Competition

Competition must be fair

Under EU rules, businesses:

• may not fix prices or carve up markets amongst themselves
• may not abuse a dominant position in a particular market to squeeze out smaller competitors
• are not allowed to merge if that 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.

The Commission may agree to a company having a monopoly in special circumstances – for example where costly infrastructure is involved (‘natural monopolies’) or where it is important to guarantee a public service. However:

• monopoly companies must be able to demonstrate that they treat other companies fairly
• natural monopolies must make their infrastructure available to all users
• profits from providing a public service may not be used to subsidise commercial operations, potentially undercutting competitors' prices.

The large may not exploit the small

In doing business with smaller firms, large firms may not use their bargaining power to impose conditions which 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.

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

No props for lame ducks

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

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

No state aid in any form may be given to ailing businesses that have no hope of becoming economically viable.

Exceptions that prove the rule

Some exceptions to the general rules are possible. The Commission can allow companies to cooperate in developing a single technical standard for the market as a whole. It can allow smaller companies to cooperate if this strengthens their ability to compete with larger ones. State aid will get a green light if there is a real chance that a business in difficulty – or a new venture – can eventually become profitable and if it is in the interests of the EU (e.g. by preserving or creating jobs).

The overriding considerations are whether consumers will benefit or other businesses will be harmed. The Commission often allows aid for research and innovation, regional development and small businesses, because these serve overall EU goals.

The benefits in practice

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

Intervention by the Commission has also resulted in cheaper cars for many people. The Commission’s efforts to bring greater transparency in pricing have meant that differences in pre-tax prices across the EU have narrowed considerably. Country-to-country price differences remain, because tax systems vary, but they are significantly less than before.

It is also thanks to the Commission that the way cars are sold and serviced now offers consumers more options. Multi-brand car dealerships are now possible, car dealers can operate in more than one EU country, and it is no longer necessary to be an authorised dealer to sell parts and carry out recognised repairs.

Checks and balances

The Commission's extensive powers to investigate and halt violations of EU competition rules are subject to judicial review by the European Court of Justice. Companies and EU governments regularly lodge and sometimes succeed in appeals against Commission decisions.