The Concept of Competition Law - Essay Example

Competition Law and Cyberspace Subject Name Institution Introduction Competition law which is also referred to us as anti-trust law refers to the set guidelines which act as laws to govern trade domestically and at the international level through the international trade. This works to ensure that there is fair competition in the market. The laws act as guidelines on how companies and countries conduct their way of doing business. This has been possible through the World Trade Organization (WTO) which is the body that governs the international trade. The laws promote market competition and punish countries and companies that act in anti-competitive way. The rules work to ensure that due to interconnectedness of countries in the international trade and increased coming up of Multinational Corporations there is no abuse of the market position that a country or a company olds. The international competition law ensures that countries do not use policies such as protectionism to protect their domestic companies but to promote competition that will ensure that there is provision of high quality products and services in the market. The international competition laws have been used in various trading blocs such as the European Union, USA, and APEC among others. The laws have been used to settle disputes between companies and countries. For example, in the European Union there is a commission that is charged with settling disputes and even punishing the companies that do not follow the antitrust laws. The antitrust laws ensure that the companies that hold a leading position in an industry do not engage in anti-competitive undertakings that could lead to pushing the other companies out of the market. This is governed by various laws such as article 102 of the competition act of the European Union and article 82 of the European Union1. According to the antitrust law dominant position is defined as the control of a country or a company in a certain region or industry in a way that they determine the market prices. The leading company also influence the supply of the products in the market. The company works in an independent way and the action of the competitors does not affect the company’s decisions. The dominating company determines the market prices in a way to favour the company either to earn profits or have a large market share. This has been the position that Microsoft and Google have been occupying in the internet and computer accessories market. Therefore, the international antitrust laws works to ensure there is fair competition by ensuring that the dominant companies do not abuse their position by charging high prices and limiting production and supply of products in the market. There have been a lot of cases that have been brought against companies like Google and Microsoft in the internet market. These cases have resulted from the following issues. Preda­tory and below cost The FairSearch has filed a complaint against Google to the European commission stating that the distribution process Google uses to give away Android is designed in a way to hinder competition. They stated that the Google competitors cannot invest in a way to compete on a fair basis with Google. FairSearch also accused Google of using deceptive ways to lock out competition because if any phone manufacturer intends to produce an Android phone must pre-load with Google mobile services. This makes it hard for companies to compete with Google. Google also requires the mobile manufacturers to have Google as a default placement. Preda­tory is where the leading company in the industry voluntarily earns losses because it has set the prices of its products below its production cost. This is done to ensure that other companies earn losses and fall out of the market. The company can also set low prices so as to increase its sales and enjoy the economies of scale. Microsoft has applied this policy and this issue was brought to the attention of the European Commission. In this case Microsoft v Commis­sion 2the commission found that Microsoft earned losses so as to push the competitors out of the market. The company was charged with unfair competition that was intended to limit new market entrants and to push the existing companies into earning losses. In similar case Tetra Pak In­ter­na­tional SA v Com­mis­sion ([1996] ECR, p. I-5951)3 there were allegations that Tetra Pak had set its prices to hurt other companies. This will result from selling below the production prices thus earning losses. The commission confirmed the charges because it was proved that the company was earning losses. To the commission such pricing was aimed at limiting competition and pushing competitors out of the market. The commission confirmed that the company was not aiming at recouping the earned losses. This has been similar in another case France Telecom SA v Com­mis­sion, ([2009] ECR, p. I-2369)4 the company set the prices below those of the competitors in such a way that the competitors had no sales and the company itself earned losses. To the commission this policy was undertaken to reduce the sales of other companies that will result to reduced profits which will limit production. This would promote uncompetitiveness in the market. This might result to the company becoming a monopoly in the industry. Rebate system This policy requires the leading company in the market to present its products with the same quality as those of the competitors. This will promote fair competition in the industry without the leading company being a monopoly. This policy has been abused by the leading companies in the internet market especially Google and Microsoft companies. Google has been accused of presenting a unique search engine that is superior to that of its competitors. This has made it hard for the customers to use the services of other companies. This is because Google search engine provides shortcuts that the customers can use. This case was brought to the commission by FairSearch which is a group of companies led by Microsoft to fight for fair competition in the internet market. In this case Google v Commission, the company is still being investigated so as to establish if it has been guilty of the accusations. Tying This is a situation where a company forces its customers to purchase a product that should be accompanied by another product of the same product. In a recent case in the European Union (EU) Microsoft vs. The commission5, Microsoft one of the largest software companies in the world was accused of abusing its dominance in the market. The European commission had to undertake investigations on whether the allegations brought forward were true. The commission said that the allegations were filed by one of the Microsoft competitors Sun Micro-Systems. The allegations were that Microsoft Company was refusing to provide interface information to Sun Micro-Systems that will enable the company to develop a tool that will enable communication with Windows PC’S. According to Sun Micro-System this was a strategy developed by Microsoft to keep away competitors out of the market. This makes it hard for the competitors to fairly compete with Microsoft on Work Group Server Operating System. This was abuse of market dominance power because it limited the customers to only buying Microsoft products thus limiting their choices. Another case against Microsoft is where it was accused of tying Windows Media Player with Window PC’s operating system. The commission investigation took five years to be completed and the judgment was delivered. After the investigations the commission delivered its judgment stating that in relations to the windows media player, the company should within 90 days give to all its competitors a windows version operating system. The operating system will be without a media player which means that consumers will buy what they want and not be forced to buy a Microsoft media player6. The reason behind this is that they can buy products from different producers. This will reduce Microsoft’s dominance in the market and increase competitiveness. The company was also required within 120 days to provide its competitors with interface documentation that will help them to develop products that will directly compete with Microsoft products. Microsoft will also have to update this information every time it introduces a new product in the market. This will enable the competitors to have a fair way of competing with Microsoft by developing their own products. The company was also fine around 500 Euros so as to act as a warning to any other company that could abuse its power of dominance. The commission also appointed a monitoring trustee to ensure the company complied with the court’s decision7. Microsoft has also been accused of violating the antitrust laws in the USA. In the case Microsoft vs. United States Microsoft had been pushing competitors out of the market because of its innovativeness and introduction of new products that ensure the company attracts the largest share of the markets customers8. The company was found guilty and the trial court held that the company be broken and be operating as operating system and an application business so as to provide for competitiveness in the market. The company felt aggrieved and appealed against this decision9. The appellate court held that there was need to reduce on the monopolization of the industry by Microsoft. Microsoft was in the verge of monopolizing the browsers market and tying browser to operating system10. The court said that this could result to unfair competition that will make consumers to purchase products that are not of their choice. In relation to this case USA competition authorities and Microsoft came to a consensus that the company should disclose information about development of sensitive technology. This meant that all computer manufacturers could make uniform terms of contract and makes deals that won’t affect consumers in any way. The court also held that the company should allow customers to remove some of the icons installed in computers manufactured by Microsoft. Microsoft was also required to give technical data to software developers to write programmes that will work with windows and Microsoft products. Bid Rigging, this refers to a situation where the company involved in businesses that involve bidding act in a way that will ensure their preferred candidate wins the bid. This is highly prohibited because it undermines competition in the bid process. The international competition law work towards ensuring that countries and companies that are involved in the bid process act in a fair way. This is a common offence but there are no established anti-trust issues which have been brought to the competition authorities. The companies engage in such act to ensure that they benefit from the bid at the expense of their competitors. Another offence is market allocation where companies in the same industries work to ensure they do not compete for customers. This means that they allocate themselves the customers by dividing them into units. This is highly prohibited by the international anti-trust laws because they can affect the quality of the products offered to customers. This mainly happens when there are a few companies in an industry and the product involved is an essential product to the customers. This ensures that the companies regulate the industries out so as to benefit from the shortage and increase it at will. The international competition law also prohibit restraints in the supply chain. This means the distributors and suppliers and other stakeholders involved in the supply chain engage in agreements that will favour certain suppliers by displaying their products in a special. This will make sure that the customers notice them. The retailers also act as marketers of certain products which promotes unfair competition among the competitors in the industry. Microsoft was discovered by the EC (European Commission) to have abused its dominant position, and this is under the article 82 found in the European Community treaty, and this is because of denying the request by Sun Microsystem for information that was needed by Sun to interoperate with Windows workgroup service products. Microsoft was ordered by the European Commission to avail information which is accurate and complete, as well as the specifications for the window work group protocols of the servers, so as to provide print, file, user administration and group services, to the window work group networks. The European Commission’s ruling and remedial order were affirmed by the European CFI (Court of First instance). An agreement was reached by the Microsoft CEO (Steve Ballmer) and the European Commission’s head of competition authority (Neelie Kroes), and this agreement was on the terms under which the protocols would be licenced by Microsoft. The agreement started to be implemented when a licensing agreement was reached by Microsoft with Samba, for the covered protocols. This involved an open source expansion scheme, which produces server soft wares which imitates Microsoft server operating system’s behaviour. The agreement of Microsoft –Samba, by far appears to be the European Microsoft case, most significant tangible outcome. Another remedial order of the European Commission was an embarrassing failure, as it required the creation of a Windows without Windows media player version, by Microsoft. The agreement with Samba is significant as it requires Microsoft to provide detailed information about its communication protocols to its most significant competitors in the server market, and this is under the terms that the information will be used in open- source distribution and growth. Since Samba growth and development approaches specifically depends on communications protocols analysis, it is believed that Samba will be able to compete effectively with Microsoft, by using the information provided by Microsoft. The fact that Microsoft has already gone ahead and published all the covered protocol on its website can either enhance interoperability, or even give way for cloning to take place, thus devaluing the intellectual property of Microsoft. In this case, it is not clear if the licensing will in fact; inhibit dynamic and innovative competition in the end. Microsoft Corporation had an agreement with the PFIF (Protocol Freedom Information Foundation), that Microsoft, under terms which are friendly to open source and server developers like Samba, to license all the protocols revealed under the European and American protocol licencing program. The SFLC (Software Freedom Law Centre) created the Protocol freedom Information Foundation to license the open –source or free developer and to take hold of the master license, as a non- profit Delaware Corporation. Microsoft was paid a royalty one- time fee by the PFIF, of 10, 000 Euros. In this agreement, there is a provision of a copyright which is royalty- free. There is also a provision of trade secret licensing which permits liberal using of documentation and protocols, which are subject to restrictions of non- disclosure, as well as confidentiality. Price fixing is done by agreeing among competitors in the market to stabilise prices, by either lowering or raising the price range. This also involves stabilising any competitive terms which can be offered for their products or even services. Price fixing is termed as per se illegal because of its dangerous effect on consumers and competition. In price fixing, what matters is the presence of an agreement, which can indirectly or even directly affect the prices of products and services. However, all cases involving similar pricing decisions are not always as a result of price fixing. This is because; unilateral business decision may have been made by businesses as a result of factors emanating from the external markets. Due to this, for the antitrust laws to show any existence of price fixing, more is required, than just the existence of similar or parallel conduct between competitors. Group boycott is also described as per se illegal. Group boycott involves agreement among competing firms or businesses to take part in an activity involving concerted conduct. This concerted behaviour or activity can range from refusing to do business with a certain business or even individual, and they can also include agreeing upon certain terms. Exclusive dealing can also be seen as illegal in case the firm or business striking the agreement, has market power, and is using the exclusive dealing to distort competition, and preventing other possible competitors from gaining a foothold. Legal and neutral exclusive dealing involves a contract or agreement between a retailer and supplier, in which the retailer voluntarily agrees to sell or stock only the supplier’s products. Impact of the internet on competition laws The internet market and its operators have in the recent past been attracting a lot of attention from international competition law regulators. This is because the players in this market have been accusing each other of unfair competition. In the United States there has been a case where eBay has been sued because of its operations in the online payments where it has tied its transaction services. In different marketing blocs Apple has been accused been accused by its competitors that it limits competition by ensuring its music players cannot play music from the competing music sellers. It also limits music purchased from their stores to play in any other music player manufactured by other companies. Such issues have made the competition governing body such as the European commission and Federal Trade Commission in the USA to strictly monitor this industry operation. There were also cases to block Google from acquiring DoubleClick but the Federal Trade Operations did not stop this acquisition. The internet has also led to antitrust issues battles where various companies have been accused of abusing their market power to affect the operations of the entire internet market. In 1998, there was a case against Microsoft where the company was accused by the U.S Department of justice where Microsoft was accused of competing unfairly through the use of its web browsers. These web browsers could out compete those of the competitors because they were superior. In Europe also Microsoft was under investigation by the European Commission because it was accused due to its stream music in the internet. The company was also accused of using its market power to influence decisions in the web markets so as to favour its operations. These issues will increase antitrust concerns as the big players in the market try to stop each other from having the largest market share. This will lead to setting of strict laws to ensure that there is fair competition in the internet market. The major challenges that are facing competition laws and the competition authorities are as follows. The internet market is a multi-sided sector and laws to govern the sector have not been properly developed, this makes it hard for the authorities to control this sector in a way that could promote fairness. This makes it hard for the authorities to follow the existing laws that govern other sectors because the internet sector is different from other sectors. Another challenge is that the internet sector is rapidly growing and changing this makes hard for the authorities to come up with laws to govern the sector. Fixing such laws is impossible because they will be out-dated once the sector changes. The competition authorities therefore, should be careful not to dwell on consumer protection and result into affecting the development of the internet sector. Another challenge is that the companies involved do not engage in a joint research and, therefore, some decisions the authorities take might prevent unfair competition but result in to creeping one of the company’s finances. The EC has started investigations on the complaints that have brought against Google. The investigation will identify whether the company’s search engines favour its services and products by overlooking those of the competitors. This test has been seen as if it will favour Google so as to avoid being fined. This was also done in the United States where the company avoided fines and guilty verdict. The reason behind this is that the company has given a proposal to the commission that will see the company work with other companies. This will promote competitiveness in the sector. The reason behind this is that the other companies will benefit from Google’s search engines without discrimination. The proposal will be brought under the public scrutiny to ensure that the company does not in any way promote unfair competition. This proposal will see Google attract a fine of 10 per cent of its annual revenue if it did not keep the terms of the proposal. This is not similar to what Microsoft experienced after years of trial the company had to pay high fines in Europe in its antitrust case regarding server software. The company was fined high fines and it had to change its products. The elements of the proposal include that the company will provide links to the competitors websites to ensure that the company provides a fair competition platform. The company will also have to provide option menu of the competitors in its advertisements sales. These are some of the effects that the internet will bring to the international competition law to ensure that the anti-trust laws that govern other sectors are different from those of the internet sector. The internet regulations have been highly debatable because many stakeholders think that the internet market should not be regulated. The regulations are put in place to ensure that players in the internet market operate in a fair way without hurting the businesses of other companies. The internet is seen as time consuming and expensive due to complexity of the sectors and rapid changes that occur. There is need to set the regulations that will monitor the operations of this sector because high levels of competition can lead to companies engaging in ways that will hurt the other companies so as solely benefit from the sector. The rules should be put in place to ensure that the leading companies do not abuse their position by engaging in ways that will hurt competition such as excessive pricing, customer discrimination or even refusal to deal with customers or suppliers. The laws require that the market leader be responsible for ensuring that its decisions and behaviours do not hurt competition in the sector. In conclusion, International Competition laws also work to regulate the internet market and its related sectors. The anti-trust laws work to ensure that the players in the internet sector engage in business in ways that promote competition. The anti-trust laws act as the guidelines that company in the same sector should carry out their business without engaging in cutthroat competition that will see some companies fall out of the market. This has been possible through the world trade organization which has been a unifying to the world’s leading trading blocks. The organization calls for free and fair trade and ensuring that the violators of the international competition are punished as per the set rules and regulations. The WTO also ensures that the disputes that arise among the countries are solved amicably so as to promote the growth of international trade. The body has laid down guidelines on how some anti-trust issues that arise should be addressed. Some of the punishment that might be put in place is fines and sanctions to ensure there is fair competition. The regulation of the internet sector has been very tricky because of its nature of rapid changes and innovations. This makes it hard to fix rules that will govern the sector. This means that before a company is found guilty of violating rules of competition will take a long time. The competition regulators ensure that the issues that arise between companies are solved to promote trade and consumer satisfaction. The international anti-trust laws ensure that countries do not put policies such as protectionism in place so as to protect their domestic companies. This ensures that all players in a certain field are accorded same treatment in the international market. Bibliography Books Barton, John. The Evolution of the Trade Regime: Politics, Law and Economics of the GATT and WTO. (London: Princeton, 2008). Besanko, D., and Spulber D.F. Contested Mergers and Equilibrium Antitrust Policy, Journal of Law, Economics and Organisation 9. 1993.1-29. Bian, L., and Fetridge, D.G.The Efficiency Defence in Merger Cases: Implications of Alternative Standards, Canadian Journal of Economics 33. 2000. 97-318. 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Laws L Peremptory Norms in International Law (Finnish Lawyers' Publishing Company, 1988), at Ch. 10 Article 101 of European Union functioning Treaties Article 102 and 86 of the Treaty on the Functioning of the European Union Cases cited Microsoft v Com­mis­sion, ([1991] ECR, p. I-3359, Para 71) Tetra Pak In­ter­na­tional SA v Com­mis­sion ([1996] ECR, p. I-5951) France Telecom SA v Com­mis­sion, ([2009] ECR, p. I-2369) Microsoft vs. Trial court Google v commission Read More