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SPEECH/01/275

Mario Monti

European Commissioner for Competition Policy

Content, Competition and Consumers: Innovation and Choice

EUROPEAN COMPETITION DAY

Scandic Hotel Slussen, Stockholm, 11 June 2001

Dear Minister, Ladies and Gentleman,

I would like to express my gratitude towards you, Mrs Messing, and towards Mrs Nykvist of Konkurrensverket (the SV competition authority) and her team for your enthusiasm and efforts in organising this European Competition Day in Stockholm.

The third European Competition Day

As you know, this is the third such Competition Day. Exactly one year ago, in Lisbon, we began a tradition of organising, with the help of the respective Member State holding the European Presidency, a Competition Day in that country. The second conference was held in Paris last October.

The reason for these events is our common conviction that the public needs to be better informed about the benefits that competition policy brings them. Our discussion today should demonstrate what Swedish and European Competition policy can do for every citizen. I hope that in doing so we can also contribute to an image of the European Union as a project not only of politicians, or for the benefit of business, but as a project for the people.

The benefits of competition policy

As the Commissioner for Competition, it is particularly important for me to communicate to the public the benefits of competition policy and the work of the European Commission.

So in explaining the benefits of the competition rules, I would like to talk about the importance of: supply- and demand-side substitutability, including assessing the cross-price elasticity of demand; distinguishing between marginal and long run incremental costs; determining appreciable effects on competition; distinguishing between exclusionary and exploitative abuses; understanding the benefits of productive and allocative efficiency…

Well…

Perhaps not…

This is why it is important for us to explain clearly the benefits of competition policy. The pens of lawyers write much of our decisions. The pens of economists such as myself - write the rest. Each profession speaks a language largely unknown to many civilised people. So the benefits to consumers of the work we do are far from apparent on the face of the legal documents we produce.

Our work is easier to understand if the underlying objectives of the competition rules are made clear. These objectives are to ensure wider consumer choice, technological innovation and price competition. This is achieved by ensuring that companies compete rather than collude, that market power is not abused and that efficiencies are passed on to final consumers.

In the recently published annual report on competition policy for the year 2000, which is being distributed here today, the Commission highlights this aspect. When competitive conditions are in place, producers try to attract customers by offering them a lower price, higher quality or better service than their competitors. Consumers also benefit in the long run when efforts made by firms eventually lead to greater innovation and efficiency. However, it is not always easy or, indeed, possible to quantify the impact on consumers of competition policy decisions. As pointed out, firms compete not only on prices and there are many other ways in which consumers could gain, for example by way of greater product variety or better contractual terms.

All of the work that we do boils down, in the end, to the ultimate goal of competition policy: fair competition serves the European citizen, the European consumer. This is not an abstract concept but has tangible effects on each single consumer, as I will demonstrate in a few moments.

The cases we are dealing with also demonstrate that industry is often tempted to set a limit to the burdensome pressure of market forces, be it by price fixing or by the carving up of geographic markets. This is a natural desire and that is why a supervisory authority to ensure fair play is necessary, both on national and on European level.

Last September I had the opportunity, here in Stockholm, to speak about cartels, those distortions on the open market economy which cause serious and immediate harm to consumers and, in the longer run, to our economies at large. Fighting cartels is one of the prime tasks of competition authorities. However, while last year's conference was extremely useful as a discussion forum for specialists on how to step up that fight, today I want to be more "down to earth" and give you some concrete examples.

Keeping Downward Pressure on Consumer Prices

Consumers benefit most obviously where prices are pushed down as a result of competition.

Although my main examples this morning will focus on high technology sectors, it's important to remember that often consumers benefit from the application of the competition rules in far more traditional sectors of the economy.

In the automobile sector, for instance, the decision last year against Opel Nederland demonstrated our determination to act against obstacles to parallel trade in cars. It was not the first time we took such action to stop and punish a behaviour which is clearly directed against the rights of consumers. The decision required the Dutch importer of Opel cars to lift measures preventing or restricting consumers from other Member States from buying new Opel cars for immediate re-export. This decision is aimed at guaranteeing the right for consumers to buy a car in a Member State where prices are low. Should parallel imports attain a substantial level, they will exert pressure on car manufacturers to reduce car prices in those Member States where they are higher.

Just two weeks ago we decided to fine Volkswagen for the second time. In this instance it was for having instructed its German Volkswagen dealers in 1996 and 1997 to show "price discipline" and not to sell the new Passat at prices considerably below the recommended retail price. The measures adopted by Volkswagen were liable to maintain an artificially high price for the new VW Passat model. Our decision therefore was once more a clear signal that competition policy serves consumers' interests.

The programme of today's event indicates that there is still room in Sweden to increase competitive pressure on prices. This is confirmed by a recent survey on consumer prices conducted by the Commission which demonstrates that prices for certain consumer goods are still higher in Sweden than in many other Member States.

Looking at telecommunications, across the EU we have seen significant price reductions following the liberalisation in 1998. Sweden had introduced telecoms competition before many other parts of Europe and consumers in this country saw the benefits of lower prices sooner than elsewhere.

However, the issues for us are often more complex when we are dealing with the developing high technology sectors. The convergence of telecoms and media is changing the consumer environment particularly the entertainment environment - markedly, and for the better. Businesses are faced with many new opportunities, and many new products and services are becoming available. However, these changes also bring with them some challenges ensuring consumers receive a fair share of the benefits, ensuring that companies don't bundle or tie products or attempt to monopolise these new emerging markets.

In an area with which we are all familiar, the Commission has taken action to check on the consumer prices for Compact Discs. Last year, the FTC in the US found widespread price maintenance activities in the relationship between the major music companies and retailers. We conducted a similar investigation and were happy to note that the practices were far less common. There were, unfortunately one or two practices being carried out that were a cause for concern where, for example, some record companies only made advertising money available to retailers if the retailers agreed to sell above a certain minimum retail price. But these limited practices were abandoned as soon as the Commission began its investigation. As this case has yet to be concluded I'm afraid I cannot say anything further at this stage, but even on the basis of these short remarks I'm sure you can see the advantages of competition law enforcement.

Another area where the Commission is giving direct follow-up to the concerns of individual consumers is that of Digital Video Disc pricing. We have received a significant number of complaints from private citizens on this matter. In each case, the complaint is virtually the same namely, that DVD prices are significantly higher in the EU than in the USA.

Whilst the prices of many products are higher in the EU than in the US, the major film production companies in agreement with the major equipment manufacturers have introduced a worldwide regional coding system for DVDs. Under this system, a DVD sold in one of the world's six regions cannot be played on a DVD player sold in another region. The thrust of the complaints that we have been receiving is that such a system allows the film production companies to charge higher DVD prices in the EU because EU consumers are artificially prevented from purchasing DVDs from overseas.

As a direct result of these complaints, we have initiated contacts with the major film production companies. We will examine closely what they have to say. Whilst I naturally recognise the legitimate protection which is conferred by intellectual property rights, it is important that, if the complaints are confirmed on the facts, we do not permit a system which provides greater protection than the intellectual property rights themselves, where such a system could be used as a smoke-screen to allow firms to maintain artificially high prices or to deny choice to consumers.

My services have had contacts on this issue with the Australian Competition and Consumer Commission, which has also sought clarifications from the major film production companies. I have noted with great interest the Australian Competition and Consumer Commission's conclusion that the regional coding system imposes a 'severe restriction of choice' on consumers. The Commission will need to determine whether there are similarly negative effects in the EU which could fall within the scope of the competition rules.

Keeping Retail Markets Open

The benefits of the competition rules are not limited, however, to pushing down on prices. Often the necessary intervention is less direct, and is aimed at ensuring that the strong position of a company in one market is not used to eliminate competition in other markets.

Last year, for example, AOL sought to merge with Time Warner at the same time as Time Warner was trying to merge with EMI. The combination of content films, music, books, magazines… - from EMI, Time Warner and Bertelsmann (with which AOL had a joint venture in Europe) gave rise to several concerns. In particular, we were worried that this control over content would be used to strengthen the position of the parties at the retail sales level, eliminating consumer choice. The abandoning of the EMI / Time Warner merger, in the face of the Commission's opposition, and the undertaking by AOL to end Bertelsmann's participation in the joint venture ensured that consumers would continue to have a choice between different content providers.

With the Vizzavi and Vivendi/Seagram cases the Commission again imposed conditions to ensure that control over GSM infrastructure or film content would not be used to reduce the consumers' choice of service provider.

Looking to future developments, the Commission has opened investigations into Duet and MusicNet online music joint ventures involving, respectively, two and three of the five major music companies worldwide. These are important cases for the development of music services offered online to consumers, and there are potentially a number of issues which merit close examination. Again, the status of the cases means that it's impossible for me to go into more detail, but the consumer interest is clear: Yes, online music services should develop rapidly, but with a diversity of service providers.

Benefits for all consumers

The cases I mentioned have focussed largely on the new technology sectors where consumer interest in the work that we do is quite obvious. But it's important not to lose sight of the fact that as with the automobile cases which I recalled first competition law benefits consumers of all products and services.

I think competition authorities can be proud of the positive impact of their work, and the clear benefits to consumers: lower prices, more choice, and more innovation. I anticipate with relish fighting for the consumer in many more cases as Competition Commissioner.

Mrs Messing, Mrs Nykvist, Ladies and Gentlemen, I am looking forward to the discussions of this third European Competition Day and I wish us all an interesting and instructive event.


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