Source: https://ua.b-ok.org/book/2492448/c869c9
Timestamp: 2020-05-31 16:24:25
Document Index: 184927904

Matched Legal Cases: ['Application No.3795', 'EWCA ', 'EWCA ', 'EWCA ', '§1', '§1', '§2', '§1', '§2', '§18', '§18', '§1', '§2', '§2', '§2', '§2', '§5', '§15', '§5']

Competition Law and Economic Regulation: Making and Managing Markets | Niamh Dunne | download
Головна Competition Law and Economic Regulation: Making and Managing Markets
1107070562
C. Britt Bousman, Bradley J. Vierra (eds.)
COMPETITION LAW AND ECONOMIC
Niamh Dunne undertakes a systematic exploration of the relationship
between competition law and economic regulation as legal mechanisms of
market control. Beginning from a theoretical assessment of these legal
instruments as discrete mechanisms, the author goes on to address
numerous facets of the substantive interrelationship between competition
law and economic regulation. She considers, amongst other aspects, the
concept of regulatory competition law; deregulation, liberalisation and
‘regulation for competition’; the concurrent application of competition
law in regulated markets; and relevant institutional aspects including
market study procedures, the distribution of enforcement powers between
competition agencies and sector regulators, and certain legal powers that
demonstrate a ‘hybridised’ quality lying between competition law and
economic regulation. Throughout her assessment, Dunne identiﬁes
and explores recurrent considerations that inform and shape the optimal
relationship between these legal mechanisms within any jurisdiction.
niamh dunne is a lecturer in Law at King’s College London.
ECONOMIC R EGULATION
Information on this title: www.cambridge.org/9781107070561
© Niamh Dunne 2015
Dunne, Niamh, 1984- a; uthor.
ISBN 978-1-107-07056-1 (Hardback)
1. Competition, Unfair. 2. Competition, Unfair–United States. 3. Competition,
Unfair–European Union countries. 4. Antitrust law. 5. Antitrust law–United States.
6. Antitrust law–European Union countries. I. Title.
343.24070 23–dc23 2014042970
ISBN 978-1-107-07056-1 Hardback
I. Market failure and the pursuit of efﬁciency
II. Mechanisms to address market failure (I): the concept of
(i) Theories of competition and monopoly
(ii) The structure of competition law: the US and EU systems
(iii) The goals of competition law: outcomes or processes?
III. Mechanisms to address market failure (II): the concept of
IV. A comparison of competition law and regulation
V. Conceptualising the interface between competition law and
(i) Competition law and regulation as substitutes
(ii) Competition law and regulation as complements
VI. The interface in practice: the evolution of US
Competition law as substitutionary or gap-ﬁlling regulation
Doctrinal regulatory competition law: procedural and substantive
(i) Distinguishing regulatory competition law from competition
law’s established core
a. Administrative/technocratic enforcement
b. Ex ante enforcement
c. Prescriptive competition law doctrines
d. Regulatory remedies
e. Mandating ‘best’ solutions
f. Regulatory competition law: jurisdictional variations
(ii) The pros and cons of regulatory competition law
b. Legitimacy and the rule of law
c. Error costs and bad bargains
d. Politicisation
e. Assessing the pros and cons of regulatory
III. Procedural regulatory competition law: negotiated settlements
(i) The American experience: consent decrees in US antitrust
a. The nature of consent decrees: accommodating
bargains, novelty and regulation
(ii) Commitment decisions within EU competition law
a. Commitment decisions and policymaking in the EU
(iii) Negotiated settlements as regulation: a critical assessment
IV. Doctrinal regulatory competition law: excessive prices and
(i) Excessive prices under competition law
a. Antitrust approaches to excessive prices: the apparent
US/EU dichotomy
b. Excessive prices, regulation and the role of competition
(ii) The essential facilities doctrine
Regulation, deregulation and the space for
I. Regulation absent competition law
II. Critiques of regulation – the public-choice movement
III. Public choice in practice: deregulation and privatisation
(i) Deregulation in practice: the US and UK experiences
(ii) Deregulation and the role of competition law
IV. Reforming regulation: ‘better regulation’
(i) Better regulation and the role of competition law
V. Regulation’s substantive core: non-economic values and
structural inefﬁciency
(i) Distributional justice and other non-economic values
(ii) Structural market inefﬁciency
(iii) Regulating in lieu of antitrust: the EU Roaming Regulation 179
Concurrent application of competition law and regulation 187
Conceptualising concurrency
(i) Concurrent application of competition law in regulated
markets: conceptual issues
(ii) Competition problems in regulated markets: the example of
(iii) Concurrency: conceptual approaches and criteria for
II. Concurrency in practice: The US and EU law positions
(i) US antitrust and state regulation: the signiﬁcance of
(ii) US antitrust and federal regulation: substance- and policyfocused approaches
a. The conventional approach: a presumption of
b. From concurrency towards preclusion: the Trinko
and Credit Suisse decisions
c. A holistic approach to concurrency and critiques of the
new direction: the decision in Town of Concord
(iii) Concurrent application under EU law: prioritising
effectiveness, compromising legitimacy?
a. Concurrent application of EU competition law and
regulation: general principles
b. Concurrency: the EU constitutional dimension
c. Concurrency and ‘State action’ in EU law
d. The EU approach: analysis and critique
(iv) Analysis: differing approaches to concurrent application in
III. The parameters of concurrency: economic, rule-of-law and
(i) Analytical and economic concerns
a. Accounting for the impact of regulation on markets
b. Risks of competition enforcement: false positives and
inefﬁcient outcomes
c. Duplication of market supervisory functions
(ii) Rule-of-law concerns
(iii) Institutional concerns
a. Private enforcement
Market circumstances where concurrency arises: policy
(i) Unrelated competition abuse arising in regulated markets
(ii) Regulation in pursuit of non-economic goals
(iii) Broken regulation: design inefﬁciency or regulatory capture
(iv) Regulatory gaming
Institutional issues at the interface of competition law
I. Allocation and sharing of powers between public-enforcement
(i) The UK model: concurrent competition enforcement by
(ii) The Australian model: an antitrust ‘super-regulator’
(iii) Resolving conﬂicts within the conventional division
II. Institutional gateways to competition law and regulation (I):
(i) Sector inquiries in the European Union
(ii) Market investigation references by the UK’s Competition
and Markets Authority
a. The BAA airports inquiry
(iii) Market studies: analysis and concluding remarks
III. Institutional gateways to competition law and regulation (II):
‘hybridisation’
(i) Concretising competition principles: access to infrastructure
(ii) Section 5 of the Federal Trade Commission Act
I. The central role of the concept of competition law
II. Delimiting the interface between competition law and regulation:
(i) General welfare versus individual rights
(ii) The role of efﬁciency
(iii) Democratic accountability versus political interference
This work started life as a doctoral research project exploring one of
the apparent transatlantic divergences that continue to exist within
competition law, namely the differing approaches to the issue of a
regulated margin squeeze adopted by the EU and US antitrust systems.
It soon became clear, however, that the concurrent application of
competition law and economic regulation is merely a single aspect
of their broader interrelationship. Thus, the focus of research shifted
to providing a more systematic account of the interface between these
instruments than could be found in the existing literature. This book
provides an updated and slightly expanded version of that original
Given its origins, primary thanks must go to my wonderful doctoral
supervisor, Albertina Albors Llorens, for getting this project from
proposal to PhD, to ultimate publication. Her advice, support and
kindness during my three years of research was utterly invaluable. My
examiners, Rosa Greaves and Angus Johnston, provided helpful feedback and much-appreciated encouragement to develop the original
thesis into a monograph. The manuscript also beneﬁtted from thoughtful comments from Bill Allan, plus useful criticisms and suggestions for
improvement from three anonymous referees. Peter Dunne provided
eagle-eyed editing skills at the doctoral stage, while the editorial team at
Cambridge University Press has been fabulous in bringing my initial
proposal to polished reality. I am grateful for support of a more material kind from the UK’s Arts & Humanities Research Council and
the Competition Authority of Ireland. (My interest in the relationship
between competition law and regulation is perhaps more understandable given my past life in competition enforcement in a small
Member State.) Corpus Christi College, Cambridge and the Faculty of
Law at the University of Cambridge each provided generous funds for
research activities. While writing this work, I beneﬁtted from research
stays at Harvard Law School and the Max Planck Institute for
Comparative and International Private Law. Finally, apologetic
thanks must go to the friends and family members who endured much
over-excited (and occasionally under-excited) antitrust and regulatory
chat over the past few years, and who put up with me in good humour
Case C-204/00 P etc. Aalborg Portland A/S et al. v. Commission, EU:C:2004:6, 241
Case T-128/98 Aéroports de Paris v. Commission, EU:T:2000:290, 73
Case C-82/01 P Aéroports de Paris v. Commission, EU:C:2002:617, 72, 73
Case C-89/85 etc. Ahlström OY v. Commission, EU:C:1993:120, 177
Case T-342/99 Airtours v. Commission, EU:T:2002:146, 177
Case C-62/86 Akzo v. Commission, EU:C:1991:286, 22
Case T-170/06 Alrosa Company Ltd v. Commission, EU:C:2010:277, 117
Case T-321/05 AstraZeneca AB and AstraZeneca plc. v. Commission, EU:T:2010:266, 259
Case C-457/10 P AstraZeneca AB and AstraZeneca plc. v. European Commission,
EU:C:2014:28, 259
Case C-95/04 P British Airways plc. v. Commission, EU:C:2007:166, 22
Case 311/84 CBEM v. SA CLT and IPB (‘Telemarketing’), EU:C:1985:394, 132
Case C-456/98 Centrosteel v. Adipol, EU:C:2000:402, 226
Case C-194/94 CIA Security International SA v. Signalson SA and Securital SPRL,
EU:C:1996:172, 226
Case C-441/07 P Commission v. Alrosa Company Ltd, EU:C:2010:377, 108–9, 118
Joined Cases C-359/95 and C-379/95 P Commission v. Ladbroke Racing Ltd,
EU:C:1997:531, 216–7
Case C-198/01 Consorzio Industrie Fiammiferi (CIF), EU:C:2003:430, 214–5, 217–8
Case 6/64 Costa v. ENEL, EU:C:1964:66, 214
Case C-453/99 Courage v. Crehan, EU:C:2001:465, 25
Case C-385/07 P Der Grüne Punkt – Duales System Deutschland GmbH v. Commission,
EU:C:2009:456, 124
Case T-271/03 Deutsche Telekom AG v. Commission, EU:T:2008:101, 213, 225–6,
Case C-280/08 P Deutsche Telekom AG v. Commission, EU:C:2010:603, 4, 192, 212–5,
217–20, 226, 235, 239, 241, 247, 260
Case T-588/08 Dole Foods and Dole Germany v. Commission, EU:T:2013:130, 250, 253
Case C-63/93 Duff and Others v. Minister for Agriculture and Food, Ireland, and the
Attorney General, EU:C:1995:170, 238
Case T-360/09 E.ON Ruhrgas AG and E.ON AG v. Commission, EU:T:2012:332, 156,
216, 252–3
Case C-199/11 Europese Gemeenschap v. Otis NV, EU:C:2012:2390, 237
Case T-587/08 Fresh Del Monte Produce, Inc., EU:T:2013:129, 250
Case C-188/89 Foster v. British Gas, EU:C:1990:313, 226
Case C-202/07 P France Télécom SA v. Commission, EU:C:2009:214, 31
Joined Cases C-403/08 and C-429/08 Football Association Premier League,
EU:C:2011:631, 32
Case 13/77 GB-Inno-BM v. ATAB, EU:C:1977:185, 23
Case 26/75 General Motors Continental NV. v. Commission, EU:C:1975:150, 124
Case C-509/06 P GlaxoSmithKline, EU:C:2009:610, 32
Case 73/74 Groupement des fabricants de papiers peints de Belgique and others v.
Commission, EU:C:1975:160, 130
Case C-159/08 P Isabella Scippacercola and Ioannis Terezakis v. Commission,
EU:C:2009:188, 125
Joined Cases 6 & 7/73 Istituto Chemioterapico Italiano S.p.A. and Commercial Solvents
Corporation v. Commission, EU:C:1974:18, 130
Case C-52/07 Kanal 5 Ltd, TV.4 AB v. Föreningen Svenska Tonsättares Internationella
Musikbyrå (STIM) upa., EU:C:2008:703, 124–5
Case C-272/09 P KME Germany AG, KME France SAS and KME Italy SpA v. European
Commission, EU:C:2011:63, 240, 250
Case T-193/02 Laurent Piau v. Commission, EU:T:2005:22, 177–8
Case C-168/95 Luciano Arcaro, EU:C:1996:363, 226
Case 152/84 Marshall v. Southampton and South-West Hampshire Area Health Authority (Teaching), EU:C:1986:84, 226
Case T-111/08 MasterCard v. Commission, EU:T:2012:260, 75
Case T-112/99 Métropole television et al. v. Commission, EU:T:2001:101, 22
Joined Cases 209–13/84 Ministère Public v. Lucas Asjes, EU:C:1986:188, 72
Case 120/86 Mulder v. Minister van Landbouw en Visserij, EU:C:1988:213, 238
Case C-550/07 P Nobel Chemicals and Akros Chemicals v. Commission, EU:C:2012:512,
Case C-7/97 Oscar Bronner GmbH & Co. KG v. Mediaprint Zeitungs, EU:C:1998:569,
114, 132, 302
Case C-360/09 Pﬂeiderer AG v. Bundeskartellamt, EU:C:2011:389, 224
Case C-209/10 Post Danmark A/S v. Konkurrencerådet, EU:C:2012:172, 31
Case C-681/11 Schenker & Co. AG, EU:C:2013:404, 239
Case 106/77 Simmenthal II, EU:C:1978:49, 214
Case T-398/07 Spain v. Commission, EU:T:2012:173, 213, 215, 218, 222, 239
Joined Cases 40/73 etc. Suiker Unie and Others v. Commission, EU:C:2012:23, 216,
Case T-336/07 Telefónica, SA and Telefónica de España, SA v. European Commission,
EU:T:2012:172, 172, 217–9, 222–3
Case C-17/10 Toshiba Corporation and Others v. Úřad pro ochranu hospodářské
soutěže, EU:C:2012:72, 240-1
Case 27/76 United Brands Company and United Brands Continentaal BV. v. Commission, EU:C:1978:22, 124–5, 132, 230–1
Case C-58/08 Vodafone Ltd, Telefónica O2 Europe plc, T-Mobile International AG,
Orange Personal Communications Services Ltd v. Secretary of State for Business,
Enterprise and Regulatory Reform [2010] EU:C:2010:321, 182–3
Case 238/87 Volvo v. Veng, EU:C:1988:477, 132
Case 14/68 Walt Wilhelm and others v. Bundeskartellamt, EU:C:1969:4, 214
Commission Decision of 9 November 2010 in Case COMP/39258 – Airfreight,
no public version available, 249, 251
Commission Decision of 11 June 1998 IN/35.613 – Alpha Flight Services/Aéroports de
Paris (OJ L230/10, 18.8.98), 73
Commission Decision of 15 June 2005 in Case COMP/A.37.507/F3 – AstraZeneca
(OJ L332/24, 30.11.2006), 259
Commission Decision of 14 July 2010 in Case COMP/39/596 – BA/AA/IB (OJ C278/14,
15.10.2010), 111
Commission Decision of 15 October 2008 in Case COMP/39188 – Bananas (OJ C189/
12, 12.8.2009), 249–51, 253
Commission Decision of 28 June 1995 (Brussels National Airport) (OJ L216/8, 12.9.95),
Commission Decision of 10 April 2013 in Case AT.39727 – CEZ (OJ C251/4,
31.8.2013), 113–4
Commission Decision of 22 February 2006 in Case COMP/B-2/38.381 – De Beers
(OJ L205/24, 27.7.2006), 109
Commission Decision of 21 May 2003 in Case COMP/C-1/37.451, 37.578, 37.579 –
Deutsche Telekom AG (OJ L263/9, 14.10.2003), 213, 249
Commission Decision of 11 October 2007 in Case COMP/B-1/37966 – Distrigaz
(OJ C9/8, 15.1.2008), 111, 113
Commission Decision of 17 September 2001 in Case COMP/34.493 – DSD (OJ L 319/1,
4.12.2001), 108
Commission Decision of 12 December 2012 in Case COMP/39.847 – E-BOOKS
(OJ C 73/17, 13.03.2013), 115
Commission Decision of 25 July 2012 in Case COMP/39.847 – E-BOOKS (Penguin)
(OJ C 378/25, 24.12.2013), 115
Commission Decision of 29 September 2010 in Case COMP/39.315 – ENI (OJ C352/8,
23.12.2010), 111, 113–4, 223
Commission Decision of 8 July 2009 in Case COMP/39.401 – E.ON/GDF (OJ C248/5,
16.10.2009), 252
Commission Decision of 4 May 2010 in Case COMP/39.317 – E.ON Gas (OJ C278/9,
15.10.2010), 111, 113–4, 136
Commission Decision of 3 December 2009 in Case COMP/39.316 – Gaz de France
(OJ C57/13, 9.3.2010), 113–4, 223
Commission Decision of 26 November 2008 in Case COMP/39.388 – Germany
Electricity Wholesale Market and Case COMP/39.389 – German Electricity Balancing Market (OJ C36/8, 13.2.2009), 111, 113–4, 223
Commission Decision of 14 January 1998 (IV/34.801 FAG – Flughafen Frankfurt/Main
AG) (OJ L72/30, 11.3.98), 73
Commission Decision of 13 December 2011 in Case COMP/C-3/39692 – IBM Maintenance Services (OJ C18/6, 21.2.2012), 115, 126
Commission Decision of 10 February 1999 (IV/35.767 – Ilmailulaitos/Luftfartsverket)
(OJ L69/24, 16.3.1999), 74
Commission Decision of 13 May 2009 in Case COMP/C-3/37.990 – Intel (D(2009)3726
ﬁnal), 309
Commission Decision in Case COMP/39.386 – Long-term contracts France (OJ C133/5,
22.5.2010), 111, 113
Commission Decision of 19 December 2007 in Cases COMP/34.579 – MasterCard,
COMP/36.518 – EuroCommerce & COMP/38.580 – Commercial Cards, summary at
2009 OJ (C 264), 75
Commission Decision of 16 December 2009 in Case COMP/C-3/39.530 – Microsoft
(tying) (OJ C 36/7, 13.2.2010), 115
Commission Decision of 6 March 2013 in Case COMP/39.530 – Microsoft (Tying)
breach decision (OJ C 120/15, 26.04.2013), 82
Commission Decision of 21 January 2010 in Case COMP/M.5529 – Oracle/Sun Microsystems (OJ C 91/7, 9.4.2010), 96
Commission Decision of 10 February 1999 (IV.35.703 – Portuguese Airports) (OJ L69/
31, 16.3.1999), 74
Commission Decision of 9 December 2009 in Case COMP/38.636 – Rambus (OJ C30/
17, 6.2.2010), 110–1, 259
Commission Decision of 18 March 2009 in Case COMP/39.402 – RWE Gas Foreclosure
(OJ C133/10, 10.12.2009), 111, 113–4, 136, 223
Commission Decision of 23 July 2004 in Case COMP/A.36.568/D3 – Scandlines Sverige
AB v. Port of Helsingborg, 125
Commission Decision of 26 July 2000 (Spanish Airports) (OJ L208/36, 18.8.2000), 74
Commission Decision of 15 November 2011 in Case COMP 39.592 – Standard &
Poor’s (OJ C31/8, 4.2.2012), 110–1, 126
Commission Decision of 14 April 2010 in Case 39.351 – Swedish Interconnectors
(OJ C142/28, 1.6.2010), 111, 113–4, 118
Commission decision of 22 June 2011 in COMP/39.525 – Telekomunikacja Polska
(OJ C324/7, 9.11.2011), 136, 214, 219–20, 232, 242, 247, 250, 260
Commission Decision of 24 July 2002 in Case COMP/29.373 – Visa International –
Multilateral Interchange Fee (OJ C 318/17, 22.11.2002), 75
Commission Decision of 8 December 2010 in Case COMP/39.398 – Visa MIF (OJ C79/
8, 12.3.2011), 75, 111
Commission Decision of 4 July 2007 in Case COMP/38.784 – Wanadoo España v.
Telefónica (OJ C83/6, 2.4.2008), 219
Franz Fischer v. Austria, judgment of 29 May 2011, Application No.3795/97, 242
American Tobacco Co. v. United States, 328 US 781 (1946), 22
Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 US 585 (1985), 130
Associated Press v. United States, 326 US 1 (1945), 131
AT&T v. Iowa Utilities Board, 525 US 366 (1999), 65
Bell Atlantic Corp. v. Twombly, 550 US 544 (2007), 178, 245
Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263 (2d Cir. 1979), 124
BMI v. CBS 441 US 1 (1979), 103, 119
Boise Cascade Corp. v. FTC, 637 F.2d 573 (9th Cir. 1980), 306
Brooke Group Ltd v. Brown & Williamson Tobacco Corp., 509 US 209 (1993), 298
California v. FPC, 369 US 482 (1962), 204
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(1980), 200, 202
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207–8, 232–3, 242, 244–5, 253–4, 260, 311
E.I. Du Pont De Nemours & Co. v. FTC, 729 F.2d 128 (2d Cir.1984), 306
Eastern Railroad Presidents Conference v. Noerr Motor Freight, 365 US 127 (1961), 200
Exxon Corp. v. Governor of Maryland 437 US 117 (1978), 199, 202
FTC v. Brown Shoe Co., 384 US 316 (1966), 305–6
FTC v. Cement Institute et al., 333 US 683 (1948), 305
FTC v. Phoebe Putney Health System, Inc. (Docket No.11–1160), judgment of 19
February 2013, 201
FTC v. Sperry & Hutchinson Co., 405 US 233 (1972), 305–6
Goldwasser v. Ameritech Corp. 222 F.3d 390 (7th Cir. 2000), 194
Gordon v. New York Stock Exchange, Inc., et al. 422 US 659 (1975), 203–5, 238, 247, 277
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In the Matter of Union Oil Company of California, 138 FTC 1 (2004), 259
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MCI Communications v. AT&T Corp. 708 F.2d 1081 (7th Cir. 1983), 131
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302–3
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Market-based economies are ubiquitous throughout the world. Whether
motivated by ideology, experience or the discipline of economics, there
is a general – though not universal – acceptance of the market mechanism as an integral element in the organisation of society. Adam Smith’s
striking vision of ‘the invisible hand of the market’1 underlines a
widely accepted tenet of the functioning of market systems: namely,
that markets work best when unencumbered by government intervention. Yet history, both distant and recent, tells us that neither markets
nor economists are infallible in this respect. The well-functioning
market, bringing the wealth of society to its highest and best uses,
may be a thing of beauty in the abstract realms of economic theory.
Quite disobligingly, however, real-life markets often fail to live up
to the promise of their impeccable archetype. Governments thus not
infrequently intervene in dysfunctional markets in order to correct
persistent market failures or to advance alternative non-economic
goals. Competition law and economic regulation are both components
of the State’s arsenal of market regulatory tools that facilitate the legal
function of market regulation – what one might, somewhat cynically,
describe as the task of enabling markets to ‘fail better’. The operation
of and interactions between these legal instruments comprises the
subject of this work.
Markets are everywhere, and increasingly so. Particularly with respect
to the State-owned enterprise and regulated monopoly sectors, ‘privatisation’ and ‘liberalisation’ have been (somewhat loaded) buzzwords for
decades. As we will discuss in Chapter 3, the latter half of the twentieth
Smith (1776:293).
century witnessed a prolonged attack against the perceived inefﬁciencies
of much existing economic and social regulation, which led to a notable
paring back of purported regulatory burdens. This politically motivated
embrace of a purer form of free markets has led to decidedly mixed
results. Few would dispute that certain market-based reforms have been
largely beneﬁcial; think, for example, of deregulation of the cossetted
airline industry, which brought about a dramatic reduction in airfares
and has made air travel possible for a much broader section of society.
Other developments are more controversial, particularly those involving
the marketisation of public-service provision; recent efforts to partially
‘privatise’ the UK’s National Health Service provide a clear example
in this regard.2 The Global Financial Crisis offers a trite but still potent
example of how markets can go very badly wrong, and the negative
consequences – both economic and social – that may follow. The phenomenon of globalisation has, amongst other things, led to the emergence of a globalised marketplace, and encouraged the broader adoption
of market-based principles in many developing economies. Frustration
with unthinking ‘market fundamentalism’3 has led to a backlash in many
areas, however: from prominent anti-globalisation protests in Seattle and
London, for example; to the (still largely untapped) vigour of the Occupy
movement; to increasing disillusionment with and rejection of the
so-called ‘Washington Consensus’ by developing nations.4 Rising levels
of inequality, in particular, provide an increasingly urgent rebuke to
the ascendancy of markets-focused thinking.5 Generally, it might also
be said that there is a growing realisation, to quote Cass Sunstein, that
‘markets should be understood as a legal construct to be evaluated on
the basis of whether they promote human interests, rather than as a part
of nature and the natural order, or as a simple way of promoting
voluntary interactions’.6
The very concept of ‘free’ markets is, to an extent, a fallacy – what
Sunstein calls the ‘myth of laissez-faire’.7 While this idea may appeal to
notions of autonomy and freedom from State oppression, all markets
depend, to a degree, on law for their existence and operation. It is
essentially impossible to think of any market that does not, in some
way, rely upon legal rules that regulate, for example, contracts, tort or
criminal penalties (for instance, controlling ﬁnancial crimes such as
See the Health and Social Care Act 2012.
The phrase is most closely associated with the work of economist Joseph Stigliz.
Piketty (2014).
Sunstein (1997:5).
fraud). Thus, the ‘invisible hand’ is both facilitated and constrained by
law, even in markets that look, at ﬁrst glance, to be wholly unencumbered
by regulation. Moreover, it is naïve to view State involvement solely as an
obstacle to the operation of markets; put simply, markets don’t always
work well in practice. The operation of the market mechanism may be
hampered in a way that means it produces, ultimately, a sub-optimal
distribution; or the market itself may work ﬁne, but it produces an
outcome that, although efﬁcient, seems deeply unfair. In such circumstances, there is likely to be a prima facie case for government intervention in the wider public interest. The stated mission of the UK’s former
competition authority, the Ofﬁce of Fair Trading, comes to mind at this
juncture: namely, ‘to make markets work well for consumers’.
At a very general level, therefore, this book concerns the means by
which law intervenes in markets to secure a better outcome for society.
The potential breadth of this formulation is readily apparent, however,
and even a cursory consideration of this topic in full would ﬁll many
volumes. Instead, this study focuses upon two particular instruments for
State market supervision, competition law and economic regulation,
considering the uses of and interface between these legal tools. Our focus
is thus upon economic problems of a more micro-than macro-economic
nature. In brief, competition law seeks to strengthen the workings of the
market mechanism by prohibiting certain forms of anticompetitive
behaviour by ﬁrms that, alone or acting in concert, have the ability to
exercise market power. Economic regulation, as the concept is conceived
for our purposes, generally involves a State-directed, positive, coercive
alteration of or derogation from the operation of the free market in a
particular sector, typically undertaken in order to address market failure,
to be distinguished from regulation that pursues a predominantly ‘social’
aim. In essence, this conception of regulation involves an overreaching
of the market mechanism, whereas competition law seeks to reinforce
its operation. Our enquiry is premised upon the starting assumption that
competition law and economic regulation are, in large part, separate
mechanisms for market supervision, but that these instruments
have overlapping scopes of application, so that, in practice, there can
be considerable substantive interaction between these legal tools. Consequently, although competition law and economic regulation may comprise discrete mechanisms, there is no clear and absolute distinction
between them; instead, this relationship is more intricate and multifaceted. The aim of this work is, broadly, to unpick and analyse the
complexities of this relationship at a substantive level.
The question of the interface between competition law and regulation
has become increasingly pertinent, and increasingly pressing, as the
liberalisation of former monopoly industries has created markets where
partial regulation coexists alongside competitive segments. The apparent
transatlantic division over approaches to the vexed question of concurrent application of competition law in regulated sectors – compare the
decision of the US Supreme Court in Trinko to the holding of the Court
of Justice of the European Union (CJEU) in Deutsche Telekom,8 both
considered in Chapter 4 – provides perhaps the clearest example of
on-going controversy over this question. There are numerous additional
dimensions to this relationship, nonetheless, each of which presents
challenging legal and policy questions. Can or should competition law
be used as a form of quasi-regulation, for example to control exploitative
behaviour or ﬁll gaps in a regulatory framework, an issue that is explored
in Chapter 2? Given the persistent criticisms advanced by advocates of
deregulation, considered in Chapter 3, why and when would regulation
be the preferred mechanism by which to control anticompetitive ﬁrm
behaviour? Moreover, while we focus on the substantive legal interactions between competition law and regulation that might arise, there
are certain related, and problematic, institutional matters that must be
must be considered, speciﬁcally concerning the division of labour
between competition authorities and regulators. These questions are
explored in Chapter 5. These analyses of overlaps in practice are complemented by a more abstract consideration, in the remainder of this
chapter, of the concepts of competition law and economic regulation,
both individually and in comparison. In the overarching treatment of
these interrelated issues, the objective here is to produce a taxonomy of
sorts that probes the actual and potential functional overlaps between
competition law and economic regulation, and thus allows for a cohesive
description of this interface as a whole.9
This book is not unique in addressing the relationship between competition law and economic regulation; generally speaking, however,
existing work has considered the relationship only with respect to a
speciﬁc regulatory regime – for example, the interface between competition law and telecommunications or energy regulation – or in relation to
Verizon Communications, Inc. v. Law Ofﬁce of Curtis V. Trinko, 540 US 398 (2004), and
Case C-280/08 P Deutsche Telekom AG v. Commission, EU:C:2010:603.
For discussion of the roles and beneﬁts of taxonomy in law, see, e.g., Sherwin (2005) and
Low (2009).
one facet of the interface – for example, the problem of concurrency, or
the application of competition law as quasi-regulation. The aim here,
instead, is to develop a more objective, systematic and holistic exposition
and analysis of the interface between these legal instruments, with a
particular focus on substantive rather than procedural interactions.
Having ﬁrst clariﬁed and classiﬁed the various interactions that may
arise, this book will, moreover, engage in a normative exercise aimed at
demonstrating the policy implications of a State’s market intervention
choices. We do not purport to provide a deﬁnitive answer to all interface
conﬂicts that may arise, or even, in many instances, to advocate any
preference between competition law and regulatory approaches to
market supervision. The very existence of competition law or economic
regulation within a system indeed reﬂects policy choices of some variety,
and inevitably involves trade-offs, thus requiring political rather than
purely legal decision-making. Moreover, the precise requirements and
market effects of any scheme of economic regulation, and to a lesser
extent antitrust, which condition the relationship between these legal
instruments, can vary considerably from sector to sector and between
jurisdictions, thus limiting the utility of any ‘broad brushstroke’ assessment of these issues.10 Nonetheless, the detailed exposition and analysis
provided in this work allows for the identiﬁcation of recurrent themes
and issues of potential concern. Our aim is, ultimately, to undertake the
more modest task of assisting in the identiﬁcation of socially beneﬁcial
market regulatory policies, and, furthermore, to understand the full
implications of such policy choices.
This is not a politically charged work: it neither advocates for nor
against a greater or lesser place for markets in societal organisation.
It does, however, sound a sceptical note regarding the power and beneﬁts
of unbounded markets, recommending, amongst other things, that where
the untamed operation of the market mechanism would work against
the public interest, States should not be reluctant to constrain or even
replace the market. In this regard, although a predominant focus of this
book is the role for competition law, it differs from many other works
on this topic insofar as it proposes a more direct acknowledgement of
the beneﬁts, and often the necessity, of more traditional forms of economic regulation (in contradistinction to competition law) to address
certain market defects.
O’Donoghue & Padilla (2013:45).
Market failure and the pursuit of efﬁciency
We begin by examining competition law and economic regulation,
separately, as legal instruments for market supervision. The primary
purpose of both is, as noted, to address weaknesses (howsoever these
may be conceived) within the market system. It is necessary, therefore,
to consider the functioning of the market mechanism prior to any
assessment of the mechanics of these legal instruments. Neoclassical
economic theory – which is not without its critics, it will be acknowledged – posits that free markets are the engines of progress and function
as efﬁcient allocators of resources.11 The free-functioning of the market
thus puts the resources of society to the ‘best’ (i.e., most efﬁcient) uses –
Smith’s ‘invisible hand’.12 Consequently, the State should, where possible,
abstain from direct market intervention.13 Yet, embracing a free-market
model does not require that a State abstain entirely from market intervention. In particular, the persistence of market failures – or market
absences, where no effective market exists – creates a need for State
corrective action, for example through competition law or regulatory
instruments.14
The ascendency of market-based economics, with its preference for
free markets over central planning, is evident in practice throughout the
contemporary developed world. Yet the robustness of the neoclassical
approach has been challenged more recently by, amongst other things,
developments in behavioural economics,15 while the effects of the Global
Financial Crisis have emphasised again the inadequacy of this model,
particularly at a macro-economic level, in accounting for recurrent
economic crises.16 Thus, its teachings are now viewed rather more
sceptically, at least outside the academy.17 Nonetheless, neoclassical
thinking about markets remains at the forefront of regulatory policymaking. We shall, accordingly, take its conventional explanations of
how markets work, and how they fail, as the departure point for our
broader discussion of the relationship between the market-supervisory
instruments of competition law and regulation. This discussion comes
with an acknowledged ‘health warning’ – these theories are not infallible,
and may indeed fail to reﬂect important real-world concerns – as well
Scherer (2008:31); Majone (1996:28); McKie (1970:6).
Coase (1960).
Baldwin et al. (2011:15).
See, e.g., Sunstein (2000); Reeve & Stucke (2011); Armstrong & Steffen (2011).
See, e.g., Posner (2009); Stiglitz (2010); Mixon (2010); Sandel (2012).
See, e.g., Colander et al. (2009).
i. market failure and the pursuit of efficiency
as a disclaimer that the choice of market theory in this instance is
pragmatic rather than ideological. Efforts will be made throughout to
highlight limitations within the existing model, in particular relating
to its emphasis on efﬁciency in a world where equity is an equally
compelling consideration. Moreover, a central idea within this book is
the unavoidable need for State supervision of market functioning in
many circumstances; the more complex question is how best this can
In essence, within a market system ﬁrms produce products. The
channels by which products reach purchasers constitute the market.18
Market theory assumes that ﬁrms attempt to maximise proﬁts, and, in
doing so, select factor combinations for production that minimise total
costs, as well as output levels that maximise net revenue.19 Each individual ﬁrm stands in a relationship of rivalry to other ﬁrms, which conditions the actions of each; this setting comprises the industry in which
ﬁrms operate. The prices that a ﬁrm achieves for its products are
determined by supply and demand, which dictates market structure.20
Generally, demand for a product increases as price falls, while supply
increases as prices rise. The Keynesian notion of ‘effective demand’ links
creation of demand, at the microeconomic level, to a strong role for the
State in maintaining macroeconomic stability, through full employment
and stimulation of investment. The market-equilibrium price is then
determined by the interaction of supply and demand on a commodity
within a competitive market. This is, in theory, the ‘market-clearing’
price, namely the price for each good at which consumer demand is fully
satisﬁed and supply exhausted.21
Market theory indicates that this market-clearing process achieves
the most efﬁcient allocation of society’s resources. As each individual
seeks to maximise his or her own utility, in aggregate the sum of total
welfare reaches its highest value.22 Efﬁciency, or wealth maximisation,
Generally, Coase (1937); Clark (1961).
Samuelson (1983:8); Gelhorn (1975:6).
Carstensen (1983:493–7). The concept of demand measures the desire of consumers to
purchase a product at each of several different alternative price levels, while supply
measures the quantities of a product that producers are willing to offer for sale at different
Gelhorn (1975:7–22); Vickers (1995:1).
Smith (1776:293); Williamson (1977:722). At a technical level, competitive markets are
assumed to satisfy the requirements of Pareto efﬁciency, whereby there is no more
efﬁcient allocation of resources that can be achieved without making some individual
worse off: Bator (1958:351).
is the standard concept used in economics to measure an industry’s
performance of its economic task in society’s interests.23 Efﬁciency, in
this context, comprises two aspects that are not wholly complementary.24
Static efﬁciency concerns the allocation of resources with a given state
of technology; it is a measure of total surplus, meaning consumer surplus
(the difference between the consumer’s valuation of the good and
the effective price he pays for it) and producer surplus (the sum of all
proﬁts made by producers in the industry).25 Static efﬁciency has two
components: allocative efﬁciency involves matching production to consumer demand, while productive efﬁciency measures avoidance of
wastage of resources.26 Dynamic efﬁciency, also known as technical
progress, measures innovation: namely, improvements in production
methods and the quality levels of products.27 Conﬂicts can arise between
these elements in practice, requiring a trade-off between present and
future welfare, which is a recurrent tension within economic regulatory
Achieving efﬁciency in a market is not a given, however, as market
theory incorporates numerous assumptions that condition its operation.28
Becker suggested three such criteria: that individuals act rationally,
maximising utility; that they have stable, ordered preferences, which
inform their maximising behaviour; and that markets clear, meaning
supply and demand reaches equilibrium.29 Additional requirements
may include sufﬁcient information for actors to make rational choices,
an absence of externalities that impede the market-clearing process, and a
need for competitive markets.30 Where one or more of these assumptions
does not hold true – which, it should be emphasised, occurs with
considerable frequency – the operation of a market may not achieve
an efﬁcient allocation of resources. This is ‘market failure’: namely,
‘the failure of a more or less idealized system of price-market institutions
to sustain “desirable” activities or to estop “undesirable” activities’.31
Market failures may exist, inter alia, where buyers or sellers lack
sufﬁcient information to act efﬁciently,32 for public goods,33 for moral
Viscusi et al. (2005:79); Motta (2004:18).
Vickers (1995:4).
Viscusi et al. (2005:66); Motta (2004:18).
Gelhorn (1975:1); Motta (2004:40–52).
Viscusi et al. (2005:67), Motta (2004:19).
Dempsey (1989:11).
Becker (1976:5).
Ogus (1994:23–4, 30).
Bator (1958:351).
Majone (1997:266).
Public goods are non-rivalrous and non-excludable, meaning that any individual’s
consumption does not affect the consumption of others and nobody can be excluded
from consuming the good: Bator (1958:369–71). For example, clean air and trafﬁc lights
hazards,34 or when externalities such as pollution are not factored into
transaction costs. Notably, for our purposes, monopoly may cause market
failure if market power leads to a restriction of output or excessive prices,
but it does not necessarily do so.35 It has even been argued that distributional failures comprise a form of market failure inasmuch as existing
market structures fail to secure an acceptable allocation of income.36
While such an approach is difﬁcult to square with economic conceptions
of efﬁciency, concerns of justice and fairness have, as we shall see,
frequently provided a legitimate rationale for market intervention. Given
understandable concerns regarding the priority accorded in conventional
discourse to market-focused problems in comparison with rights- or
solidarity-based objections,37 a more neutral formulation for this broader
conception of dysfunctional markets is that of market ‘defects’.38
Generally, economists schooled in neoclassical theory tell us that,
where efﬁciency is the aim, the State should refrain from interference
in the workings of the market, because the market itself secures a more
efﬁcient allocation of society’s wealth than State-directed economic
policy can achieve. Under market failure, however, the unencumbered
free market produces a sub-optimal result, and so there is a prima facie
case for State intervention to achieve a more desirable allocation.39
The State has two principal mechanisms available to address market
failures.40 First, it can use price incentives – most obviously taxation –
to encourage or discourage certain types of market behaviour.41 Whilst
important in practice – think, for example, of tax relief on pension
contributions, or high taxes on cigarettes – such State action falls
outside the scope of this work. Second, the State may attempt directly
to control market behaviour through regulatory policy mechanisms,
which prohibit or, conversely, require certain market conduct.
are public goods. Under a strict market-based approach, public goods are typically
undervalued and underproduced.
Moral hazard involves excessive risk-taking in circumstances where the risk-taker does
not incur the costs of an unsuccessful gamble, a typical example being the decreased
incentives of health insurance holders to minimise their medical bills because they do not
pay the bill ultimately.
Viscusi et al. (2005:2–3).
Stewart (1988:111); see also New (1999:65).
Prosser (2004:38).
Breyer (1987:1006).
Majone (1996:54), for example, identiﬁed the three main functions of government in the
socio-economic sphere as income redistribution, macroeconomic stabilisation, and regulation comprising efforts to correct market failures.
Viscusi et al. (2005:3).
Jarass (1988:77–81).
Competition law and sector-speciﬁc economic regulation both fall within
the broad rubric of this latter category.
The economic models of market equilibrium and market failure,
outlined earlier, provide a simpliﬁed (and not uncontroversial) explanation of the functioning – and shortcomings – of the market mechanism.
This book is concerned, primarily, with circumstances where the market
itself fails, in whole or part, thus prompting corrective intervention of a
legal nature. In translating economic theory to legal rules and publicpolicy choices, however, several important qualiﬁcations must be added.
First, efﬁciency as an economic concept is unconcerned with questions
of equity. The balance between consumers and producers within an
income distribution is irrelevant to the question of whether a total
distribution is efﬁcient;42 accordingly, ‘the transformation of beneﬁts
from one form (consumers’ surplus) to another (proﬁt) is treated as a
wash’.43 Strictly speaking, the efﬁciency standard is compatible with
very great inequality within society. Although efﬁciency is routinely used
as a proxy for utility (societal happiness) in economics, the two concepts
are not synonymous.44 In particular, the notion of an economically
optimal outcome fails to account for the critically important role that
non-commodity values play in society.45 Economists advocate a total
welfare standard for economic analysis,46 arguing, not without some
basis, that the wealth of producers often returns to society through
dividends, pension funds and taxation; consumers beneﬁt from increased
innovation; and wealth redistributive decisions belong, instead, within
the political sphere.47 Nonetheless, to the extent that markets are viewed,
instrumentally, as a mechanism to serve society, efﬁciency as an end
result is not always optimal. Consequently, although the market often
provides the best outcome, in cases where non-economic values are
better served by derogating from the market – so that total utility rather
than total wealth is maximised – the latter outcome should be
preferred.48
When economic theory is applied as a legal framework for market
regulation, moreover, the adequacy of efﬁciency as a normative goal for a
legal system becomes more pressing. The question is whether efﬁciency is
Vicusi et al. (2005:66–7), Motta (2004:18); Bork (1978:90).
Williamson (1977:711).
See Posner (1979:111–35) for a strong critique of equivalent uses of efﬁciency and utility.
Stewart (1983).
Motta (2004:18–21); Viscusi et al. (2005:9).
Motta (2004:21).
See, e.g., Bator (1958:378–9); Prosser (2004:17–38).
a sufﬁciently close proxy for utility so as to provide a morally signiﬁcant
foundation for law, or whether the pursuit of efﬁciency is merely an
instrument by which to achieve more compelling normative goals.
In order to defend the pursuit of efﬁciency as a normative activity in
itself, two interrelated arguments might be advanced: a ‘greater good’
claim, which emphasises the overall maximisation of resources to be
distributed; and a ‘political responsibility’ claim, which stresses the
role of political choices and economic institutions, such as progressive
taxation and social welfare provision, in arriving eventually at a fair
distribution of these resources. In the well-known Posner-DworkinCalabrese debate, Posner furthermore argued that efﬁciency is supported
by the principles of autonomy and consent, given that it underpins a
system that permits individuals to pursue autonomous, utility-maximising
behaviour.49 Moreover, he saw altruism within the market system insofar
as producers generate more than they consume,50 which enables a
‘capitalist conception of justice’.51
Criticisms of a pure efﬁciency standard abound, nonetheless, particularly amongst more liberal scholars or those who place greater emphasis
on rights-based concerns. One recurrent objection to efﬁciency as a
normative goal is its single-mindedness: that is, the exclusion of noneconomic values such as justice from efﬁciency’s utilitarian assessment.
Sen, surveying more conservative scholarship promoting efﬁcient
markets to realise freedom of choice, argued that efﬁciency could be
compatible with freedom but that this might be ‘deeply unattractive’
from an equity perspective.52 Similarly, Dworkin, rejecting the arguments
advanced by Posner outlined earlier, denied that efﬁciency is a social
value in itself. At most, Dworkin argued, efﬁciency is valuable only where
its pursuit is instrumental in achieving some separate, morally signiﬁcant
value such as justice – a position he grounded in a theory of ‘deep
equality’.53 In the same debate, Calabrese, whilst more receptive to the
notion that ‘an appropriate blend’ of efﬁciency and distribution could
be instrumental towards achieving a just society’,54 nonetheless recognised that justice operates as an absolute veto on unjust distributions and
so cannot entirely be traded off against efﬁciency.55 A further repeated
criticism of efﬁciency is its inherent bias in favour of those already in
Posner (1980:491–7).
Posner (1980:496); Posner (1979:123).
Posner (1979:136).
Sen (1993).
Dworkin (1980b), defending arguments in Dworkin (1980a).
Calabrese (1980:558).
Calabrese (1980:557–8).
positions of wealth or power within society. Thus, Sunstein noted that,
to the extent that efﬁciency reﬂects private willingness to pay, it inevitably favours the wealthy who can, of course, pay more.56 Prosser
expressed this idea with particular passion:
Above all, markets are a seriously inadequate means of protecting rights
to equal citizenship because we do not come to markets as equals. Our
market power as consumers is determined by the existing distribution of
wealth in which we are placed, and this determines our ability to satisfy
our preferences in a market system. In the absence of a Dworkinian
redistribution to ensure equality of resources, competitive markets are
likely to defeat the equal allocation of rights because of the radically
unequal power of different market actors.57
The adoption of efﬁciency – an abstract and essentially amoral economic
concept – as a goal or value for a legal system, along with the normative
implications that such a choice implies, thus requires some reﬂection
and justiﬁcation. For example, as discussed later in this chapter,
there is a consensus – established in the US, emerging in the EU – that
efﬁciency comprises at least the primary goal of modern competition law.
Even if we accept that efﬁciency is a socially desirable phenomenon,
however, the question arises as to why efﬁciency should be compelled
by the State in this context – that is, why efﬁciency justiﬁes intrusion
into individual freedom of action – whereas inefﬁciency is tacitly tolerated in other areas. By contrast, while efﬁciency is an acknowledged
value in the realm of economic regulation, not infrequently regulators
make policy choices that focus wholly or predominantly on advancing
only the consumer surplus aspect of the efﬁciency equation, or which
are motivated primarily by considerations of paternalism or social-justice-oriented wealth redistribution.58 Indeed, another recurrent idea
throughout this book is the necessity of economic regulation in certain
instances to realise important non-market goals.
Second, the conventional supply and demand model used in microeconomic analysis is static, assessing a given state of affairs. Yet,
efﬁciency also has a dynamic component that focuses on innovation
rather than simple price reductions. Schumpeter famously described
market competition as a process of ‘creative destruction’,59 which
Baumol explained as ‘churning equilibria. . .with ﬁrms frequently being
born and both incumbents and entrants dying off with about equal
Sunstein (1997:344).
Schumpeter (2010:83).
Prosser (2004:29).
New (1999:65).
frequency’.60 Static models of competition may therefore fail to encapsulate the whole process.61 Economic theory is also somewhat equivocal
about the role of market concentration in facilitating innovation.62
Even if we accept that efﬁciency provides a valid goal for economic
policy, there remains a question as to whether static or dynamic efﬁciency should be preferred. Contemporary competition and regulatory
policy must accommodate the often contrasting objectives of preventing
and controlling monopoly, while simultaneously fostering innovation.
Moreover, the line between efﬁcient and inefﬁcient conduct can be
somewhat ‘fuzzy’.63 In determining whether to intervene in apparently
inefﬁcient markets, States run the risk of incurring two forms of error:
false positives, or Type I errors, which involve prohibition of efﬁcient
conduct, and false negatives, or Type II errors, which involve permitting
inefﬁcient conduct. For reasons perhaps more concerned with ideology
than law or even economics, the extent to which Type I or Type II errors
are viewed as less objectionable has tended to have a signiﬁcant impact
on the shape and strength of systems of market control.
Third, in any event the static model of market equilibrium and
efﬁciency represents an idealised state of affairs that cannot be realised
in the real world. Thus, there is a problem of ‘second best’: namely,
how to identify and secure the next best outcome, given that the optimal
is unachievable.64 Policy-makers must decide whether to pursue the most
efﬁcient market-based allocation achievable in the circumstances, which
may have signiﬁcant imperfections, or whether instead to opt for some
non-market-based regulatory solution that secures the distribution that
society considers optimal in the circumstances, but with the risks
that accompany interference with the market process. A key feature of
second-best solutions is that a single deviation from the optimal conditions for the functioning of a market is likely to have an impact on each
of the other market assumptions. Consequently, there is no a priori
means by which to choose between different solutions to market
imperfections.65
The problem of market defects or ‘failures’, and particularly the legal
response to such difﬁculties, thus lies at the heart of this book. In order to
counter the negative societal consequences that may result from an
inefﬁcient or otherwise unsatisfactory distribution, States have a variety
Baumol (2002:172).
Clark (1961:70–2); Hildebrand (2002:8).
Posner (2001:267).
Bator (1958:378–9); Lipsey & Lancaster (1956).
Lipsey & Lancaster (1956:11–2); Viscusi et al. (2005:559–60).
of legal and ﬁscal market-supervisory mechanisms at their disposal.
Having identiﬁed the limitations of the market mechanism, both in
economic and non-economic terms, we turn to examine competition
law and economic regulation as two such legal instruments by which to
address market defects that may arise. We consider, ﬁrst, the theory and
structure of each instrument individually. The latter half of the chapter
then assesses, at a theoretical level, the relationship between competition
law and economic regulation, laying the groundwork for the more
concrete exploration of their actual and potential interactions to follow.
II. Mechanisms to address market failure (I): the concept
Competition law can be understood as a mechanism of market supervision that addresses a particular variety of market failure, namely the
problem of monopoly.66 The market system assumes that the free market
is competitive; if captured by monopoly power, however, the market
outcome may be sub-optimal. Competition law imposes a series of
competition-focused proscriptions on the behaviour of market actors,
which, broadly speaking, aim to prevent the illegitimate acquisition of
market power and, where market power is already accumulated,
to control its exercise. In order to understand why accumulations of
market power are disfavoured, it is necessary, ﬁrst, to consider the
economic theories of competition and monopoly.
Perfect competition, as a market structure, describes a market in which a
single seller’s sales would plummet if it raised its prices above those
charged by other sellers. It is premised on the existence of a number of
structural requirements: a large number of buyers and sellers, a homogeneous product, perfect information, freedom of entry into the market,
and where the quantity of products traded by any buyer or seller is so
small relative to the total traded that changes in these quantities leave
market prices unaffected.67 A ﬁrm operating in a competitive market is
merely a quantity-adjuster, deciding only its output level, whereas
the market determines the price it receives.68 At a technical level, the
Posner (2001:1)
Gelhorn (1975:24–5).
Gelhorn (1975:29).
ii. mechanisms to address market failure (i)
competitive price is equal to marginal cost, meaning the cost the ﬁrm
incurs to produce an additional unit of the product. Because, in the
longer term, marginal-cost pricing is both unsustainable and
undesirable,69 a more realistic expression of competitive price is where
market price is equal to the cost of making and selling the product, cost
being deﬁned to include a reasonable return on capital.70 In a perfectly
competitive market, the consumer is ‘sovereign’.71 Consumer wealth is
thus maximised as the consumer acquires the desired good for the lowest
price that the producer will take, rather than the highest price that
the consumer will pay. The difference between these two amounts
is the consumer surplus, which in a competitive market accrues to the
At the other end of the spectrum we ﬁnd a monopoly market, in
which a single seller has sufﬁcient market power to alter price unilaterally, either by increasing output to drive down price, or by reducing
output to raise price. Monopoly, too, is premised on the existence of
various structural factors: a single seller occupying the entire market,
selling a unique product, with substantial barriers to entry and imperfect
market knowledge in the industry.72 When compared to competition,
the primary effects of monopoly are reduced output, higher prices
and a transfer of income from consumers to producers.73 Unlike within
competitive markets, a monopolist that reduces its output has sufﬁcient
market power to drive up the market price, whereas other market
participants have no individual power to inﬂuence prices. The consumer
can obtain the desired product only by paying the (typically inﬂated)
price that the monopolist can insist upon charging. Although the monopolist may suffer reduced sales, because some consumers switch to
inferior substitutes and others simply do without, that loss is outweighed
by the increased proﬁts that accompany higher prices. Producer
wealth is therefore maximised, at the expense of consumer wealth. This
scenario might still be efﬁcient, albeit inequitable, if total wealth was
nonetheless maximised. A ‘deadweight loss’ can arise in monopoly
markets, however, whereby some beneﬁts that would accrue to consumers in a competitive market fail to transfer to the monopolist
and thus are lost to society.74 Furthermore, the struggle by producers
Marginal cost makes no allowance for ﬁxed costs or a fair rate of return on investments,
and therefore provides no incentives to innovate: Samuelson (1983:241–2).
Posner (2001:10).
Clark (1961:12).
Gelhorn (1975:29–30).
Gelhorn (1975:34).
Gelhorn (1975:35); Viscusi et al. (2005:82–3).
to achieve a monopoly, in anticipation of the supra-competitive returns
that follow, may generate ‘rents’ that are also considered a cost of
monopoly.75 Monopoly is therefore disfavoured both on efﬁciency and
equity grounds: it can lead to inefﬁcient distributions, and it requires
consumers to subsidise producers.
Monopoly is not, however, an unambiguously negative phenomenon.
Dynamic efﬁciency prioritises innovation rather than short-run wealth
maximisation, meaning that, when dynamic considerations are taken
into account, monopoly may be the most efﬁcient way to structure an
industry.76 The extent to which, in practice, monopoly leads to innovation is disputed.77 The Schumpeterian viewpoint holds that market
concentration fosters innovation, as larger ﬁrms funded by supracompetitive proﬁts innovate more than smaller ones.78 The contrasting
Arrowian perspective hold that ﬁrms which already enjoy monopoly
proﬁts have fewer incentives to innovate than ﬁrms under competition,
which are motivated by the prospect of elevated returns.79 As Hicks
memorably observed, ‘[t]he best of all monopoly proﬁts is a quiet life’.80
Hovenkamp thus identiﬁed an innovation paradox of sorts: while
ﬁrms under competition have short-run incentives to innovate to
reduce costs, they may have insufﬁcient resources to do so; whereas
monopolists typically have sufﬁcient resources to innovate, but may
not face sufﬁcient competitive pressures.81 Empirical research suggests
that the relationship between innovation and competition assumes
an inverted U-shape, so that innovation is greatest in markets with
moderate levels of competition.82 Accordingly, while competition
enforcement can play a useful role in strengthening competition in
concentrated markets, particularly by protecting new entrants from
incumbents, it cannot be assumed that more competition always means
greater social welfare.83
Additionally, some markets are subject to ‘natural monopoly’, meaning that production of the total output of the goods or service by a single
Viscusi et al. (2005:89–90). Rent-seeking involves expenditure of resources in an effort to
acquire greater economic opportunities. It is undesirable because it constitutes a cost of
production that is not manifested in improvements in the ﬁnal product; consumers thus
pay higher prices for no extra value: see Krueger (1974).
Samuelson (1983:253).
Viscusi et al. (2005:94–5); OECD (2006:42–52).
Schumpeter (2010).
Arrow (1962).
Hicks (1935:8).
Hovenkamp (2005:25). In categorising monopolists as output-restrictors, Hovenkamp
(2005:13) measured ‘output’ by both quantity and innovation.
Scherer (1967); Aghion et al. (2005); OECD (2006:46–7).
Segal & Whiston (2007).
producer minimises total cost (subadditivity) and is most efﬁcient.84
Natural monopoly is distinct from economies of scale, where average
production costs decline with increased output, although many natural
monopoly markets display scale economies.85 Fixed-line telecommunications services, railways, and gas and electricity distribution networks
have, for example, each displayed natural monopoly characteristics
historically. Monopoly may, accordingly, be a desirable and even
unavoidable industry structure in such circumstances, yet competition
problems can still arise. The natural monopolist lacks the downward
pressure on prices and the incentives to innovate faced by ﬁrms under
competition,86 and/or the monopolist may attempt to leverage its market
dominance into adjacent non-natural monopoly segments.87 In natural
monopoly markets, the public-policy dilemma is to secure the social
beneﬁts of least-cost production (which requires single-ﬁrm production)
without suffering from inefﬁcient monopoly behaviour.88
Finally, antitrust scholars of a more conservative bent tend to emphasise the inherently self-destructive nature of monopoly: the presence of
inﬂated returns encourages entry, and the resulting competition causes
proﬁts to drop.89 Even where monopoly is undesirable, goes the argument, markets can self-correct, which renders government intervention
unnecessary. Some would even argue that intervention is more harmful
than unrestrained monopoly, because markets self-correct eventually
whereas anticompetitive regulation does not.90 There is signiﬁcant
danger, however, of overstating the case in this instance. Because selfcorrection is premised on new entry, the existence of high barriers to
entry into a market is liable to hinder and delay the self-correction
process. Such barriers may be structural (e.g., scale economies), legal
(e.g., licensing requirements) or behavioural (e.g., anticompetitive conduct by the incumbent ﬁrm) in nature.91 Barriers to entry render monopoly more durable and may justify increased competition law or
Between pure competition and monopoly, there is an intermediate
theory of oligopoly, or monopolistic competition. Oligopoly occurs in
concentrated markets with few sellers, where each recognises their
Viscusi et al. (2005:401–6).
Baumol (1977); Viscusi et al. (2005:405–6).
Viscusi et al. (2005:401).
Motta (2004:362); Viscusi et al. (2005:266–7).
Easterbrook (1984:2); Burton (1997:160), discussing the Austrian School of economics.
Easterbrook (1984:2–3).
Viscusi et al. (2005:168–73).
substantial interdependence. Consequently, each seller takes into account
the reactions of its rivals when making output and pricing decisions.92
There is an assumption that ﬁrms in an oligopolistic market act less
competitively, insofar as they anticipate that efforts to reduce prices or
improve quality will lead to a similar response by rivals, cancelling out
any competitive advantage and leading to an overall deterioration in
market conditions for all ﬁrms. Oligopoly presents a particular problem
for competition law: while, typically, the conduct of ﬁrms falls within
neither the competition rules regulating coordinated conduct nor unilateral behaviour, consumers nonetheless fail to reap the full beneﬁts of a
Theories of perfect competition and monopoly are extremes, and, generally, neither structure arises in real market situations.93 The economist
J.M. Clark thus argued for a theory of ‘workable competition’,94
later redeﬁned as ‘effective competition’,95 being the best imperfect
competition achievable in a market. This pragmatic approach is followed
within competition law. Generally, a dominant or even monopoly
market position acquired through competition on the merits is not
prohibited as such. Moreover, competition law does not prescribe permissible categories of market behaviour, but, instead, provides a residual
mechanism of market control by proscribing certain types of anticompetitive behaviour, while otherwise allowing economic actors to compete as
vigorously as they choose or the market demands. Broadly speaking, the
objective of competition law is to prevent the anticompetitive accumulation of market power and to control its exercise, so that the typical
beneﬁts of competition – lower prices, greater choice, higher quality –
are realised fully.
In effect, competition law amounts to a pre-commitment by the State
to the unfettered functioning of competitive markets. Such regimes do
not exist in every State, although progression towards a more globalised
coverage of competition law can be discerned.96 The precise parameters
Gelhorn (1975:38); Viscusi et al. (2005:106); Stigler (1964).
Bork (1978:101); Vickers (1995:7).
Clark (1940).
Clark (1961:ix).
For discussion of global developments in competition law, see Gerber (2010) and Dabbah
of the prohibitions imposed by competition law also vary between
jurisdictions. Nonetheless, three broad categories of potentially anticompetitive conduct are addressed by most competition systems:
(i) exploitative or exclusionary unilateral conduct by dominant ﬁrms;
(ii) collusion between two or more ﬁrms, which generates or seeks to
acquire greater market power; and (iii) mergers that have a detrimental
effect on competition, either because the merged entity gains signiﬁcant
market power or the post-merger market structure facilitates collusion.
We now turn to examine the structure of the two most prominent
and inﬂuential of competition jurisdictions – namely, the US and the
EU – in order to illustrate how such prohibitions can be translated into
legally binding rules.
The Sherman Act, introduced into US federal law in 1890, is amongst
the earliest competition statutes97 and is arguably the most renowned.
The Act was intended to provide a speciﬁc legislative solution to the
so-called ‘trust problem’:98 the phenomenon of large industries combining as trusts or looser arrangements to control pricing and output,
and which were presumed to have the effects of squeezing suppliers
in upstream markets and inﬂating prices in downstream markets.99
Hence, US competition law is commonly called ‘antitrust’; both terms
are used in this work when discussing this area of law. In structure,
the Sherman Act rejected a corporate regulatory model, which would
have granted the federal government substantial power to correct
market failures by directly controlling the behaviour of ﬁrms. Instead,
the Act prohibits speciﬁc anticompetitive concerted and unilateral
conduct by ﬁrms, adopting a crime-tort model that proscribes certain
‘bad acts’.100 This approach contrasts with the sector-speciﬁc regime
for direct federal regulation of railroads introduced three years previously
under the Interstate Commerce Act of 1887;101 its more constrained
The Sherman Act was preceded by various state antitrust regimes, enacted in the late
1880s, and a Canadian competition statute in 1889: Thorelli (1954:155–6); Stigler (1985).
The Act was passed under the Commerce Clause (Article I, Section 8, Clause 3, Constitution of the United States), which empowers the federal government to regulate commerce amongst the various states.
See Thorelli (1954:12–53); Dewey (1955); and Stigler (1985) for discussion of the
common law doctrines that preﬁgured US antitrust, and the extent to which these
foreshadowed the emergence of ‘common law’ antitrust following adoption of the
Thorelli (1954:63–85); Fox (1981:1146–55).
Crane (2008:14–15).
Thorelli (1954:229–30). The establishment of a federal regulatory agency, the Interstate
Commerce Commission, followed the Supreme Court decision in Wabash, St. Louis &
scope has been linked to persistent ideas of anti-federalism in the
early US government.102
Thus, Sherman Act, §1, prohibits anticompetitive coordinated
conduct: ‘Every contract, combination in the form of trust or otherwise,
or conspiracy, in restraint of trade or commerce among the several States,
or with foreign nations, is declared to be illegal. Every person who shall
make any contract or engage in any combination or conspiracy hereby
declared to be illegal shall be deemed guilty of a felony’.103 Subsequent
case law distinguished two categories of agreements under §1. Per se
violations involve conduct that is ‘manifestly anticompetitive’, such
as price-ﬁxing; these are always prohibited.104 Conversely, non-per se
violations are subject to a contextual rule-of-reason assessment, during
which the court ‘weighs all of the circumstances of a case in deciding
whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition’.105 Additionally, Sherman Act, §2,
prohibits anticompetitive unilateral conduct by monopoly ﬁrms:
‘Every person who shall monopolize, or attempt to monopolize, or
foreign nations, shall be deemed guilty of a felony’.106 The Sherman Act
prohibitions are complemented by a merger control framework under
the Clayton Act. Enacted in 1914 and amended in 1950, the Clayton Act
addressed the growing number of mergers that occurred in order to
avoid the antitrust rules. It prohibits mergers where ‘the effect of such
acquisition may be substantially to lessen competition, or to tend to
create a monopoly’.107 A framework for pre-merger notiﬁcation and
assessment by public antitrust authorities was established under the
Hart-Scott-Rodino Act of 1976.108 It is misleading, however, to view
US antitrust as exclusively statute-based. Given the broad and rather
abstract nature of the Sherman Act prohibitions,109 essentially the whole
Paciﬁc Railway Company v. Illinois, 118 US 557 (1886), which held that state regulation
of inter-state railroads violated the Commerce Clause.
That is, the notion that the federal government, as opposed to the states, ‘should have no
direct regulatory power over corporations qua corporations for purposes of effectuating
national industrial policy’: Crane (2008:3). See also Thorelli (1954:571–2).
Now 15 U.S.C. §1.
Continental T.V. Inc., et al. v. GTE Sylvania Inc. 433 US 36 (1977), 50.
Now 15 U.S.C. §2.
Now 15 U.S.C. §18.
Now 15 U.S.C. §18a.
Kovacic & Shapiro (2000:43) asserted that the Sherman Act is ‘unequalled in its
generality’ amongst statutes regulating commerce in the US.
of the law’s substantive content was developed judicially. Antitrust,
therefore, is effectively common law.110 Moreover, the attitude of US
courts to the scope of antitrust has varied widely during the century-plus
following enactment of the Sherman Act,111 as will be shown when we
examine the purposes of competition law.
Competition law also lies at the heart of the EU legal framework for
the creation and supervision of the internal market. Treaty provisions
regulating unilateral and coordinated conduct were contained in the
original Treaty of Rome of 1957, while formal merger control rules
were added in 1989. There had been national competition laws in several
European States from the inter-war years, and, following World War II,
the US authorities implemented antitrust rules within the Occupied
German Territories.112 Another key inﬂuence was the work of German
Ordoliberal scholars, also known as the Freiburg School,113 which saw
the role of competition law as, effectively, regulation of competition.114
Although US antitrust was not the principal inﬂuence behind the adoption of the EU rules, nonetheless the shape of the provisions as adopted
mirrors broadly the crime-tort model contained in the Sherman Act.115
Thus, like US law, EU competition law prohibits individual anticompetitive conduct, rather than providing a mandate for direct market
regulation to address competition problems.
The principal EU competition provisions are now contained in
Articles 101 and 102 of the Treaty on the Functioning of the European
Union (TFEU) and the Merger Control Regulation.116 Article 101 TFEU
addresses anticompetitive coordinated conduct. Thus, Article 101(1)
prohibits ‘as incompatible with the internal market’: ‘all agreements
between undertakings, decisions by associations of undertakings and
concerted practices which may affect trade between Member States and
which have as their object or effect the prevention, restriction or distortion of competition within the internal market’.117 Article 101(2) declares
such agreements automatically void. Unlike the approach under
Sherman Act, §1, there is no scope within Article 101(1) for any contextual rule-of-reason analysis of the restraint; to the extent that coordination
Hovenkamp (2005:44); Crane (2011:20).
Kovacic & Shapiro (2000).
See generally Gerber (1998).
Gerber (1998:257–65); cf. Akman (2009).
Gerber (1998:233–55); Möschel (2001).
Giocoli (2009:765–6).
Council Regulation 139/2004 of 20 January 2004 on the control of concentrations
between undertakings (OJ L24/1, 29.01.2004).
Article 101(1) provides an illustrative but non-exhaustive list of prohibited practices.
prevents, restricts or distorts competition, it is prohibited.118 Article
101(3) nonetheless provides an express savings clause for prima facie
prohibited agreements, where, in essence, the agreement is defensible on
efﬁciency grounds.119
Article 102 TFEU regulates unilateral conduct by ﬁrms with appreciable
market power, providing that: ‘Any abuse by one or more undertakings of
a dominant position within the internal market or in a substantial part of
it shall be prohibited as incompatible with the internal market in so far as
it may affect trade between Member States.’120 The express scope of Article
102 TFEU is noticeably different from that of Sherman Act, §2. Article 102
TFEU applies to ﬁrms that hold a ‘dominant position’, a concept that is
interpreted to require a considerably lower market share than the monopoly concept utilised in US law.121 Conversely, while Sherman Act, §2,
applies both to conduct intended to acquire a monopoly and to maintain
it, EU law formally applies only to anticompetitive conduct by ﬁrms
already in possession of market dominance.122 Certain categories of
Case T-112/99 Métropole television et al. v. Commission, EU:T:2001:101, paras. 72–8.
This approach is endorsed by Whish & Bailey (2012:134–6); cf. Nazzini (2006); Marquis
The savings clause applies where all four elements of a cumulative legal test are satisﬁed,
namely where the agreement or concerted practice:
contributes to improving the production or distribution of goods or to
promoting technical or economic progress, while allowing consumers a
fair share of the resulting beneﬁt, and which does not:
(a) impose on the undertakings concerned restrictions which are not
indispensable to the attainment of these objectives;
(b) afford such undertakings the possibility of eliminating competition in
respect of a substantial part of the products in question.
Like Article 101(1), Article 102 provides a non-exhaustive list of practices that may
amount to abuse of dominance.
In United States v. Aluminum Co. of America (Alcoa), 148 F.2d 416 (2d Cir. 1945), 424,
Justice Hand held that a market share of 90 per cent ‘is enough to constitute a monopoly;
it is doubtful whether sixty or sixty-four percent would be enough; and certainly thirtythree per cent is not’; this position was endorsed by the Supreme Court in American
Tobacco Co. v. United States, 328 US 781 (1946), 813-4. Under EU competition law, a
market share of 50 per cent or higher creates a presumption of dominance (Case C-62/
86 Akzo v. Commission, EU:C:1991:286, para. 60), and dominance can be found where
the market share falls below this level if other factors support the ﬁnding (see Case C-95/
04 P British Airways plc. v. Commission, EU:C:2007:166, where a market share of 39.7
per cent sustained a ﬁnding of dominance).
Hovenkamp (2010:244–9), however, demonstrated that the differences in scope between
these provisions are less signiﬁcant in practice.
dominant/monopoly abuses have also, historically, received rather different treatment under EU and US antitrust, albeit the move towards a more
economic focus in Article 102 TFEU may narrow this divergence. Yet, the
core prohibition under both §2 and Article 102 TFEU is largely the same,
namely, proscription of anticompetitive (exclusionary) conduct by individual ﬁrms with signiﬁcant market power.123
The Merger Control Regulation establishes a pre-notiﬁcation and
assessment regime for ‘concentrations with a [Union] dimension’,
deﬁned as mergers reaching speciﬁed turnover thresholds in several
Member States.124 Like the Clayton Act, such mergers are permitted
where they do not signiﬁcantly impede effective competition in the
internal market by creating or strengthening dominance.125
EU law also contains a number of quasi-competition provisions that
are more or less unique. These include Article 106 TFEU, which regulates
public undertakings and undertakings granted special or exclusive rights,
and also provides certain derogations from the competition prohibitions
for provision of services of general economic interest.126 Articles 107–9
TFEU govern State aid: that is, support (monetary or otherwise) granted
by Member States to economic operators. Finally, the ‘duty of loyalty’
under Article 4(3) of the Treaty on European Union (TEU), applied in
conjunction with Article 3(1)(b) and Articles 101 or 102 TFEU, may
prohibit Member States from enacting or maintaining in force measures
that render the competition rules ineffective.127
As this discussion demonstrates, in both the US and EU, competition
law comprises various open-textured prohibitions of anticompetitive
coordinated conduct or unilateral monopolistic conduct by ﬁrms, and
mergers with signiﬁcant anticompetitive effects. The ‘victims’ of competition infringements can be conceptualised in two categories. In general
terms, all consumers suffer due to the overall diminution in market
See, generally, Abbott (2011), discussing the relationship between US and EU unilateral
conduct regulation, following the European Commission’s 2008 Guidance on its
Enforcement Priorities in Applying Article 82 EC (OJ C45/7, 24.2.2009) and withdrawal
in May 2009 of the DOJ’s 2008 guidance on single-ﬁrm under Sherman Act, §2, which
had espoused considerably more restrictive standards within US law.
Article 1, Regulation 139/2004.
Article 2, Regulation 139/2004.
See also Commission Decision of 20 December 2011 on the application of Article 106(2)
of the Treaty on the Functioning of the European Union to State aid in the form of
public-service compensation granted to certain undertakings entrusted with the operation of services of general economic interest (OJ L7/3, 1.11.12).
Case 13/77 GB-Inno-BM v. ATAB, EU:C:1977:185.
competition. Concurrently, certain individual consumers may suffer
speciﬁc distinct and quantiﬁable harms attributable directly to the
breach. Mechanisms for competition enforcement reﬂect this duality,
potentially encompassing both public sanctions – administrative ﬁnes
and/or criminal penalties – and private damages actions.
US antitrust law adopts a wide-ranging approach to enforcement.128
Private parties who suffer losses due to Sherman Act violations can bring
actions for damages against infringing ﬁrms, under a plaintiff-friendly
system that features generous discovery rules, civil jury trials, treble
damages, contingency fee arrangements and one-way fee-shifting.129
The US is unique amongst competition jurisdictions insofar as levels of
private enforcement much exceed public enforcement.130 Public enforcement is undertaken by two federal agencies, alongside state prosecutors
in local matters.131 The Antitrust Division of the US Department of
Justice (DOJ) is entrusted with criminal and civil enforcement of
the Sherman Act and the merger control framework. Additionally,
the Federal Trade Commission (FTC) is an independent government
agency, enacted under and with responsibility for enforcing the provisions of the Federal Trade Commission Act (FTCA), also of 1914.
The FTC has concurrent jurisdiction with the DOJ over the merger
control provisions of the Clayton Act, and it has primary responsibility
for enforcing FTCA, §5, which prohibits, inter alia, ‘unfair methods
of competition’.132
Enforcement mechanisms for EU competition law have undergone a
seismic shift in the past decade. Historically, enforcement of Articles 101
and 102 TFEU consisted of, effectively, a tightly centralised publicenforcement system administered by the Commission. Under the original procedural framework of Regulation 17,133 any agreements that
might breach Article 101(1) TFEU yet which could potentially be
exempted under Article 101(3) TFEU had to be notiﬁed to the Commission for pre-approval. With expansion of the EU, the administrative
burden of the notiﬁcation procedure became unmanageable, while the
See, e.g., Baer (2014).
15 U.S.C. §15; see also Crane (2009:125); Cavanagh (2010:640).
Over 90 per cent of US antitrust suits are brought by private plaintiffs: Lande (2010:4);
Crane (2011:163).
Enforcement of state antitrust is undertaken by each state’s attorney general.
We consider the §5 power in detail in Chapter 5.
Regulation 17 of 1962 (OJ 13/204, 21.2.1962), hereafter ‘Regulation 17’.
distance that the system created between the Commission and national
authorities and courts was deemed politically unacceptable.134
Consequently, the modernising Regulation 1/2003 entered into force in
2004.135 It abolished the notiﬁcation system, and not merely empowers
but indeed requires national competition authorities to apply EU
competition law in appropriate domestic cases.136 At the EU level, the
Commission has the power to impose ﬁnes for breaches of the competition rules,137 and it has pursued an aggressive ﬁning policy in recent
years. Although there is no criminalisation of competition infringements
at the EU level, various Member States have adopted criminal sanctions
for enforcement of the competition rules.138 Premised on the Courage
v. Crehan ruling,139 the Commission has also adopted a proactive
policy aimed at encouraging and facilitating private enforcement of EU
competition law at the national level.140 Although levels of private
enforcement within the EU remain low,141 this may change with the
adoption of a EU-level Directive on damages actions, which seeks to
harmonise procedures for antitrust redress across the EU alongside
provisions aimed at recalibrating the relationship between public and
private enforcement.142
See European Commission, White Paper on Modernisation of the Rules Implementing
Articles 85 and 86 of the EC Treaty, COM(99)101 ﬁnal, published 28 April 1999; Hawk
(1995) and Ehlermann (2000).
Council Regulation 1/2003 of 16 December 2002 on the implementation of the rules on
competition laid down in Articles 81 and 82 of the Treaty (OJ L1/1, 4.1.2003), hereafter
‘Regulation 1/2003’.
Regulation 1/2003, Articles 1 & 3.
Regulation 1/2003, Article 23. See also European Commission, Guidelines on the method
of setting ﬁnes imposed pursuant to Article 23(2)(a) of Regulation 1/2003 (OJ C210/2,
1.09.2006).
See e.g. the UK’s Enterprise Act 2002, s.188, and Ireland’s Competition Act 2002,
ss.6&7. For consideration of the potential for criminalisation at the EU level, see Wils
Case C-453/99 Courage v. Crehan, EU:C:2001:465.
See the European Commission’s Green Paper, Damages actions for breach of the EC
antitrust rules, COM(2005)672, published 19 December 2005; its White Paper, Damages
Actions for Breach of the EC antitrust rules, COM(2008)165, published 2 April 2008; and
the Proposal for a Directive of the European Parliament and of the Council on certain
rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union (COM(2013)404
ﬁnal), published 11 June 2013. The Directive on Antitrust Damages Actions was
formally signed into law on 26 November 2014.
Connor (2010:17); Vrcek (2010:279).
See fn. 140.
This complementary duality of public and private enforcement is
encouraged precisely to improve the effectiveness of competition law,
directly securing compensation for victims while indirectly deterring
future anticompetitive conduct.143 Yet this overlap in enforcement mechanisms is potentially problematic insofar as the competition rules apply
uniformly, regardless of whether they are enforced by a public agency to
correct market distortions or by a private ﬁrm seeking compensation or
merely to hamstring a rival. As Crane has argued, institutions matter,
particularly in the competition enforcement context.144 A theme that will
be developed throughout this work is the impact of public versus private
antitrust enforcement and its role in shaping the interface between
competition law and regulation.
The competition laws of the US and EU are ostensibly very broad in
scope, potentially applying to (and possibly prohibiting) almost every
agreement, contract, large merger and the exercise of market power by
dominant ﬁrms. Taken to this extreme, these laws would impede whole
swathes of economic life that are necessary (e.g., contracts), unavoidable
(e.g., natural monopolies) or desirable (e.g., innovation by dominant
ﬁrms). Instead, ideas of ‘competition’ and ‘anticompetitive’ behaviour
are applied as ﬁlters, thus bringing within the ambit of antitrust only
those activities detrimental to the competitive process. Emphasis must
therefore shift to the meaning of these ideas as term of arts within
competition law.145 The characterisation of competitive (or anticompetitive) conduct is crucial insofar as it deﬁnes the parameters of competition law. Both the US and EU rules provide a legal framework for
protection of competition and advancement of competition policy, but
neither offers clear guidance as to what these concepts should be taken to
mean. Easterbrook thus described the Sherman Act as a ‘blank cheque’
without set policy objectives, to be ﬁlled in instead by scholars,
See Commission White Paper COM(2008)165, p. 3. Lande (2010:7–8) argued that
private antitrust enforcement generates ‘tremendous beneﬁts’ for the wider US economy
in terms of compensation, deterrence and saved public-enforcement costs; while Connor
(2010:12) argued that optimal deterrence principles imply that public ﬁnes, private
settlements and individual criminal penalties are complementary responses.
Crane (2011:128); cf. Wils (2009:23–5).
Under a ‘plain meaning’ interpretation, a broad range of understandings of competition
are possible: Bork (1978:58–61); Fox (1986b:578).
practitioners or courts,146 while the EU provisions arguably provide a
comparable opportunity to the Commission and CJEU.
It is difﬁcult to do justice, in the space permitted, to the breadth of
arguments that have been advanced regarding the purpose or goals of
competition law. First, a means-end division can be discerned: a key
question is whether competition is a matter of outcome or process.
Outcome-focused conceptions of competition law emphasise the socially
desirable distribution that competitive markets are presumed to yield.
Process-focused conceptions, by contrast, aim to facilitate the functioning
of the market mechanism to the fullest extent, albeit on the implicit
assumption that this secures a desirable outcome eventually. These conceptions are not mutually exclusive: the optimal market result may well be
the same under both. What differs is the extent of the role for competition
law in securing the speciﬁc parameters of the preferred outcome.
A focus on outcomes typically relates to issues of efﬁciency and equity
within the resulting distribution. The persistence of outcome-focused
thinking is attributable to the legacy of Chicago School antitrust scholarship, which stressed the pivotal role of economic theory, and in particular
the efﬁciency criterion, in constructing the parameters of antitrust.
A critical question is whether the efﬁcient outcome is one that maximises
total surplus (that is, consumer plus producer surpluses, considered in
aggregate) or merely consumer surplus.147 A purist Chicagoan would
argue that the sole legitimate goal of competition law is improvement of
total welfare efﬁciency, meaning that the wealth of society as a whole
is maximised.148 Equity considerations are rejected, although proponents
of a total efﬁciency standard argue that other policy instruments are
available to achieve non-efﬁciency goals.149 Moreover, by prioritising
dynamic efﬁciency considerations, and preferring Type II errors over
Type I errors under an error-cost assessment,150 such a perspective
reduces signiﬁcantly the perceived beneﬁts of, and thus the need for,
antitrust intervention.151
As explored previously, however, a total efﬁciency standard is reconcilable with great inequality, thus rendering it unpalatable from a
Easterbrook (1986:1702); see also Kovacic & Shapiro (2000:43); Kovacic (2007:11,16).
Orbach (2011:137–8).
Bork (1978); Easterbrook (1984); Posner (2001).
Williamson (1977:734); Bork (1978:70); cf. Monti (2007:16).
First proposed by Easterbrook (1984), and now adopted as a central tenet of Chicagoan
thinking: Huffman (2012:107).
Kolasky (2004:42); Weiser (2005: 554–7).
public-policy and distributive-justice perspective. Indeed, the transfer of
wealth from consumers to producers permitted by this approach has
been likened to theft or extortion.152 A more acceptable outcome-focused
formulation is the protection of consumer welfare. A clariﬁcation of
terminology is useful at this juncture. Robert Bork, provocatively, used
the phrase ‘consumer welfare’ while advocating, effectively, a total welfare standard in his competition polemic, The Antitrust Paradox.153
Recent formulations have tended to adopt a more plain meaning interpretation, however, by requiring that at least some beneﬁt accrue to
consumers alongside any beneﬁts for producers.154 It is insufﬁcient
merely that a total distribution is efﬁcient; additionally, the distribution
itself must respect some principle of justice, equality or fairness. Efﬁcient
wealth transfers from consumers to producers, in particular, are disfavoured.155 Others go further in identifying legitimate non-efﬁciency
outcome goals for competition law. Some commentators would, for
example, attribute to competition law an explicitly political role, rebalancing the division between private and public power in society.156 Most
controversial are arguments that competition law should proactively
effect wealth redistribution from rich to poor or from producers to
consumers,157 or protect small businesses from the creative destruction
inherent in the competition process.158
The alternative viewpoint is that competition law is concerned, primarily, with protecting the process of competition.159 This approach
focuses upon securing an environment favourable to vigorous rivalry –
the process of the ‘invisible hand’ – it being presumed that such an
environment is most conducive to efﬁciency and progress.160 The focus
Kirkwood & Lande (2008:196,202).
Bork (1978); sharply criticised by Skitol (1999:249) as counterintuitive, and Kirkwood &
Lande (2008:199) as an ‘Orwellian term of art’. Orbach (2011) argued that Bork’s own
conception of ‘consumer welfare’ was confused, conﬂating distinct economic concepts
without identifying a single operational standard for analysis.
See, e.g., Hovenkamp (2005:1): ‘Few people dispute that antitrust’s core mission is
protecting consumers’ right to the low prices, innovation, and diverse production that
competition promises.’ Also Pitofsky (1979).
Lande (1982); Kirkwood & Lande (2008).
Amato (1997); Thorelli (1954:568); Clark (1961:11); Fox (1981:1152–3); Fox (1986a:
1715–16); Pitofsky (1979:1053–54).
Considered by Hovenkamp (2001:269); Pitofsky (1979:1058).
Discussed by Bork (1978:49); Posner (2001:25–6); Pitofsky (1979:1058); Kovacic
(2007:51–64); contra Kirkwood & Lande (2008:233–6); Schwartz (1979).
Fox (1981:1191); Fox (1986b:578); Breyer (1987:1006); Burton (1997:160).
Fox (1981:1169).
here is whether the practice hinders or degrades the market mechanism.161 Efﬁciency can function as a useful yardstick, insofar as it frequently corresponds to the promotion of the competitive process, but
it is merely indicative of a means to an end (competition), rather than
the end in itself.162 Clark emphasised this aspect by deﬁning competition
as business discipline: the struggle to secure the customer’s favour
forces the proﬁt-minded ﬁrm to become production-minded.163
Gelhorn, too, put the idea succinctly: competition is ‘the regulator that
supervises the orderly working of the market’.164 Thus, competition is a
process that results in the wealth of society being put to its highest uses
rather than dictating a speciﬁc outcome, while competition law is concerned with protecting this process. Post-Chicago approaches to competition law similarly place greater emphasis on prob