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Competition


The EU's rules on competition are designed to ensure fair and equal conditions for businesses, while leaving space for innovation, unified standards, and the development of small businesses.

Competition must be fair

Unloading lorry © Imageselect

Some international removal firms have been fined for price-fixing.

Under EU rules, businesses cannot:

  • fix prices or carve up markets amongst themselves
  • abuse a dominant position in a particular market to squeeze out smaller competitors 
  • merge –if doing so would put them in a position to control the market.
    In practice this rule only prevents a small number of mergers going ahead. Larger companies that do a lot of business in the EU cannot merge without prior approval from the European Commission – even if they are based outside the EU. 

Protection for small firms

Large firms are barred from using their bargaining power to impose conditions that would make it difficult for their suppliers or customers to do business with their competitors. The Commission can (and does) fine companies for this practice, because it leads to higher prices and/or less choice for consumers.

EU investigations into anti-competitive practices cover not only goods but also the liberal professions and services, including financial services, such as retail banking and credit cards.

No props for lame duck companies

The Commission also monitors how much assistance EU governments give to businesses (‘state aid’), for example:

  • loans & grants
  • tax breaks
  • goods & services provided at preferential rates
  • government guarantees which enhance the credit rating of a company compared to its competitors.

The risk with such assistance is that it may favour well-connected vested interests at the expense of those who compete on their own merits – with the bill footed by the taxpayer. Reining in such undeserved subsidies is a cheap and effective way to make Europe fairer and promote economic growth.

Flexible rules 

These rules are applied with common sense and flexibility. The main consideration is whether consumers will benefit or other businesses will be harmed. For example, governments are allowed to help firms in difficulty – or new ventures – if they have a real chance of eventually being profitable, and so saving, even creating, jobs. What is not allowed is help for ailing businesses that have no hope of being viable.

Other exceptions to the general rules include:

  • companies working together on a single technical standard for the market as a whole
  • smaller companies cooperating, so they can compete better with larger ones
  • research and innovation initiatives
  • regional development projects

Recent cases

One of the Commission's highest profile competition cases involved US computer giant, Microsoft. The Commission fined Microsoft for its practice of bundling various types of software together in a single package. It decided Microsoft had been unfair to consumers by depriving them of choice, keeping prices artificially high and stifling innovation in the software industry.

Design sketch of a 3D car ©_Leonello_Calvetti_Dreamstime

Fighting cartels in car parts benefits businesses and consumers alike.

And the Commission recently fined a number of car parts manufacturers who had secretly agreed to overcharge manufacturers for car and truck bearings and wire harnesses – ultimately leading to higher car prices for consumers. 

Checks & balances

The Commission's extensive powers to investigate and halt violations of EU competition rules are subject to a number of internal checks and balances, as well as full judicial review by the European Court of Justice. Companies and EU governments regularly lodge and sometimes succeed in appeals against Commission decisions.

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Competition

Updated in November 2014

This publication is part of the 'European Union explained' series


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