The competition policy of the European Union is introduced in the Treaty of Rome in 1957 (Majone, 1999). Since then, the implementation of the competition policy of the European Union and its member states have been adjusted several times. The European competition policy can not be seen as a goal itself, but more as an instrument to reach certain goals, which change over time. However there are three important principles that remain over the years. The first principle is the protection of consumers and small firms. There is a chance that consumers may be harmed when there are no restrictions to firms for setting their prices and their quantities. Competition policy can restrict firms from setting their prices and quantities too high by imposing fines for example. Besides, competition policy also protects small firms from the large firms with market power in order to create more opportunity for small firms to develop themselves in the market. The second principle is consumer welfare, which can be defined as the maximisation of consumer surplus. Article 101(3) TFEU of the European Commission Guidelines state that: any agreement between undertakings, or decision by associations of undertakings which may affect trade between member states need to contribute to improvement of the production or distribution of goods or to promote technical or economic progress (European Commission, 2004). The third and last element is more specific to the European Union which is related to the internal market integration. The main goal of the European competition policy according to Article 3 (3) TEU is to create an internal market without barriers to trade such as cartels and import barriers in order to improve trade flows between states (The Lisbon Treaty, 2013)
There are a lot European institutions involved in establishing the goals and principles set by the European Union. The main institution which ensures the correct application of the European competition rules is the European Commission (European Commission, 2012). As explained above competition policy is needed because in some cases companies try to limit competition. The rules implemented by the European competition policy try to maintain or increase the competition between firms. The most prominent rule is stated in Article 101 TFEU, which implies the cartel prohibition. The article states that following the European competition policy: “ it is not allowed to make agreements or decisions which directly or indirectly fix selling prices, limit or control production or share sources of supply” (European Commission, 2004). To detect cartels more easily the European Union, as well as the United States, implemented the leniency programs, which will be discussed later in the literature. The abuse of a dominant position is also prohibited by Article 102 TFEU (European Commission, 2004). Firms can obtain a dominant position when they have a comparative advantage which increases their market share. This could also lead to unfair selling prices and limiting production. The European competition policy is also very strict on mergers between firms in the European Union. When big firms want to merge they must ask the European commission for permission. The European commission makes sure that the market balance will not be distorted and that no dominant position will be abused. (European Commission, 2012).
United States Competition Policy
The competition policy of the United States has a much longer history than the European competition policy. The competition policy of the United States was implemented around the industrial revolution. The competition policy of the United States is, contrary to the European competition policy, based on four Antitrust Acts where the oldest Act was implemented in 1890. The goals of the United States competition Acts vary across states and from time to time. The Antitrust Acts are the basis for the United States competition policy but are surprisingly not well defined. Most of the antitrust policies in the United States originates in court.
The oldest Antitrust Act is the Sherman Act which was implemented in 1890. The Sherman Act is a brief Act which is divided into two parts. The first part states that contracts, combinations, and conspiracies ‘in restraint of trade’ are declared illegal (Fox and Pitofsky, 1997). This means that the Act tries to prohibit price fixing and market division but also joint ventures. The second paragraph of the Sherman Act makes it a violation to monopolize, attempt to monopolize, or combine or conspire with others to monopolize trade (Fox and Pitofsky, 1997). Note; there is a distinction between ‘monopolizing’ and the status of holding a monopoly position which is not prohibited. The Clayton Act prohibits various business practices which may lead to less competition and/or tend to create a monopoly. This implies business practices such as price discrimination, exclusive dealing contracts and mergers. The United States competition policy also has the Robinson Patman Act which is a more detailed act in comparison with the two previous acts. This act is focus on the prohibition of price discrimination and provision of services. Lastly there is the Celler-Kefauver Act which is in line with the Clayton Act and prohibits illegal mergers and joint ventures which may lead to a decline in competition and a possible monopoly position (Fox and Pitofsky, 1997).
Contrary to the European competition Policy where the European Commission ensures the correct application of the competition rules, in the United States there are two agencies to do so. The Antitrust Division of the Department of Justice and the Federal Trade Commission are responsible for enforcing the Sherman and the Clayton Acts, these two agencies can be defined as the state enforcement. The United States also has private enforcement where individuals, corporations and even state officials may bring antitrust cases to court in order to receive a compensation for the damages that have been done by for example a cartel. Since 2014 the European competition policy also implemented private enforcement which allowed individuals to prosecute illegal activities (D.O.J.,1993)