, something we again hear of, when we read about the need to stop or at least better control the internet giants such as Google, Facebook, Apple, Amazon). - To protect small business and. Every entrepreneur "right" or "freedom" to enter (and stay in) the market (SME, freedom to act, fairness, etc.) - To protect categories that also represented the majority of voters at that time (costumer-consumer protection). The TFEU not only was supposed to protect those other values/interests, but also to pursue the creation of the single common market. **Competent Authorities in the EU** - The **European Commission**, where an infringement has effects on competition in multiple Member States (cross-border markets). - A single **National Competition Authority** ("NCA"), where an infringement has effects on competition mainly within its territory. - Parallel action by **two or three NCAs**, where an infringement has effects on competition mainly in their respective territories, but the action of only one NCA would not be s sufficient to bring the entire infringement to an end and/or to sanction it adequately. **Powers of Competition Authorities** - **How do they get involved?** - Following a complaint from a competitor/customer/supplier/consumer association - Following the report of an individual through the anonymous whistleblower tool, introduced in March 2017 - Through an application for leniency by another party involved (*used to share to the authorities that you're part of an anti-competitive agreement without receiving sanctions*). - On their own initiative (ex officio). - They have **investigative powers**, that is, they can: - Request information - Order the submission of documents - Carry out unannounced inspections of company premises. - **Power to impose fines and sanctions** - Monetary fines of up to **10% of the worldwide turnover of the whole group**. - In certain countries (e.g. U.K.): - Jail time + reputational damage + compensation for damages to competitors and customers + legal costs. - **Examples of Fines** - EU Commission has fined Google €4.34 billion for illegal practices regarding Android mobile devices to strengthen dominance of Google's search engine (2018). - EU Commission has fined Google €1.49 billion for abusive practices in online advertising (2019). - EU Commission has fined Qualcomm €242 million for abusing its market dominance in 3G baseband chipsets (2019). - EU Commission has fined Qualcomm €997 million for paying Apple to use only its chips in iPhones (2017). **The Antitrust Offences (What Matters to Us)** - **What are agreements?** - Any meeting of minds/concurrence of wills between two or more firms... Irrespective of its form, of its execution and of its effects. - Therefore, agreements can take distance from the traditional notion of contact! > *(They do not need to be formal, express, or explicit. They may result not only in any exchange of words, but also from a course of dealings, or from other circumstances.)* - Yet, mere parallel business actions cannot constitute an agreements, because > *Firms may adopt the same practices and still be independent one from the other just because they are similar economic agents answering to the same set of economic facts; we will discuss this more.* - **When are agreements forbidden?** > They are forbidden when they harm the well functioning of the market as it results from CW variations. Therefore, when they produce more anticompetitive than procompetitive effects. **As a matter of facts, price fixing/ output limitation/ market division are always forbidden ... they are Cartels!** > Other types of agreements are judged on a case-by-case basis, taking into account the market shares of the companies, the nature and content of the agreement, market structure, etc. - **What are abuses of dominance or anticompetitive monopolistic practices?** > They are unilateral practices that: - Strengthen/prolong dominance, by excluding rivals, that is, by: - Either preventing potential rivals from entering into the market, - Or pushing actual rivals out of the market; - Or forcing actual rivals to work into a niche of the market. - Harm CW - **When are mergers forbidden?** > They are forbidden when they change the market structure so to produce a scenario that resembles either a monopoly or an oligopoly > **What about the efficiencies that they produce?** > In order to be taken into account as countervailing virtues against the above structural effects, efficiencies must fulfil strict conditions: - They must be **verifiable** (such as that the agencies and authorities can be reasonably certain that they will materialize and be substantial enough). - The efficiencies must be **merger specific** (i.e. they cannot be achieved by other means than by a merger). - The efficiencies must be likely **passed-on to consumers**, and not only recapped by the merging companies alone. - **Vertical Behaviors** > Consider that vertical behaviors are the practices that involve firms acting at different levels of the production-distribution chain... These vertical behaviors - whether they take the form of agreements, monopolistic conduct or mergers - are forbidden when they: - Exclude rivals from getting access to a resource which does not have good substitutes. - Because of that, the behavior harms the well-functioning of the market, as it results from CW variations.