Week 20 - Competition Law PDF

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Week 20 - Competition Law (Article 102)What is Competition and Competition Law?- Competition is the process of rivalry within a market whereby buyers and sellers of a product compete to maximise their welfare and secure resources o Competition: generally good for the consumer by reducing their price...

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Week 20 - Competition Law (Article 102) What is Competition and Competition Law? -

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Competition is the process of rivalry within a market whereby buyers and sellers of a product compete to maximise their welfare and secure resources o Competition: generally good for the consumer by reducing their prices and improving quality of their goods = encouraging them to buy their things from them. Generally seen as a good thing. Test: idea of 'consumer welfare' Competition Law seeks to regulate those processes to ensure that competitive markets produce economic benefits for society. o The normative question for competition law is when and how should the law intervene in the ‘free market’. natural process  compete for things that we want/need

Models of Competition – Perfect Competition -

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Requirements o A homogenous product: no matter where you buy the product from, they will be exactly the same o Infinite numbers of buyers and sellers: lots of choice in the market as some markets are more concrete than others o Free entry into and exit from the market: no costs for individuals who may choose to enter the market (buyers or sellers)  However, there are always some costs involved i.e. setting up and investing in factories etc  When exiting there can also be financial costs involved I subject to terms in contracts etc o Perfect communication and full information: whereby everyone in the market knows and has the same information  Realistically this does not tend to happen as some may have more access to info than others do o Rational buying and selling decisions: everyone in the market acts rationally and they are not affected by non-rational thoughts and decisions such as ‘brand image’. As a quality of the product may be better within a brand that is less known, but another brand due to their ‘brand image’ is more popular  not a rational choice. Allocative and productive efficiency will maximise societal wealth

This graph demonstrates the relationship between supply and demand The more there is of a product = drop in price and vice versa - D = demand  price and quantity relationship  Keep producing more until you reach equilibrium where marginal costs intersects with demand  This is good for consumer as the price is at near costs = ‘allocated’ efficiency -

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Consumer allocating their money to what they need meaning everyone is only getting what they need = increased consume welfare & overall on society

Models of Competition – Monopoly -

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Requirements o Only one producer of the product; and o Significant barriers to entry Where there is no competition due to their only being one producer They have complete control of the market place and consumers have no choice but buy off them Significant barriers to entry o Monopoly cannot survive if someone else can produce the same thing o May be due to legal reasons etc or other protections in place  There has to be only one seller Governed by ‘marginal revenue’ rather than ‘marginal costs’ How much revenue they make in each sale determines what they do, which means it tends to have a steeper slope as every time a monopolist makes a new product, the price of their other products also reduces, as it becomes more rare in the market -

Their equilibrium takes place much quicker than in ‘Perfect Competition’.

This model however is bad for consumers as demands are not fully met. By restricting output a monopolist reduces allocative and productive efficiency.

Articles 101 & 102 TFEU -

101 TFEU deals with anti-competitive ‘agreements’ which damages the internal market o The problem is multi-undertaking coordination 102 TFEU deals with ‘dominant undertaking’ whose behaviour is categorised as ‘abuse’ as it damages the internal market. o The problem is single undertaking abuse of market power o To understand the prohibition we have to understand both ‘dominance’ and ‘abuse’....