04 May 2008

Limits to Competition

A peculiar leader in The Guardian of 26 April 2007, When Low Prices Come a a Cost. Commenting on the OFT's recent investigation of price fixing in tobacco and the Competition Commission's emergent thinking on BAA (holder of exclusive rights to several UK airports), it notes how while competition law enforcement might reduce prices and increase consumption, there is a doubtful public interest in encouraging smoking and more flying. It suggests that sometimes competition enforcement that is blind to the negative spillovers of the market being regulated might need tempering. Three responses are possible:
1) Rubbish: it is up to other regulatory fora to deal with the externalities directly.
2) Agreed, and the solution is to give the competition authority a degree of prosecutorial discretion where it can choose not to take a case where the overall balance of the result is negative - so prosecute a cartel in vitamins but not one in the tobacco market. (But a weak line of argument.)
3) Agreed, bu in UK competition law the Competition Act 1998 provides for how this kind of issue should be dealt with. Schedule 3, Paragraph 7 Competition Act 1998 empowers the government to determine that the applicaion of competition law to a given sector can be excluded when 'exceptional and compelling reasons of public policy' exist.
(a) An existing exclusion exists in the context of firms involved in the the development of 'complex weapons', the Competition Act 1998 (Public Policy Exclusion) Order 2007.
(b) The government appear to be considering an exclusion for off licence shops to allow them to compete less aggressively as a means of reducing alcohol consumption, or to allow supermarkets to collude to agree to stop heavy discounts. (Can anyone find some of the Home Office or Dept of Health studies upon which these proposals are based?)

Two questions about this legal basis:
(i) is an exclusion compatible with EC competition law? (cf. Article 3, Regulation 1/2003, internal market laws, Arts 3(1)(g), 10 and 81 EC).
(ii) can the government really secure an exclusion to allow alcohol retailers to restrict competition? Is public health comparable to military security as a public interest ground?


Ebru said...

(i)Of course.. An exclusion is compatible with Competition Law. We should remember that the aim of the Competition Law is ultimately to ensure the consumer welfare as it was affirmed in the Discussion Paper (on the application of Article 82). In the cases you have mentioned , the purpose of the exclusion is neither granting some firms a privilige nor punishing them . The pure purpose is to protect the consumer (in this sense,the human being) from negative effects resulting from goods in question. Why shall we help those firms to become the parts of the fair game.?

(ii) There is a hierarchy between military security and public health. The former ultimately exists for the latter one.

p.s: Dear Professor, I have just found your blog. It’s an excellent idea and very useful especially for competition law students like me. Thank you very much for sharing your valuable opinions with us. I hope you keep writing.
By the way, I don’t know whether this question has ever been directed on you but do you know MARIO MONTI ?
Have a nice day.
EBRU from Istanbul.

Anonymous said...

Nice that you have a blog! Enjoyed your book, very impressive. I have some comments if you care to have them.

Anyhow.. Tobacco.
(Isn't this also a question of non-economic considerations, in the application of art. 81(3) EC?)

Option 2) is weak reasoning indeed. How could or would a tobacco cartel make a positive contribution to society in any way? Wouldn't allowing for less rigorous enforcement (or non-enforcement) of competition laws where against a tobacco cartel simply lead to an increase the tobacco companies' earnings, without any corresponding reallocation of the financial burden that smoking places on society? And what do we suppose that tobacco companies would do with the extra income? Surely, the would not make any effort to combat smoking addiction.
I therefore agree with 1.). Rubbish. If there is an infringement, there is no reason not to enforce the competition rules, even if the product concerned is harmful for the consumer, or for the environment.

Which leads me to the second part of point 1.):"it is up to other regulatory fora to deal with the externalities directly." I don't know about the UK, but looking at continental Europe, what regulatory fora could there be for this? I can't think of any.
In my opinion, an effective way of dealing with this problem would be to ban smoking alltogether. I can't think anything in European law which could form an obstacle for the Member States to do so.

Bas van Bockel, Leiden University (feel free to contact me at w.b.vanbockel@law.leidenuniv.nl)