Free Competition Policy Essay Sample
Human beings tend to have a competitive nature where an individual struggles to achieve better results than others. Competition is a factor that exists in all areas as the struggle to prove one is better has been on going for quite a long time. However, competition has been most evident in the economic market in general as making money revolves mainly around competition (Meen & Turcq, 1992, pp.1). In Europe they decided that in order for companies and other business organisations to compete at the same level fairness has to be exercised. The European Policy stated "Competition policy is basically about making sure that companies compete with each other on an equal footing-on the basis of their products and prices-with no unfair advantages." Therefore, this paper is going to focus on how the European Commission applies competition laws to carry out such policy and ensure no unfair advantages in the Market.
As reported by Feinberg et al, (2010, pp. 3), Europe is well known for being a business oriented nation and hosting some of the strongest trade unions globally. This automatically means the business environment in the country is quite widespread. The competition is bound to be quite strong as well both internally and externally as the struggle for consumer attention. However, not all business organisations are at the same level as others operate at a small scale level and others at large scale level (Feinberg et al, 2010, pp. 3). This might tend to be an advantage for some business entities when it comes to competition and this would not be at a fair level. Therefore, the European Commission has made a point of ensuring that fair competition is observed in the business environment.
Views held by Feinberg et al, (2010, pp. 3) indicate that the main law in the European nation that is known to control competition in the economic market is the competition law. It is also applied in other nations like in the United States where it is referred to as antitrust. This is mainly because the difference between small businesses and the large companies is well known. The big companies have the tendency to have the upper hand, in the controlling of the economic market (Business Link, 2010). This has raised a lot of concern among the small business entities as the competition seemed to focus around one point. This division was not fair and to encourage fair competition and acknowledgment of the small scale businesses in the nation, the laws encourage fair trade and competition.
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According to Vaknin (1996, pp.14), the main aim of competition is to achieve the best results among a group of competitors. In the line of business or in the economic market, this will mainly focus on attracting the consumers. The services and products produced by various companies will have to be tailored to meet the customers' needs. This tends to be quite advantageous for the large companies as they are more exposed to the market than the small businesses. Targeting the consumers will mainly revolve around the quality of the goods and the service as well as the prices and other factors that will attract them. At some point this might lead to exploitation of the consumers in the excuse of competition. Hence, the competition laws look after the rights of the consumers as well and offer consumer protection (Goyder, 1993, pp. 20). In general, the laws encourage equality in all sectors whether it is with the businesses or among the consumers.
As held by Goyder, (1993, pp. 20), protecting the consumers from exploitation may be quite a problem as range of consumers in Europe and every other nation varies, the best way to approach the situation is through fair competition. This has turned out to be quite effective and the competition laws have been making sure that this is maintained. This has been proven to work out quite well since fair competition encourages the reduction of prices and the production of good products and services (Gerber, 1994, pp. 98). Before the competition law was applied, the big companies were at an advantage as they could set their own prices without having to compete against any small parties, but after the laws were set things are handled differently. The introduction of fair competition means that the big organisations will have to worry about the prices and the quality (UCL, 2009). Goyder, (1993, pp. 20) argues that this means that price wars are going to ensue and the consumers are most likely to be attracted by the low prices. Maintaining fair competition is quite difficult and the European Union has to apply various policies to guarantee that.
Further, Goyder, (1993, pp. 20) argues to the effect that free entry to the economic market is one of the policies observed in order to maintain the competition laws. Most markets observe their own regulations that they have set themselves that may not be fair. That however is not the main problem, since the fact that they have observed the regulations for a long period of time makes it difficult to implement other laws. Such markets have their own standards when it comes to products, competition and services. They are unwilling to provide theses services at the same level with other businesses. This in turn affects the consumer since thy have to operate on their terms.
Authority from the Government
According to Goyder, (1993, pp. 25), hence, the situation can be controlled by the introduction of government authority in the market. This way any new entries in the market will have a fair chance at succeeding in the market. This may mainly focus on the cartels and other collusions leading to quite a problem in the foreign consumers department. The focus on cartels is controlled by the laws found in the constitution. This becomes rater difficult for the EC as their laws are not supported by the Article 101 TFEU (Treaty on the Functioning of European Union). The Article is clear in defining the parties on to which the competition laws apply to, where in this case is any individual participating in any economic activity. The people who are excluded from theses laws are mainly the employees since they are not mainly involved in the structuring of the independent economic activity (Gerber, 2001, pp. 16).
The practices that take place in Cartels within the EU are quite many and the Article supports some of the agreements such as the informal agreements. There are times where the coincidence of lowering or raising of the prices of different firms occurs at the same time. This is allowed by the Article 101 if the firms did not have a physical meeting where they agreed on the prices. However, if any changes within the cartels will lead to a negative impact on the competitive market, then their decisions are not supported by the government. The fact that the parties involved were not aware of the negative impact their decisions would have on the market is not important since the action is already illegal.
The Monopoly Market
The monopoly market tends to be a big target for the competition laws as they have a tendency of dominating the market and controlling it. Involvement of the government in this sector is very important as exercising authority over the monopoly market is not easy. Being the dominant market, it is likely to set their own laws and regulations and the rest of the markets are likely to follow whether it affects them negatively or not. The introduction of Articles 102, assisted in maintaining fair trade in the monopoly market (Kerber & Heine, 2002, pp.50). The law states that any form of abuse by single or more activities of a leading position in the common market or in a considerable part of it shall be forbidden as irreconcilable with the common market if it may affect fair trade between Member States (Feinberg et al, 2010, pp. 3). This law can be interpreted to mean different things and can be well applied in the department of protecting the consumers as well (Korah, 1990, pp. 226).
The monopoly market is known to set their own prices and these are likely to favour them than other business entities. This is unfair pricing and it is prohibited by the law since as long as it does not encourage fair competition it is unfair pricing. The monopoly market dominates everything from the prices to the production rate and this most likely leans tot heir advantage. The law controls the production of the goods in a manner that suits the consumer as well since before the monopoly market controlled its own ;production. This was in a manner that favours them despite the fact hat the consumers might find it intolerable.
It is important that the EU first makes sure that a firm is dominant and it is not just assumed to be dominant. This will be determined by the firm's market share in the market, if it is above 39.7%, then it is dominant and may tend to take advantage of this position. The issue of production may also be controlled by the dominant market in that they may opt to produce limited products and this may affect the pricing as well. They may also choose not to use advanced technology to save on the production cost. This is unfair production and the law makes sure that the consumers receive goods of good quality. This generates fair competition in the economic market as the monopoly market will be forced to produce goods of high quality in order to have a competitive advantage over other businesses.
Monopoly markets do not always submit to these laws and apply other strategies to control the market. This is evident on the supply chain connections. The monopoly markets are usually the large companies and they opt to use threats. They threaten to withdraw from the supply chains services if they continue supplying for the competitors as well. Due to their dominance, they usually end up gaining the advantage over other firms. This is not fair competition and it is also forbidden by the law.
Mergers and Acquisitions
The third policy that is used to encourage fair competition applies on mergers and acquisitions. Looking at the mergers and acquisitions from the competition law point of view, then it is the shift in economic authority from the majority to very few areas and it is all focused on one point. Economic power can be increased through the merging process of large companies. This automatically places the new firm at a higher level in the hierarchy of the economic market. The business environment will favour them as well and this means the existence of unfair competition due to the acquired advantage. It is quite normal then when merging occurs, the new firm formed is bound to be stronger and at an advantage. This may be a strategy to improve their position in the economic market and make them gain competitive advantage (Middleton, 2003, pp. 30). However, if the economic power is concentrated at one point, then it might be a way of controlling the market leading to unfair competition. The European Union is able to control this aspect under the Merger Regulation Act usually referred to as European Community Merger Regulation (ECMR).
As reported by Middleton, (2003) the regulations states that the merger of two or more until that time independent undertakings, the acquisition (whether directly or indirectly) control of the entire or parts of one or more other activities, may result in the shift in control system or basics (pp 30). This law aims to protect the rights of consumers and other businesses as well. The fact that one company may buy out the shares of another company does not necessarily mean that they increase their density in the business environment. The control of the prices should still be observed as before to avoid consumer exploitation. This encourages fair competition and helps the other small business feel they have a place in the economic market.
Public Service Providers
According to Goyder (2001, pp. 23), the competition laws also tend to focus on the public related sectors as well that play role in the economic market. This will tend to focus on the public services provided in the nation. Some of the industries in the nation were not previously reflected on the competition laws in the nation. Theses industries mainly deal with providing public services and monopolized recently. This lead to several adjustments on the competition laws to make sure the economic market does not favour some companies. Theses include companies such as; electricity, gas among others. Consumer exploitation may occur here as well and since the competition laws aim at protecting the consumers', then they are likely to be exercised. Delivering services to the consumers lies in the same category as providing them with goods. The consumer has the same rights and since some of the services are needs rather than wants, exploitation may be at a high level. Looking at it in the competition level, such companies are at an advantage already since their services are needed by the consumers.
The monopoly state of the companies makes it hard to exercise free competition, which is fair at the same time. Maintaining the law is quite difficult due to the involvement of private parties in the delivery of public services. The government is not allowed to aid the private parties in a bid to support fair and free competition. This might not be possible to maintain especially in the case of natural disasters and other related causes. The competition law is said to affect the supply of the public services among the European nations. The law restrains the companies from delivering effective services to the consumers. Although the rights of the consumers are being protected from being violated, this interferes with the services provided to them. The president of France recently raised some concerns related to the free and fair competition among companies providing public services. He wishes that Treaty of the European Union be revised and that the competition laws be removed from the public services provision (Kerber & Heine, 2002). However, the competition laws are not only disadvantageous on the public sector but can be used to benefit the employment department and social development.
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Enforcement of Competition Laws
The encouragement of free and fair competition in the European nations has been quite important as this has advantaged not only the consumers but the organizations as well. Looking at the antitrust laws of the United States, they are meant to encourage fair competition as well. However, how each nation approaches the issue is quite different. The European Union's competition laws aim at protecting the consumers from exploitation while the antitrust laws of the U.S aim at protecting the rights of the producers.
Although, they approach the issue from different perspectives they achieve the same goals where free and fair competition is exercised. The small businesses are no longer threatened by the existence of the, large companies and organizations as they are competing at the same level (Korah, 1990, pp.10). This is quite advantageous for the consumers as the companies and organizations will be competing in a manner that will attract the consumers. This will lead to the production of goods of high quality and they will have reasonable prices. If fair competition is not exercised, then the large scale businesses have the advantage of setting their own prices and their production rate as well. The small scale businesses will be at a disadvantage as they will not have an opportunity to market themselves.
Lack of State Aid
As much as the competition laws have been effective to most organizations and the consumers as well, there have been various issues involved. Industries loose the advantage of counting on the government for assistance (Vaknin, 1996, pp. 2). The state aid usually offered to industries fails to be effective once the competition laws are set in place. It is not non- existent but it is limited, this has been quite advantageous to many organisations until the competition laws were implemented. If the government happens to help the industries, this will seem like a competitive advantage for an organisation. Some countries in the European Nation still exercise the state aid and this quite gives them an advantage over other countries. However, with some of the agreements made with the international countries the results have been quite satisfying and fair.
The competition laws are quite important and serious, the implementation process is quite but enforcing them on the organisations is quite a process. Therefore, the process of enforcement is quite useful and the EU takes necessary measures to ensure they are followed. Article 85EC entrusts the European Commission to make sure that the laws are being followed. This authority allows the EC to carry out intensive investigations on organisation to check whether they are adhering to the rules implemented (Business Link, 2010). There is punishment usually rendered to organisations that are found to be working against the competition laws. The common punishment usually given is the fining of the organisations. They are flexible and vary with the seriousness of the offence. Some of these fines may cost an organisation a lot of money leading to losses that may be hard to recover from. Other nations take rather extreme measures and Europe has been debating on whether to adopt the style used by the United States.
The leniency policy is applied to make operations much easier for the firms and other business entities. This makes the punishment much lighter for firms or cartels that cooperate with the investigation process. The fine is reduced making the development process much easier for the firms as well as EC. In the event that a firm reports itself of going against some of the competition laws, then they are allowed to proceed without being fined or having any chares. Therefore, the leniency policy is quite advantageous to the firms and the EC as well.
In general, competition plays a big role in the economic market of all countries. All businesses aim to make profit and this can only be accomplished in the light of competition. However, competition may tend to be quite unfair in some instances and bodies such as the European Union have taken it upon themselves to solve the issue. The implementation of competition laws has helped promote free and fair competition in Europe.