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Introduction To Competition Law Notes

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Introduction to Competition law - Furse

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The primary purpose of competition law is to remedy some of the situations in which the free market system breaks down "When working effectively, competition involves a process of rivalry between firms that strive to win customers' businesses by achieving the lowest level of costs and prices, developing new products or services, or exploiting particular strengths, skills and other advantages" o Competition law is not directly about consumer protection or trading standards, although both may benefit

Domestic regime today Found in Competition Act 1998 and Enterprise Act 2002 Competition legis also key in EC law:

1. Cf Eco Swiss China - provisions are "a fundamental provision, essential for the functioning...of the internal market" Arts 81 and 82 relate to the control of anti-competitive agreements and dominant firm practices

2. Note that Gerber argues that these provisions are a distinctly European model, reflecting German ordo-liberal ideology rather than the Sherman provisions In US law, the "rule of reason" is at the heart;

3. Furse says there are significant differences in the underpinning philosophies of US and European models

1. Cf AG Kirschner in Tetrapak Role of economics Two roles:

4. General macro-economic argument can be made as to the existence of market failure and the costs imposed by it

5. Micro-arguments can be relied on in individual cases to justify intervention or to defend a company's position Pareto optimum: this occurs where A can be better off without B being made worse off. Problems with monopolies: Ceteris paribus, prices are higher and outputs are less

6. There is a non-optimal allocation of resources

7. There is a consumer surplus: if the monopolist sets one price for the whole market, some of the customers would have been prepared to pay more

1. Note study by Harberger in 1954, attempting to quantify the total loss to American society from monopolistic interests in the US

2. Harberger calculated it as 0.1% net income but modern studies put it between 4 and 20. Harvard v Chicago Until mid-1980s, economists, regulators and to a certain extent lawyers could be grouped this way

SCP Model

8. First development at Harvard in 1930s where research lead to development of the Structure-Conduct-Performance model: performance is determined by other firms' conduct, which in turn is determined by the market structure

9. Kaysen and Turner argued that limitation of market power should be the central focus of comp policy Chicago's response

10. Stigler examined the welfare implications of the structure of an industry, and of barriers to entry into that industry

11. Harvard economists had argued that higher barriers enabled incumbents to increase prices (and were therefore to be condemned)

1. Chicago concerned to examine the nature of the barrier, tolerating those which are the result of efficiency consids

12. SCP model replaced by one in which performance dictates market structure "reverse causation"

1. Cf Bork: the "real enemy" is "artificial barriers"

13. Generally, Chicago school accepts that in real world, all companies are restrained by comp Only concern of comp policy should be efficiency, and that ancillary goals (i.e. redist of income, concentration of socio-economic power) should not be part of it Modern approaches Chicagoan assumption that real-world behaviour is similar to perfect competition is incorrect

14. Has been challenged by emergence of industrial economics

15. Bork and Posner were appointed to the bench under Republican Presidencies Demand and Supply Ceteris paribus, as price rises, demand will fall Inelastic demand is where demand falls by less than price rises

16. This is affected by substitutes Costs Divided into

17. Fixed

18. Variable

19. Marginal: those added by the production of every one extra unit

1. These normally fall as production increased(economies of scale)

20. Average: total divided by quantity produced

21. Total

22. Short run/long run Markets

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Test favoured: SSNIP (small but significant non-transitory increase in price)

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But note the US v du Pont (cellophane fallacy) case o If the price is raised by a monopolist, who is already operating at the highest possible level, then a SSNIP will lead to some customers buying

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