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Christian Koenig and Bernhard von Wendland

The instruments of general (non-sector-specific) competition law are insufficient to liberalise traditionally monopolistic or state industries and to ensure sustainable competitive access to liberalised markets. Here, EU sector-specific directives and regulations, inter alia, in the fields of telecommunications, gas, electricity, postal services and railway network infrastructure have created a harmonised ex-ante access regime. Under these rules, national regulatory authorities are empowered to monitor network access conditions and terms of use and to approve compensation access fees for use of the incumbent’s network. The monopolistic legacy of network industries may still be, at least in part, structurally distortive to competition. Good regulation protects new market entrants and enables service-based competition where bottlenecks impede facility-based competition. In this respect, regulation facilitates market dynamics. Financial market regulation, by contrast, safeguards economic stability and effectiveness of supervision through a seismic system to detect systemic dangers and to react ex ante. Keywords: financial markets, network industries, regulatory authorities, sector-specific regulation

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Christian Koenig and Bernhard von Wendland

State aid and public procurement can combat market failures but can also distort competition and thereby undermine sustainable wealth. In the EU’s Social Market Economy, state aid is allowed if it is targeted at social-welfare objectives. That desired steering effect is obvious from so-called common state-aid assessment principles that the European Commission applies. Public procurement can create tremendous innovative potential but it can also protect national industries from competitive pressure, at the expense of the taxpayer. EU supranational public procurement directives provide for competitive procedural formats to avoid harm. EU Member States might use ‘Pre-commercial procurement’ of R & D-services and public-private ‘innovation partnerships’ to give some suppliers selective preferential treatment that distorts competition. EU state aid rules are the sole instrument that prevents national legislators from harmful demand side measures that prioritise innovation over the functioning of the internal market. Keywords: crowding-out of private investment, distortion of private incentives, foreclosure of markets, inclusiveness, industrial policy, Social Market Economy, sustainability, risk finance aid, maritime transport aid

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Christian Koenig and Bernhard von Wendland

This chapter discusses the relation between the EU’s internal market objectives and the World Trade Organization’s (WTO) global trade objectives. While the EU has a common vision that allows public market intervention if it has a real incentive effect, tackles market failures and is proportionate, WTO subsidy control is based on complaints and retaliation, and transparency cannot be enforced. Therefore, the EU is better prepared for the economic challenges of global competition than are single nations or trade-focused alliances. Loosening EU state aid rules, to enable Member States to ‘match’ state aid granted abroad, would torpedo the internal market from within. In order to enhance global subsidy transparency, the EU should not only project its values in bilateral and multilateral agreements but also should advocate for transparency provisions. The EU’s alleged weakness, namely its commitment to controlling Member State aid, is in fact its strength, because Member State interventions are thereby bound to redistribute wealth for common sustainable development objectives. Keywords: Doha Round, General Agreement on Tariffs and Trade (GATT), global competition, matching aid, subsidies and countervailing measures, subsidy race, trade policy, transparency, WTO

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Christian Koenig and Bernhard von Wendland

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Christian Koenig and Bernhard von Wendland

State intervention in the market can distort competition and create market power and thus result in the exploitation of society. EU competition rules in the area of state aid are constantly seeking a balance between the ‘common interest’ and ‘distortions of competition’. The chapter discusses three fields of state intervention: public investments; financing of services in the ‘general economic interest’ (SGEI); and state aid. In the area of public investments, EU state aid law applies the ‘market economic operator principle’ (MEIT) to identify hidden advantages in state investments. In the distinct area of public mega-projects, though, the authors propose to do away with the MEIP and apply the ‘rational public investor’ principle instead. EU rules in the area of public financing for SGEI aim at preventing distortions of competition while at the same time ensuring quality services in the ‘general economic interest’. However, Member States still seem to have a broad margin to overstretch the notion of SGEI. Ultimately, supranational state aid control moves control away from national to the supranational legislative and judicial systems. In the area of state aid, supranational rules are balancing the strengthening of market power against the necessity to provide incentives to deliver an outcome in the interest of society. These can be efficiency outcomes, e.g. to promote innovation, or equity outcomes, in particular in regional development. Keywords: efficiency, equity, incentive effect, location effect, public investor, R & D, innovation, regional development, state, services in the ‘general economic interest’ (SGEI), state aid, state resources, transfer of powers

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Christian Koenig and Bernhard von Wendland

Effective competition is the key driver to achieve inclusive wealth. To protect competition, sustainable regulation has to balance market forces where these are threatened by anti-competitive behaviour. Well-targeted regulation interferes where necessary, steering competition to achieve fundamental societal goals. A competitive, however, regulated environment fosters the inherent driving energies of undertakings to interact in markets, where resources are allocated to welfare outputs. The core instruments of market regulation are: prohibition of cartels and of abuse of market dominance, merger control, regulation of state aid, public procurement rules and sector-specific regulation. Keywords: cartels, effective competition, market dominance, merger control, public procurement, sector-specific regulation, state aid

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Christian Koenig and Bernhard von Wendland

European history of welfare economics resembles a roller coaster. From the peaks of integration to the downs of disintegration of the Roman Empire, from the ‘dark ages’ to the medieval guild system via mercantilist absolutism, from highly regulated industries to industrial revolution, from unfolded capitalism to social market economy – European history of both deprivation and welfare served universally as a perfect laboratory to refine the art of regulation. Finally, the European Union is approaching an equitable distribution of inclusive wealth by virtue of the rule of law. Keywords: capitalism, medieval guild system, mercantilism, Roman Empire, social market economy

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Christian Koenig and Bernhard von Wendland

Regulation remains what it is, namely, ordinary law that should be adopted and enforced based on democratic principles. Those principles limit executive power, guarantee the rights of individuals and prescribe a democratic process. This chapter will first retrace the EU regulator’s actual course in internal market, wealth and competition policies. Then, we will look at the EU’s current attempts to ‘make the EU as a whole more democratic’, to cut red tape and improve the quality of legislation and shape regulation through ‘soft law’. We will also make proposals on how to effectively control the EU regulator. Is the EU warily gazing at the horizon? Behind it, new resources, fresh potential and tough challenges are waiting to be discovered. For regulators, businesses, and consumers, there is a new frontier – big data. Regulation has to keep pace with innovative and even revolutionary business strategies and must free itself from conditioned patterns of classical ‘one-fits-all economics’ that worked so well in the old offline world. Just warily gazing at the horizon will set Europe aside from the global club of innovators. Keywords: big data, control of the EU regulator, democratic principles, governance, legislation, new frontier, soft law

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Christian Koenig and Bernhard von Wendland

Regulation is the key to overcoming the tyranny of the marketplace in the pursuit of economic justice and welfare: it can prevent the abuse of economic dominance. Such abuse undermines a functioning market, the economic motor to producing welfare, sustainability and inclusiveness. Abuse of public capital is as omnipresent as the abuse of market dominance by private capital. The state can make major investments or compete with the private sector, or pick winners and subsidise them. Such interventions may be necessary e.g. to provide infrastructure. The wasteful allocation of public monies, however, can do immense harm: it can crowd out private investments, distort private incentives and help foreclosing markets. In any case, it deviates scarce funds from those who need them most. Therefore, regulation of state aid and public procurement is just as essential as regulation against the abuse of market dominance by private capital. State monopolies have been another public cause of economic exploitation until the recent past. Besides poor quality of service, consumer bondage within state monopolies used to entail much higher prices for services compared to liberalised markets in other jurisdictions. After liberalisation though, complex and well-adjusted regulation is crucial to induce functioning competition and to allocate the welfare benefits from liberalisation. Keywords: abuse of market dominance, liberalisation, state aid, states monopolies, regulation

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Application of auction theory in China

Law and Economics Approaches to Bid Rigging

Stefan E. Weishaar