L 137/56
109.
EN
Official Journal of the European Union
25.5.2023
As far as distortions on the product markets are concerned, State aid for R&D&I may have an impact on competition in innovation processes and in the product markets where the results of the R&D&I activities are exploited.
3.2.5.1.1.
Effects on product markets
110.
State aid for R&D&I can hamper competition in innovation processes and product markets in three ways, namely by distorting the competitive entry and exit process, by distorting dynamic investment incentives and by creating or maintaining market power.
(a)
Distorting the competitive entry and exit processes
111.
R&D&I aid may prevent the market mechanism from rewarding the most efficient producers and putting pressure on the least efficient to improve, restructure or exit the market.
That might lead to a situation where, due to the aid awarded, competitors that would otherwise be able to stay on are forced out of the market, or never enter in the first place.
Similarly, State aid can prevent inefficient firms from leaving the market or even induce them to enter and gain market shares from otherwise more efficient competitors.
If not correctly targeted, R&D&I aid may therefore support inefficient undertakings and lead to market structures in which many players operate significantly below efficient scale.
In the long run, interfering with the competitive entry and exit processes may stifle innovation and slow down industry-wide productivity improvements.
(b)
Distorting dynamic incentives
112.
R&D&I aid may distort the dynamic incentives to invest of competitors of the aid beneficiary.
When an undertaking receives aid, the likelihood of successful R&D&I activities on its part generally increases, leading to an increased presence on the relevant product market(s) in the future.
That increased presence may lead competitors to reduce the scope of their original investment plans (crowding out effect).
113.
Furthermore, the presence of aid may make potential beneficiaries complacent or more risk seeking.
The long term effect on the overall performance of the sector is in that case likely to be negative.
R&D&I aid may therefore, if not correctly targeted, support inefficient undertakings and lead to market structures where many market players operate significantly below efficient scale.
(c)
Creating or maintaining market power
114.
Aid for R&D&I may also have distortive effects in terms of increasing or maintaining the degree of market power in product markets.
Market power is the power to influence market prices, output, the variety or quality of products and services, or other parameters of competition for a significant period of time, to the detriment of consumers.
Even where aid does not strengthen market power directly, it may do so indirectly, by discouraging the expansion of existing competitors or inducing their exit or discouraging the entry of new competitors.
3.2.5.1.2.
Effects on trade and location choice
115.
State aid for R&D&I may also give rise to distortions of competition when it influences the choice of a location.
Those distortions can arise across Member States, either when firms compete across borders or consider different locations.
Aid aimed at relocating an activity in another region within the internal market may not lead directly to a distortion in the product market, but it displaces activities or investments from one region into another.