Competition Policy after 1992 The Next S (1)

zy
zyxw

Competition Policy after 1992: The Next Step
Tim Frazer”
Introduction

With the single market now on the horizon, the concepts and aims of competition policy should
be clearly spelled out in order to define effectively its contribution as part of a broader policy.’

This demand was made by the Economic and Social Committee (‘ECOSOC’) in its Opinion
on the EC Commission’s Seventeenth Report on Competition Policy. The Opinion called
for a competition policy that is predictable and precise in the interests of transparency
and legal certainty. Further, ECOSOC warned that if the basic principles of competition
policy are too removed from the ‘everyday concepts of the people of Europe’ it will lose:
its ability to create a genuinely internal market.*
The Opinion of ECOSOC raises important questions concerning the nature andl
development of competition policy in the post-1992 era:
(1) How may we define the objectives of competition policy in a single European market?
(2) Should competition policy be restricted to certain economic models or is it of a
constitutional or socio-political nature?

(3) Whatever the concepts or aims of policy, is it possible or even desirable to formulate
policy in a precise way, as required by the ECOSOC Opinion?
These questions become pertinent if it is felt that the completion of the internal market
will change the political and economic environment to such an extent as to require a change
in the emphasis and enforcement of competition policy. Many commentator^,^ as well
as the Commission4 and ECOSOC, take the view that the completion of the internal
market will require a re-examination of the basis of EEC competition policy. There is
also a widely held belief that the most appropriate model for that re-examination is the
Chicago-based neoclassical model, as developed by the enforcing agencies, some courts
and many influential commentators in the United States.
In this paper, an assessment is made of the impact on the competitive environment of
the formal ‘completion’ of the internal market at the end of 1992. Consideration is then
given to the capacity of Articles 85 and 86 to serve purposes other than their present ones.
Certain models are then considered as possible bases for competition policy in the internal
market.

zyxwv
zy

The Changing Economic Environment

There are several views on the characteristics of the post-1992 competitive environment.
One is that prices will be reduced, especially in markets which have been locally concentrated, innovation and other efficiencies will be enhanced and competition will intensify.
A second view is that a reduction in monopoly profits through intensified competition
*University of Newcastle upon Tyne.
1
2

zyxwv

Economic and Social Committee, Opinion on the 17th Report on Competition Policy, 1989 OJ C 71.
See Hovenkamp, ‘Chicagoand its Alternatives’ (1986) Duke LJ 1014 on the danger of economic modelling
departing from social consensus.
3 For example, Green, ‘Article 85 in Perspective’ [I9881 ECLR 190, 206.
4 S e e Seventeenth Report on Competition Policy (Brussels: Commission of the European Communities,
1988) point 2.

The Modem Law Review 5 3 5 September 1990 0026-7961

609

zyxwvutsrq
zyxwvut
zy
zy

zyx
zyxwvut
zyxwv
zyx

i?ze Modern Law Review

[Vol. 53

will discourage innovation in the Community, so that the encouragment of innovation
will be a major task of competition policy. A third view is that, although the installation
of the single market will signify the triumph of free trade, it will give rise to intensified
anti-competitive recidivism on the part of firms and member states.5
A fourth, and most pessimistic, view is that the objectives of the Single European Act

will be unattainable so long as Member States retain separate currencies and financial
sovereignty .6 These obstacles are intensified by the divergencies in the economic condition of the Member States, as revealed by the main economic indicators used by the
OECD.’ For example, changes in industrial production between 1985 and 1988 vary
from a 25.7% increase in Ireland to a reduction of 1 % in Denmark; unemployment as
a percentage of the labour force increased by 1.9% in Italy over the same period, but
decreased by 3.2% in the UK. Daily earnings in Portugal increased by 48%, but only
by 5% in Belgium. Wholesale prices in Greece increased by 44%, but were 12%lower
in Belgium. Greek consumer prices increased by 62% but were almost stable in the
Netherlands. This leaves serious price divergencies in the Community. A package of
products costing 100 units of currency in Denmark may be bought in Portugal for only
44 such units, whereas a package costing 100 units in Portugal will cost 258 such units
in Denmark. Finally, changes in the balance of trade varied between hugely increased
deficits and comfortable surplus.
There are further obstructions to the achievement of a single market, presented by the
award of intellectual property rights for national territories. The Bayo-n-ox decisions
shows that undertakings will attempt to exploit differences in pricing constraints caused
by the fragmentation of intellectual property regimes in the Community. Competition policy
and the principle of the free movement of goods can help to reduce fragmentation, but
cannot override the national award of intellectual property righk9 Reward for innovation
at a Community level remains an essential requirement for the attainment of an internal

market.
Other barriers to the attainment of the single market relate to the market for corporate
acquisitions in the EEC. Efficient takeovers are frustrated by regulatory and other barriers
(including the uncertainty surrounding the application of national competition laws). The
draft Thirteenth Company Law Directive imposes minimum standards of conduct in relation
to corporate acquisitions, and the Commission is urgently addressing other problems, partly
at the request of the UK Govemment.’O It is clear that an internal market for corporate
acquisitions is as important as one for the movement of products if competition is to operate
as an effective policy.

5

See Curzon Price, 1992, Europe’s Lust Chance?From Common Market to Single Market (London: Institute
of Economic Affairs, 1988) p 12.
6 See, for example, Pescatore. ‘Public and Private Aspects of European Community Competition Law’
(1987) 10 Fordham International U 373. The view is also shared by ECOSOC - see Community
Competition Policy (Brussels: Economic and Social Committee, 1987).
7 OECD Department of Economics and Statistics, Main Economic Indicators (Paris: OECD, 1989). For
a detailed breakdown of price dispersal for individual product types, see Emerson, f i e Economics of
1592 (Oxford: Oxford University Press, 1988).

8 Bayo-n-ox 1990 OJ L 21.
9 See Bishop, ‘Price Discrimination Under Article 86: Political Economy in the European Court’ (1981)
44 MLR 281,290. See also Case 238/87 Volvov Veng [ 19891 4 CMLR 122 for an example of the supremacy
of national intellectual property rights.
10 See details in Barriers to Tdkeovers in the European Community (London: HMSO,1990) and the views
of the UK Government in Barriers to Takeovers in the European Community:A Consultative Document
(London: Department of Trade and Industry, January 1990).

610

zyx
zy
zyxwvuts
zyxwvutsr
Competition Policy Afrer I992

September 19901

The Commission’s View of Post-1992 Europe

In its detailed analysis of the economics of 1992,” the Commission concluded that the
effects of the removal of national trade barriers will be determined by the nature of preexisting market conditions and structures. In general, the Commission is of the first (and
most optimistic) view stated above. It envisages a reduction in price disparity between
Member States through a compression of profit margins which will, in turn, force firms
to increase efficiency or leave the market. An upturn in innovation is seen as a significant
concomitant effect. The Commission does, however, admit the possibility of protective
responses by undertakings and governments.
More specific predictions of the effect of 1992 are market-dependent. In fragmented
or atomistic markets, with no significant economies of scale, the Commission sees the
completion of the internal market as having no significant impact on structural conditions
or purchasing patterns. By contrast, in specialised markets a significant geographical
expansion in product (especially niche product) markets will occur through an intensification
in cross-frontier trade. Finally, in mass production markets where high economies of scale
occur, the Commission envisages an increase in concentration and cooperation between
large firms in order to exploit such economies in larger geographical areas. In this regard,
in its Eighteenth Report on Competition Policy, the Commission’s assessment of merger
and acquisition activity led it to the conclusion that the need to restructure in order to
meet the challenge of 1992 is already being met by Community and international firms.
However, the Commission also perceives a danger that the restructuring will lead to the
extraction of monopoly profits. The Commission’s major programme for 1992 will therefore

be dominated by an interventionist approach to structural conditions. Clearly, the Commission’s prospective powers under the new Merger Regulation, as well as its treatment of
joint ventures and technology transfers, will be of critical importance in the immediate
post-1992 period.
The assumption that the formal completion of the internal market will produce a new
economic environment discounts the serious and continuing obstacles listed above. If the
assumption is accepted, it becomes necessary to reappraise competition policy, to determine
whether its present aims are suited to that new environment. The gradual nature of economic
change is important in this respect. 1993 will take Europe only to the threshold of economic
integration; in the first years of the single market national economic loyalties and traditional
marketing practices will disappear only slowly. 1992, therefore, provides an opportunity
to re-examine competition policy because it marks the commencement of the final phase
of market integration, not its completion.

Policy Objectives Before the Single Market

zy

The introduction to the Ninth Report on CompetitionPolicy, published ten years ago, remains
an authoritative statement of Commission policy on competition. It stated that the ‘first
fundamental objective’ of competition policy is to keep the common market open and unified.

This is a unique role for competition policy12 dictated by the pre-federal state of European
integration. In the early period of EEC competition policy (that is, in the years leading
up to the single internal market) the need to integrate the national product markets has
been exhibited as the major distinction between EEC competition policy and that of the
USA. The use of economic analysis in the enforcement process has been limited by the

zyxwvut

1 1 Emerson, op cit note 7.
12 See Hornsby, ‘Competition Policy in the 80s: More Policy Less Competition?’ (1987) 12 E L Rev 79,
and Hawk, ‘Recent Developments in EEC Competition Law’ (1989) 37 Antitrust L J 299.

611

The Modern Law Review

zyxwvuts
[Vol. 53

need to integrate.I3 It is this first (‘primary’) objective that will be most affected by the

completion of the internal market. However, it is not the only articulated objective.
In its second fundamental objective, the Commission addressed itself to the need to
maintain ‘the right amount of competition in order for the Treaty’s requirements to be
met and its aims attained.’14This interventionist, structural approach is based on the
argument that ‘competitioncontains the seeds of its own destruction,’ and that the market
is consequently incapable of maintaining a competitive structure. There is, apparently,
no acceptance of the premise that the monopoly created through this process will also
be destroyed by it, as the market moves towards and away from a constantly evolving
equilibrium.
Finally, the Commission looks to fairness in the market place, especially with regard
to State subsidies, the necessity to adapt competition policy to the interests of small business,
and the need to protect the interests of workers, users and consumers.

Evolution of Competition Policy: The Constitutional Question
An enquiry into the nature of the objectives of EEC competition policy may centre on
the contrast between efficiency-based law and constitutional law, which can be defined
as process-, rights- and freedom-based. In the US context, Fox15presents these two legal
models as occupying opposite ends of the legislative spectrum. Process-based concerns
are currently topical in EEC competition policy. The important AM&SI6 judgment on
’ ~ Orkeml* cases, dealing with the

privilege has now been joined by the H o e ~ h s t and
investigativeprocesses of the Commission in competition cases. The Commission has also
demonstrated its commitment to procedural integrity by the creation of the post of Hearing
Officer. But these developments concern the proper enforcement of policy. They are not
concerns which account for the existence of the policy itself. To require that a law be
applied with respect for due process does not make that law a process-based law in the
constitutional sense.
With regard to the rights- and freedom-basis of EEC competition law, there are two
questions to consider:
(i) Must the limitations imposed on firms by competition policy give way to some
higher constitutional norms once the market-integration role of competition policy
recedes?
(ii) Alternatively, is competition policy a constitutional norm itself, such that it seeks
to impose a certain form of economic organisation concomitant to the social, political
and cultural choices that constitute European society?

zy
zyxwvutsrqp
zyxwvut
zyxwvuts

A possible response to the first question is simply that the market integration justification
will never disappear, because competition policy is the only effective means of securing
and maintaining a single market.19 The fact that the American federal economy coheres
13

zyxwvutsr
zyxwv
See,for example, Sharpe, ‘Comments . . . On Selective Distribution Schemes in the Car Sector’ in Goyens

(ed), EC Competition Policy and the Consumer Interest (Louvain-La-Neuve: Cabay, 1985).
14 Ninth Report on Competition Policy (Brussels: Commission of the European Communities, 1980) p 10.
15 Fox, ‘The Politics of Law and Economics in Judicial Decision Making: Antitrust as a Window’ (1986)
61 NY Univ L Rev 554; and see Sandalow and Stein, ‘Onthe Two Systems: An Overview’ in Sandalow
and Stein (eds), Courts and Free Markets. Perspectives from the US and Europe (Oxford: Clarendon
Press, 1982).
16 Case 155179 AM&S Europe Lrd v EC Commission [1982] 2 CMLR 264.
17 Cases 46187 and 227188 Hoechst v Commission, September 1989.
18 Case 347187 Orkem v EC Commission, September 1989.
19 The Commission refers to competition policy as engaging in the ‘perpetual struggle to unify the common
market’: EC Commission, op cit note 14.

612

September 19901

zyx
zyxwvutsr
Competition Policy A f e r I992

in the absence of such a role for American antitrust policy may not dispose of the issue,
since there are still so many important differences between the US and European economic,
political and cultural environments. In the longer term, when the internal market has a
more profound footing, it will not be tenable to regard the existence of the internal market
as solely dependent on the application of competition law. If it is to have any real existence,
the concept of the single market will be the product of political commitment and will be
independent of the precise application of competition policy. At that stage, competition
policy need not retain the market integration model as its primary objective.
In determining whether competition policy is subject to higher constitutional norms (so
that, for example, it would not be possible for competition policy to concern itself exclusively
with efficiency) it is necessary to examine the approach of the European Court of Justice
to the position of economic rights as constitutional principles of the EEC. Rights put forward
as being opposed to public interventions in the market are those, originating in the national
constitutions and the European Convention on the Protection of Human Rights, which
guarantee a right to property, or the freedom to pursue a trade or professional activity.20
Alternative, and weaker, arguments are based on a right to maintain an advantageous market
position or to determine the nature of management and to maximise profitability . 2 1
Claims based on the right to property are supported by the libertarian argument that
any restriction imposed by the State on the freedom to dispose of or use property is
unjustifiable.22The matter was addressed fully in Hauer, in connection with a Council
Regulation prohibiting the planting of new vines in certain areas. This resulted in market
entry and expansion being possible only through the purchase of existing production
facilities.
The Court adopted the policy of the First Protocol to the European Convention on Human
Rights, which recognises a limit on the right to private property, dictated by the needs
of the general interest.23Seen in this light, the intervention on the market did not deprive
frustrated entrants of a right to property since the property which could not, as a result,
be applied to the market in question could still be used in any other, lawful, way. The
Court found justification for the limitation to the right, caused by the virtual isolation
of the market, in the ‘general interest.’ Using examples from national legislation, the Court
found that such justification was used in relation to agriculture and forestry laws, water,
environmental and planning legislation. Limitations arising from the application of
competition policy would share such justification. The views of the Advocate General
are more instructive in this regard. In considering whether the market restrictions could
amount to expropriation, he examined the ‘economic sacrifice’ demanded of those affected.
According to this approach, he found that:

zyx
zy

zyx
zyxwv

it is a matter of common experience that agricultural land is mostly capabie of being put to various
uses, even though not all such uses offer the same degree of profitability . . . [Tlhe fact that
the Community prohibitions precluded a more advantageous use is unimportant, since in order
to show that the Community measure was not in the nature of an expropriation it is sufficient
that in spite of that measure the land retained an appreciable economic value.24

If agricultural land is used as a metaphor for any tradeable asset, this Opinion of the Advocate
20
21
22

23

24

Case 4/73 Firma J Nold v EC Commission [ 19741 2 CMLR 338; Case 44/79 Hauer v Land RheinlandPfalz [1980] 3 CMLR 42; Case 234185 Staatsanwalt Freiburg v Keller [I9871 1 CMLR 875.
Case 230178 Eridania v Minister of Agriculture [1979] ECR 2749; Firma J Nold v EC Commission.
See Smith, ‘Why Not Abolish Antitrust?’ (1983) Regulation 28. See also Ponsoldt, ‘Introduction to the
Special Issue on a Retrospective Examination of the Reagan Years’ (1988) 33 Antitrust Bull 201.
The relevant words of the protocol are: ‘[elvery natural or legal person is entitled to the peaceful enjoyment
of his possessions . . . The preceding [provision] shall not, however, in any way impair the right of a
State to enforce such laws as it deems necessary to control the use of property in accordance with the
general interest.’
Hauer v Land Rheinland-Pfalz, Advocate General’s Opinion, para 8.

613

The Modern Law Review

zyxwvuts
zy
zy
[Vol. 53

General is strong support for the view that the impact of competition policy is not limited
by the right to property unless, in an individual case, the intervention amounts to a complete
denial of such right.
The approach adopted in Huuer is reflected in cases concerning claims for damages
under Article 215 arising out of actions impairing the value of trading assets. In Biovilac
the European Court of Justice refused to entertain a claim based on an argument that
Community intervention in the market depressed sales of the plaintiffs products. The Court
held that the substance of the right to property was not thereby infringed and, of greater
importance, that the detrimental effect was ‘merely an indirect consequence of a policy
with which aims of general public interest are pursued which vary greatly depending on
the economic factors affecting market trends. ’25
The other right which may be put forward in opposition to market interventions is the
right to pursue a trade. This right is also limited by the requirements of the ‘general interest,’
both in the Member States and the Community. Advocate General Warner alludes to this
in his Opinion in Eridania, by reference to the Italian legal system. Article 41 of the Italian
Constitution provides:

zyxw
zyx

Private economic enterprise is open to all. It cannot however be applied in such a manner as
to be in conflict with social utility or when it is prejudicial to security, freedom and human
dignity. The law prescribes such planning and controls as may be advisable for directing and
coordinating public and private economic activities towards social objectives.

Another example is the German system, where the vigorous protection of the Grundgesetz
does not preclude interventionsjustified according to the law on competition.26Advocate
General Trabucchi in the Nold case found that the limitations imposed by Community
law on the right to trade were justified by the general interest in the proper functioning
of the Common Market. The Court itself, in both the Nold and the later Eridania cases,
drew a very strong distinction between the right to participate in the market and the right
to any guaranteed level of economic
If it is clear that competition policy is not limited by Community constitutional norms,
it is necessary to enquire whether it is a constitutional norm itself. US policy under the
Sherman Act has been variously described as the ‘Magna Carta of free enterprise’28and
the ‘charter of economic liberty.’29The Attorney General’s National Committee to Study
the Antitrust Laws also described the policy in constitutional terms.30More recently, a
former Director of the Federal Trade Commission referred to the uniqueness of antitrust
laws lying in their claim to a ‘quasi-constitutional’nature.31The characterisation of the
Sherman Act as a constitutional document is so closely a product of the circumstances
existing at its enactment, that the idea cannot easily be translated into the Community
sphere. Although the absence of strong governmental control from the centre of the EEC
~~~

25

~~~

zy
zyxwvu
zyxwvut
~

~~~

Case 59/83 Biovilac SA v EC Commission [1987] 2 CMLR 881, 901. See also the general statement
of policy on claims under Article 215 in Case 83/76 Bayerische Hh?L Vermehrungsbetriebev EC Commission
and Council [1978] 3 CMLR 566, 592: ‘individuals may be required, in the sectors coming within the
economic policy of the Community, to accept within reasonable limits certain harmful effects on their
economic interests as a result of a legislative measure without being able to obtain compensation from
public funds.’
26 Gesetz gegen Weltbewerbsbeschriinkungen.
27 ‘[A]?, concerns the guaranteesgiven to individuals . . .,they could in no case be extended to the protection
of mere commercial interests or prospects, the contingentcharacter of which is inherent in the very essence
of economic activity,’ Firma J Nold v EC Commission at p 355.
28 US v Topco Associates 405 US 596 (1972).
29 Northern Pacific Railroad v US 365 US 1 (1958).
30 ‘Antitrust is a distinctive American means for assuring the competitive economy on which our political
and social freedom under representative government in part depend,’ Repon ofthe Attorney General’s
National Committee to Study the Antitrust Laws (Washington, DC, 1955) p 2.
31 Campbell, Address to Antitrust Section, ABA, August 1989.

614

zyx
zy
zyxwvuts
zyxwvutsr

September 19901

Competition Policy A f e r 1992

may give rise to the view that the dispersal of economic power is necessary to protect
the democratic integrity of the Community, no strong claims are presently made that any
such threat exists. The Merger Regulation, which does not address itself to this danger,
welcomes corporate reorganisation ‘as being in line with the requirements of dynamic
competition. ’32
EEC competition law may be described as constitutional, in the sense in which it is
used here, if it imposes rights and obligations as a way of creating and maintaining a certain
form of preferred economic system. However, even a brief consideration of other
Community economic policies will reveal that the competitive system is only one Community
method, and not a template for the creation of an economic system. Competition, as a
means to securing economic and political goals, must coexist with various industrial,
agricultural and social policies which seek to achieve similar goals through different methods.
The acceptance of a deeply intrusive regulatory regime for the agricultural sector prevents
the free market transaction being characterised as a Community constitutional norm. The
vast body of law providing for such regulatory interventions is supported by the policy
of the European Court of Justice towards economic freedoms, discussed above. The
Regulation at issue in the Hauer case was one which retricted entry into a market but
was found to be a valid structural measure within the aims of the Community.
The role of competition policy within the ‘four freedoms’ suggests a constitutional
purpose. The expansion of competitivepolicies to the activities of the Member States through
the strengthening of control of State aids,33the application of competitive principles to
public procurement, and the identification of the clear duty of Member States not to deprive
would seem to confirm that view. However,
Articles 85 and 86 of their effecti~eness,~~
free market ideology is not used in all markets, even outside the regulated agricultural
sector. In the market for labour, although the Community system provides for the free
movement of resources, it does not provide for a system of production-related remuneration.
The Social Charter will require that ‘all employment shall be fairly remunerated . . . a
decent wage shall be established.’35The concepts of fairness and decency are not tied to
the economic value of labour.
These comments suggest that competition policy in the EEC is not a constitutional norm,
nor is it itself limited by constitutional norms. There are therefore no constitutional obstacles
to prevent it evolving to meet new demands.

zyxwvut
zy

The Wording of Articles 85 and 86
Hawk emphasises the importance of textual differences between Article 85 and section 1
of the Sherman Act, especially the ‘unfortunate bifurcation’ of Article 85 into paragraphs
one and three.36However, even though such textual differences have contributed to the
adoption of different analytical techniques, there does not seem to be any necessary linguistic
imperative for the triumph of integration over efficiency. A difference in policy enforcement may arise, not as a result of the textual bifurcation, but through the reservation to
the Commission of exclusive powers under Article 85(3). Unlike the enforcement of US
policy, a single enforcement model is therefore possible in the EEC. The more recent

zyxw

32
33
34
35
36

Preamble, Council Regulation 4064/89 on the Control of Concentration between Undertakings, 1989
OJ L 395.
See point 169 of the Eighteenth Report on Competition Policy (Brussels: Commission of the European
Communities, 1989).
See especially Case 267186 Pascal van Eycke v ASPA SA, September 2 1 , 1988; Case 3 1 1 /85 Vereniging
Van Vlaamse Reisbureaus [1989] 4 CMLR 213; and Case 66/86 Ahmed Sueed [1990] 4 CMLR 102.
Article 8, Community Charter of Fundamental Social Rights (Draft) Com (89) 471 Final, October 2,
1989, emphasis added.
Hawk, ‘The American (Antitrust) Revolution: Lessons for the EEC?’ (1988) ECLR 53, 54.

615

The Modern Law Review

zyxwvuts
zy
zy

zy
zyxwv
[Vol. 53

efforts of the Commission to encourage parties to litigate Article 85 at a national level
will therefore have only a limited effect unless national courts feel confident to apply a
reasoned approach to ‘restrictive’ agreements at the 85(1) stage.
The Commission has certainly been given ‘the clearest possible mandate’37to pursue
policies which integrate the national economies. But it has also been given a mandate to
promote a harmonious development of economic activities, a continued and balanced
expansion and an accelerated raising of the standard of living. These are the principal
tasks of the Community, to be achieved through the establishment of a common market
and the approximation of economic policies. There is adequate textual justification for
the argument that the development of economic activities, economic expansion and raised
standards of living require a system which ensures that Community markets operate at
maximum allocative efficiency, and that any other purpose is a denial of the mandate in
Article 2. The operative words of Article 85, ignoring purely jurisdictional concerns,38
give rise to a prohibition of transactions which (in design or effect) prevent, restrict or
distort competition, except those which the Commission believes will contribute more
to productive efficiency39than they will detract from allocative efficiency through the
acquisition of substantial market power.
This efficiency re-write of Article 85 omits three passages. First, it omits those words
which relate only to non-ancillary restraints. Second, it omits the requirement of Article
85(3) that consumers be given a ‘fair share’ of the efficiency gains. This ‘consumer interest’
clause may be regarded as an embarrassment to the efficiency re-write. Increased efficiency
should lead automatically to enhanced consumer welfare; consumers are the ultimate
beneficiaries of an unfettered competitive system. The requirement that consumer benefit
be demonstrated in each case appears to be an indication that the Article is concerned
with something other than efficiency. It may, for example, be satisfied by improvements
in consumer safety.40Alternatively, it may require wealth transfers from consumers to
producers to be taken into
The third omission of this efficiency re-write is an acknowledgement that the transactions
and practices prohibited by Articles 85 and 86 are prohibited because of their incompatibility with the ‘common market,’ rather than with the Community. Similarly, Article 3(f)
calls for a system ensuring that competition ‘in the common market’ is not distorted. It
can be argued that this wording indicates that the function of Articles 85 and 86 is simply
to maintain the integrity of the internal market in which the four freedoms can operate
without hindrance. A practice which improves allocative efficiency would therefore be
incompatible if it imposes geographical barriers.
Against this narrow interpretation, however, is the fact that the terms ‘common market’
and ‘Community’ are not used consistently in the Treaty. One such inconsistency relates
to the functions of the Commission under Article 155. This Article provides the Commission with functions ‘to ensure the proper functioning and development of the common
market.’ The Commission in fact functions in the interests of the Community, such as
in relation to the Structural Funds, expressly referred to in Articles 130A and 130B as
being a Community objective. Within competition policy the Commission identifies
objectives outside the market integration function - effective competitive structure and
fairness in the market place. Condemned practices such as excessive pricing and tie-in

zyxw

37
38

zyxwvuts

Sharpe, op cit note 13.
That is, the requirement that trade between Member States be affected, and that the competitive impact
of the agreement be felt in the EEC.
39 Improvements in production and distribution and promotion of technical or economic progress.
40 In the Continental/Michelindecision (1988 OJ L 305), the Commission confirmed that consumer safety
is relevant to Article 85(3).
41 On the meaning of this aspect of Article 85(3), see J Pelkmans, ‘Consumer Interests in the EEC Competition
Regime. An Economic Perspective,’ and D Swann, ‘CompetitionPolicy and Competition Theory,’ both
in Goyens, op cit note 13.

616

September 19901

zyx
zyxwvu
Competition Policy After 19921

zyxwvu
zyxwvu
zyxw
zyxwvut

sales are more concerned with wealth transfers than market integration. Further, the
protection of exclusive territories may be prohibited even where the territory does not
extend to the whole Member State. In addition, the Merger Regulation requires the
Commission to examine mergers for their compatibility with the ‘common market’ even
though the market integration model does not form the basis of merger analysis under
the Regulation.
Thus, the Article 3(f) activity - requiring a system of undistorted competition - is
to be applied to the principal rusks of the Community and not just to the means whereby
those tasks are to be achieved. Article 3(f) cannot be relied upon to defeat the mandate
of Article 2. It provides no requirement that Articles 85 and 86 be limited to the marketintegration model after the completion of the single market.

The American Model

The suggestion is often made that antitrust analysis and enforcement in the USA be examined
as a model for the mature phase of EEC competition policy. Identification of an ‘American
model’ is hindered by the part played by private actions in the enforcement of US policy.
These have a fragmenting effect on the theoretical debate. Indeed, the essential ‘public’
role of private actions may be to achieve such a fragmentation and so avoid the domination
of one economic model over others. Further difficulties arise through the finite life cycles
of theories of the market.” At any one time there may be two, three or more different
major models in different phases of existence. The mortality of these models is something
of which account must be taken before determining that the EEC should adopt the latest
analytical posture, even one as firmly based as the Chicago model, unless it is peculiarly
suited to it.43
The Harvard approach to antitrust analysis (previously ‘mainstream’)justified governmental or public intervention on the market on the basis of a perceived correlation between
concentration and profits, and because intervention was capable of causing an affirmative
effect on dynamic competition. The more recent evolution of this policy also recognises
the possible anti-competitive use of strategic behaviour by firms as an effective surrogate
for entrenched structural advantage.” The Chicago analysis (currently ‘mainstream’),
displaying a more fundamental belief in the self-correcting properties of the market and
its capacity to ensure consumer welfare, seeks only an optimal satisfaction of consumer
preferences. Critically, this is measured by aggregating consumer and producer surplus,
without regard to their relative values. Simply stated, policy should concern itself only
with consumer welfare (in a Paretian or Kaldor-Hicks sense), usually determined by a
maximisation of allocative efficiency and most often achieved by allowing the market to
regulate itself through the hidden hand of competition. Indeed, even those market situations
which detract from allocative efficiency should be left undisturbed where an increase in
productive efficiency (through economies of scale or management efficiencies, etc)
outweighs any loss in allocative efficiency. The abstentionist approach of Chicago is based
on the belief that intervention on the market is either misplaced or less effective than the
dynamic corrective force of the market itself.
Chicago introduced a new economic model into competition, and also redefined the
nature of economics and its place in the application of competition policy. Economics
is presented as a non-normative science, a posture which leads to a perceived rigidity
of view and an unwillingness to accept other models as credible or desirable. The scientific,

zyxwvutsr

See Hovenkamp, op cir note 2, for a description of the cyclical nature of antitrust theories in the USA.
See the recent literature on post-Chicago economic scholarship, summarised in Baker, ‘Recent Developments
in Economics that Challenge Chicago School Views’ (1989) 58 Antitrust LJ 645.
44 Audretch, ‘Divergent Views on Antitrust Economics’ (1988) 33 Antitrust Bull 135.

42

43

617

The Modern Law Review

zyxwvuts
zy
[Vol. 53

non-normative claims of Chicago are met by equally trenchant claims that Chicago is a
thinly-veiled political programme unsuitable for use as the exclusive tool of competition
policy analysis and e n f ~ r c e m e n t . ~ ~
Principally, Chicago enforcers are unwilling to accept that what are termed ‘noneconomic’ goals have any place in the application of competition policy, both because
of their non-quantifiable nature, and because of the desirability of promoting efficiency
as the sole goal. Critics emphasise the lack of concern for distributive justice evidenced
by this approach.46Calvani, a Federal Trade Commissioner, refers to supporters of the
view that non-economic factors ought to be taken into account as ‘the modem day Luddites
of antitrust.’47There is also a fear that if the Chicago model of consumer welfare is
traded off against competing values such as the dispersal of economic power, then the
enforcement of policy will fall to the uninformed moral values of the judiciary.

zyxwvut
zyxw
zyxwvuts
zy

Differences Between Chicago and Europe

Comparisons between EEC competition policy and the US model often centre on the case
of Sylvuniu48 because of the exclusively ‘economic’ approach to non-price vertical
restraints adopted by the Supreme Court in that case. Other monuments to the efficiency
model include the permissive operation of the 1984 Merger Guidelines and the rejection
of small firms as a legitimate antitrust constituency. In Sylvuniu the Supreme Court insisted
on the now familiar trade-off between intra- and inter-brand competition, concluding that
departures from the rule of reason ‘must be based on demonstrable economic effect.’ This
has led to the entrenched rule that non-price vertical restraints are tantamount to per se
legal in the absence of collusion between suppliers or dealers.49
There are conflicting signals on the present state of EEC policy on non-price vertical
restraints. Some recent cases and decisions suggest that there is an emergent trend towards
the efficiency approach and an abandonmentof legal formalism. Certain recent Commission
statements lend weight to the idea that the completion of the single market will accelerate
such a movement. In its Eighteenth Report on Competition Policy,the Commission stated
that the maximisation of the benefits of 1992 can only be achieved ‘if the creation of the
single market leads to an optimum allocation of resource^.'^^ However, other
developments point to the continued use of the market-integration approach without regard
to other competitive concerns.
A movement towards an economic analysis is discernible in the recent cases of KuiOttung v Klee & Weilbuch5‘ and Buyer & Hennecke v S ~ l l h o f e r ,both
~ ~ of which
concerned intellectual property licences but neither of which concerned the protection of
innovation which dominated the Maize Seeds c a d 3 and the Know How Licences Regulation.” In the two cases, apparently restrictive terms in licensing agreements (respectively
45

zyxwvutsrq
zyxwv

See, for example, Adams and Brock, ‘Reaganomics and the Transmogrificationof Merger Policy’ (1988)
33 Antitrust Bull 309.
46 See Gibbons, ‘Antitrust, Law & Economics, and Politics’ (1987) 50 Law and Contemp Probs 217,223,
where he states that Chicago is ‘politically dedicated to the desirability of a totally unregulated market,
to the exclusion of such quaint ideas as distributive justice.’
47 Calvani, ‘Rectangles and Triangles: A Response to Mr Lande’ (1989) 58 Antitrust U 657.
48 Continental W v GTE Sylvania 433 US 36 (1977).
49 ‘Interbrand competition . . . is the primary concern of antitrust law . . . When interbrand competition
exists . . . it provides a significant check on the exploitation of intrabrand market power because of the
ability of consumers to substitute a different brand of the same product,’ ibid footnote 19.
50 At point 169.
51 Case 320187 Kai-Ottung v Klee & Weilbach, May 1989.
52 Case 65186 Bayer & Hennecke v Sullhofer, The Times, 1 1 October, 1988.
53 Case 258178 Nungesser v EC Commission [1983] 1 CMLR 278. See also Case 27187 Erauw-Jacquery
Sprl v La Hesbignonne Sociiti Co-operative [1988] 4 CMLR 576.
54 Regulation 556189 (EEC), 1989 OJ L 61.

618

September 19901

zyx
zyxwvuts
zyxwvu
Competition Policy After I992

the obligation to pay royalties after the expiry of the patent, and a no-challenge clause)
were held to fall outside Article 85(1) because in neither case could the beneficiary of
the terms exert market power. The European Court of Justice resisted the temptation to
‘label’ the clauses as anti-competitive in the absence of convincing economic evidence.
The Buyer v Sullhljfer judgment on no-challenge clauses is particularly convincing evidence
that the Court is adopting a reasoned approach to the characterisation of restraints.
The Commission’s willingness to balance inter- and intra-brand competition in vertical
distribution agreements is also a point of similarity with the approach in Sylvania, except
that EEC policy does not inevitably favour the restriction. An important difference (which
is not required by the wording of Article 85) is that the trade-off is used as a justification
for exempting the agreement under Article 85(3) rather than for excluding the agreement
from Article 85(1). This practice reserves to the Commission the power to impose its
policy through precedent. As argued above, the courts of the Member States, competent
to apply Article 85( l), will be reluctant to apply the trade-off to determine the application
of Article 85(1). They will defer to the Commission’s view and require firms to seek
individual or block exemption according to the Commission’s requirements. 5s
The continued divergence between the Community approach and the US approach is
. ~ ~ APB decision is an
discernible in the recent decisions of APB56and B ~ y o - n - o x The
example of a vertical restraint being disallowed58even in the absence of market power,
and with no threat to market integration. The Buyo-n-ox decision is an example of a vertical
restraint being treated as anti-competitive under the market-integration principle; it marks
a clear divergence from the approach in Sylvunia. A divergence between the EEC approach
and that of Chicago is also apparent in the treatment of cooperation between firms. This
area of policy is particularly relevant to the establishment of the single market, in view
of the projected increase in such cooperation to meet the challenge of the new trading
environment. Even after the Commission’s undertaking to adopt a ‘realistic’ approach
to potential competition in its assessment of joint ventures’s9 it prefers to find that joint
ventures violate Article 85(1), although it has also proved willing to exempt under 85(3).
Cooperation agreements leading to the development of innovation are particularly
favoured.@ In the post-1992 period, cooperation in the form of joint ventures and
mergers will be increasingly used as vehicles for the exploitation of technical development,
productive and management efficiencies. Guidelines on joint ventures are therefore urgently
required. Recent Commission activities in relation to joint ventures indicate a continued
unwillingness to regard joint ventures as being outside Article 85(l), even where an adverse
effect on competition is highly unlikely because of lack of market power. Recent examples
. ~all
~ these decisions, joint
include UIP,61Continental/Michelin,62 and O l i ~ e t t i / C a n o nIn
venture agreements were operated by firms with no substantial market share of the relevant
geographical market.
All of these joint ventures were exempted because they satisfied the conditions of Article
85(3); the efficiency advantages were not therefore sacrificed. However, given the limited
resources of the Commission, the need for Community firms to make a speedy response
to the changing economic environment, and the need to involve national courts in the

zyxw
zyxwvut
zy

55

Schenfield criticises the perceived necessity to use Article 85(3) on vertical agreements: ‘the notion that
the exemption criteria of 85(3) can be assessed by economists, lawyers or bureaucrats better than by
the unhampered market is an illusion’: H Schenfield, Myth and Reality in Antitrust (London: Institute
of Economic Affairs, 1983).
56 1990 OJ L 18.
57 1990 OJ L 21.
58 The EC Commission objected to the original version of an agreement which was cleared after amendment.
59 Thineenrh Report on Competition Policy (Brussels: EC Commission, 1984) point 55.
60 See the Alcatel/ANT decision, 1990 OJ L 32.
61 Decision 89/467/EEC, 1989 OJ L 226/25.
62 ContinentaUMichelin, 1988 OJ L 305.
63 1988 OJ L 52.

zyxwvutsr
619

zyxwvut
zyxwvuts
zy
zyx

The Modern Law Review

[Vol. 53

enforcement process, it is now appropriate for the Commission or the Court to give a
signal that cooperation of this nature falls outside the terms of Article 85(1).
There is a tension between the treatment of horizontal cooperation which leads to a
continuing joint venture, and that which gives rise to perfected structural changes. The
Commission’s treatment of mergers is now determined by the Merger Regulation, an
instrument of pure competition policy. In recent years, frustration at the lack of a merger
control instrument has led to the application by the Commission of a ‘soft law’ under
the Philip MorrisMjudgment, such that all significant mergers have been referred to the
Commission in spite of controversy over the scope of its jurisdiction. There is nothing
in the Merger Regulation to prevent the Commission (or national courts) continuing to
apply Articles 85 and 86 in relation to merger transactions not falling within the Regulation.
Future merger policy will be based on a mix of the Commission’ssoft law under Article
85, with an emphasis on the reduction of competition between firms engaged in the
transaction, and the clearer approach of the Merger Regulation, which is concerned only
with the competitive effect of the structural changes on the market as a whole. The Regulation
is concerned solely with the competitive impact of horizontal mergers. It marks a break
with previous policy in eschewing a market-integration model. The relative importance
of these two models of merger analysis will define to a large extent the nature of competition
policy in the single market.
Finally, the Commission’s attitude towards small and medium sized enterprises (SMEs)
is relevant insofar as it amounts to a positive bias towards this constituency. A distinction
must be drawn between the screening out of small firms because of the absence of market
power, and the positive encouragement of horizontal arrangements between them. The
Commission proposal for a Council Decision on S M E F seeks to encourage cooperation
and partnership between enterprises, in particular small and medium sized enterprises,
from different regions of the Community. This measure is aimed at improving the
competitive position of SMEs relative to large firms.&

zyxwvu

Adoption of the Efficiency and Other Models in the EEC
As indicated above, there are significant differences between the Chicago model and EEC
competition policy. The choice between ‘Chicago or not’ is not a choice between ‘economics
or not.’ The choice, rather, concerns the appropriate use of economics in the application
of competition policy to the single market. This may result in the efficiency model of
Chicago being used exclusively, or in combination with other goals, or to the use of an
entirely different economic model, such as one concerned with wealth transfers.
As argued above, there is nothing to prevent efficiency being adopted as the sole goal
of EEC competition policy. This would involve obvious changes to current policy, such
as the attitude to vertical restraints. It would require a very light-handed use of the Merger
Regulation, especially in relation to the definition of which mergers pose a significant
threat to effective competition. The definition of the relevant market for all aspects of
competition policy would have to take full account of potential and actual competition
from outside the Community. Apparent restrictions which affect the Community sub-market
would thereby be permitted if they increase effective competition on the world market.67
Of greater importance, the notion of ‘fair’ competition in the preamble to the Treaty would
64

65
66
67

620

zyxwvut

Cases 142 and 156184 BAT v EC Commission [1988] 4 CMLR 24.
Com (89) 254, 1989 OJ C 232.
See also Council Recommendation on the Implementation of a Policy of Administrative