European Union Competition Law - Essay Example

? Commercial Law Lecturer Commercial Law Introduction In the recent past, European Union Competition Law has led to vertical agreements being pro-competitive. This follows the aim of the EU Competition law to come up with a single market so as to allow firms from Europe to access new markets including those that had been blocked following government barriers. Such penetration into new markets has proved to be risky as well as time and investment consuming. The process has to be facilitated by EU vertical agreements and guided by the Competition law between the local distributors and the producers seeking new markets. The efficient distribution accompanied with proper after and pre-sales support makes part of pro-competitive process which ends up benefiting consumers1. However, the vertical agreements between distributors and producers may also lead to the continuation of market partitioning and act as barriers to new entrants whose presence would have intensified the market competition and resulted in a declining pressure on prices. Thus the vertical agreements between distributors and producers can therefore be used in a pro-competitive way so as to promote the market’s efficient distribution and integration. The differences in prices among Member States that still exists offer incentives for new companies to access markets and also form barriers against new competition. It is the vertical restraints that lead to less concern on competition than the horizontal agreements. This trend is as a result of the vertical agreements and constraints being pro-competitive in most cases2. Enforcement priorities, modernization and more focus being put on effects has led the Competition Law actions to shy away from such agreements and lean towards restrictive practices which it considers being more serious. Since the enactment of Regulation No. 1/2003 as well as the prior notification requirement abolition, the EU Competitive Law decisions regarding vertical agreements have been almost non-existing concerning the Court of Justice litigation on this issue3. Following this premises, and without including the developments of major case laws in the adaptation of the new vertical agreement framework, the Law had correctly assumed that the Regulation No. 2790/1999 had come up with a system that was working smoothly. Consequently, the Regulation No. 330/2010 gave a full exemption to particular vertical agreement categories included with new guidelines4. Vertical agreements that are normally concluded between limited market power companies and lack competition hardcore restrictions are normally alleged to be pro-competitive and hence are covered by generalized exemption. Cross agreements which do not qualify according to exemptions do not face automatic prohibition but included as considering the vertical agreements beneficial effects, the undertakings and turnover should not undergo different treatment. Resale Price Maintenance (RPM) The EU Competition law has had remarkable impacts on vertical agreements including the way it affects the RPM5. Most lawyers and economist have argued that the Competition Law has had pro-competitive effects on RPM in relation to vertical agreements. The Supreme Court had a take in this during the Leegin case where it ruled to its favor but with a weak majority. The Competition Law has had both anticompetitive and pro-competitive affects on RPM but the situations leading to pro-competitive effects have proved to be of great significance to vertical agreements. In a situation where there the RPM is strict, free-riding problems can be easily overcome in situations where pre-sale services are offered to consumers by retailers and go ahead to impact such services on the price6. In a similar situation, another retailer may resolve on doing away with the pre-sale services, hence ends up bearing the additional costs but supplies goods at a price that is reduced by taking advantage of the other retailers move to provide pore-sale services. In other situations, strict RPM may be used to have retailers offer services such as after-sale services that may in the long run increase the welfare of the consumers which is not the intention of the retailer in an effort to avoid extra costs7. Strict RPM is also important in situations where some retailers tend to gain free-rides on other retailer’s reputation who offer quality products. Such retailers achieve this by stocking products that are similar to the retailers who have high quality products. The supplier can come to the rescue of such retailers by posing either fixed or minimum RPM so as to attain certifications that are of high quality from the distributors8. Strict RPM plays a significant role in the protection of prestigious brand names that are well-known from pervasive use which might lead to their deterioration. Strict RPM effectiveness is also witnessed in the treating of risk aversion of retailers in situations where there exist some uncertainties in consumer demands. More so, strict Resale Price Maintenance may lead to personal effects in situations where suppliers are forced to choose among the already utilized mortar and bricks retail network and the possible retail network that is online9. The online network has fewer inventories, distribution lists and is promotional thus can easily lead to less damages and lower prices as compared to the former retail network. By having minimum or fixed RPM, the supplier will be in a position to keep the brick and mortar model while at the same time offers the consumers the option of purchasing the same products but online10. Vertical Restraints As a result of the strong market integration links which may either be negative and positive, vertical restraints have proved to be of particular importance to the policies of the EU Competition Law. While these policies have proved to be successful in last 30 years, there is still need for some amendments. There are these suggested reviews that have resulted to the vertical agreements being pro-competitive. The amendments include; the development of a one market legislation so as to ensure products move freely, the introduction of new regulations which are aimed at governing the expiring of vertical restraints, and major changes in the distribution methods that have major implications for EU policies. The EU through the Competition Law is committed to coming up with a fair and open international trade. Just the way vertical restraints may hinder or promote the development of a working single market, they can also be detrimental or beneficial to international trade. The Competition Law in such an area leads to wider international significance. This experience has proved useful in the analysis of obstacles hindering market access in developing countries11. The EU Competition Law expects all industries within its jurisdiction to comply with some certain levels of services produced and distribution chains. High quality services and efficiency in distribution are crucial elements in the competitive business world. The vertical agreements allow very few producers to go as far as the final consumers. Most of the producers depend on specialized distributors. The same applies to industries which are regarded as economies and gain from supply chain cooperation. Such chains have been accelerated and facilitated by the inclusion of modern techniques and information technology12. The result of this introduction is that goods produced tend to go down the supply chain due to the final demand and not as result of what the production needs dictates. The outcome of this chain is a remarkable cut down of unwanted savings and substantial savings. This has led to increased competition between supply chains in vertical agreements. Considering article 85(1) of the EU Competition law, the trading blocks exempted from vertical agreements must offer legal certainty for industries and firms. This is achieved by coming up with a particular distribution arrangement that is exempted automatically according to article 85(3). The Competition Law regulations determine the reasons behind the kind of distribution agreements that may end up limiting competition according to article 85(1), as well as the reasons that allow the law to award an exemption as stated in Article 85(3) under certain conditions13. The thread across the exemptions of the purchasing, distribution, and franchising together with selective distribution policy have come out as being the concern that is overriding, coming on the way of any complete territorial protection form. The situation that has been created by the EU Competition law is so dynamic that it has resulted to the distribution of products from the EU to certain zoning laws and third world countries face particular entry barriers. This approach was adopted by the EU so as to enhance its market position on specific inoligopolistic distributors and gain competition policy implications. Vertical restraints are however moving away from being regarded as pro-competitive. This is because in the current market situation, it is the market structure importance that determines the vertical restraints impact. The more competitive the inter brand gets, the more likely the efficiency and pro-competitive effects will be greater than the ant-competitive vertical restraints effects. Anti-competitive effects only apply when the inter brand competition is faced with barriers and gets weak thus easy entry at distributor and producer level14. Contracts applying to distribution chains allow potential distribution efficiency to be achieved and also cut down on transaction costs. Contracts when applied in vertical restraints result in increased barriers to new entries or reduce oligopolistic markets horizontal competition. Taking a look at the regulation under Article 19/65, the EU has the power to implement block exemption. These regulations define particular vertical agreement categories that generally meet Article 85(3) conditions thus exempted15. The regulations state that the Competition Law has conditions that must be met in order for any vertical agreement to be covered. It also contains restrictive exempted clauses and clause that have to be considered. Conclusion The EU Competition Law has resulted into a long lived viability of the Union members leading to the supply chain depending more on the entire chain ability to compete with other economic operators chains all over the world. This situation has resulted to the union members in the chain trying to come up with ways to influence the union’s functioning thus resulting to pro-competitive situations in vertical agreement. A complete control can only be achieved through acquiring other members’ market space and chain of trade thus a vertical integration. While most producers in the EU run short of resources to deliver their products direct to the final consumers, retailers and wholesalers have stepped up and are now used as the primary distributors. This is mainly because of their better efficiency in ensuring that goods are widely accessible and available to the intended customers. At the same time, in distribution systems cases, vertical integration does not exist for some part of supply chain or at times the entire chain as a result of vertical restriction governance. However, the EU Competition law has ensured that the systems have been unified and utilize information technology leading to many changes in the distribution sectors in the supply chain. Further more, in most sectors, there is more concentration at both ends of the supply chain leading to independent intermediaries to disappear. The above factors have in the long run led to the reduction in the parallel trade scope or arbitrage even in situations where there exists a substantial difference in prices between the union members. The main implication of the above changes caused by EU competition Law on vertical agreements is the isolation in the modern distribution and chain systems now that the retailing distribution has been made an international orientation. Bibliography Bergh, R., & Camesasca, P., European Competition Law and Economics: A Comparative Perspective 244, 2006 Craig, P. & Burca, G., EU Law: text, Cases, and Material, OUP Oxford, New York, 2010 Derek, R & Simon, B., EU Vertical Restraints Guidelines-Effects-Based or per se Policy?, European Competition Law Review Vol 23, Issue 1, 2002 Derek, R., “European Competition Rules on Selective Distribution”, European Retail Digest, New York: Oxford Institute of Retail Management, 1999 Derek, R., Two Major Challenges for EU Competition Law, New York: Antwerp-Oxford, pp243-256, 2004 Derek, R., Tying and building-Cause for complaint?, European Competition Law Review, Issue 6, 2005 Derek, R., With the Benefit of Hindsight-the 2000 UK Impulse Ice Cream Investigation, European Competition Law Review, Volume 26, Issue 10, 2005 Ezrachi, A. EU Competition Law: An Analytical Guide to the Leading Cases. Hart publishing, New York, 2010 Frank, W., Filip, T., & Alain, V., Vertical Agreements in EU Competition Law: 157-58, 2006 Jones, A & Sufrin, B., EU Competition Law: text, Cases & Materials, OUP Oxford, New York, 2010 Marco, S., Competitive Law of the EU and UK. OUP Oxford, New York, 2010 Patrick, R & Tirole, J, The Logic of Vertical Restraints, 76 Am. Econ. Rev. 921, 1996 Simon, B., Pro-Competitive Exclusive Supply Arrangements: How Refreshing, European Competition Law Review, Volume 24, Issue 5, 2003 Simon, B., The Economics of EU Competition Law: Concepts, Applications and Measurements, Sweet & Maxwell, New York, 2002 Simon, B., Unfinished Business: The New Approach to Assessing Vertical Restraints, Intereconomics: Review of European Economic Policy, Vol 37 No. 1, 2002 Read More