Distortion Of Competition Research Articles

State Aid Support to Financial Institutions and the Question of Systemic Importance in the 2008 Financial Crisis: Time for a New Approach?

What is or is not a systemic important bank in times of financial crisis? Such a question is not easy to answer when the demise of even peripheral financial institutions in one country may trigger financial turmoil in others via a domino effect. From a State aid perspective, the question of systemic importance was not adequately addressed during the 2008 financial crisis as the Commission and Member States sought a flexible solution to a complex problem. This solution manifested itself via the continued transfer of taxpayers’ money to insolvent financial institutions simply to maintain the financial stability of other financial institutions. Therefore, the aim of this Paper is to critically assess the Commission’s application of State aid rules to the banking sector and propose a new systemically important test for financial institutions that is rooted in the State aid law domain. As part of this process the level of aid that should be provided to a financial institution deemed systemically important will also be examined as will the need for new competition distortion safeguards to ensure that supporting an insolvent but systemically important bank does not undermine the market position of long-term viable competing financial institutions. The overarching objective of this research is to formulate a future State Aid Crisis Framework for the banking sector that strikes the correct balance between maintaining financial stability and protecting taxpayer resources. In conjunction to this the paper also seeks to examine how a new State Aid Crisis Framework will interact the Bank Resolution and Recovery Directive and whether a new approach could be designed to maintain financial stability in a financial crisis while also ensuring that Member State’s resources are not continually at the beck and call of recipient financial institutions.

Economic impacts of the ASEAN single aviation market: focus on Cambodia, Laos, Myanmar, The Philippines and Vietnam

ABSTRACTSince 2004, the Association of SouthEast Asian Nations (ASEAN) has decided to move towards liberalization of air transport inside the region as well as outside by signing multilateral agreements with other countries. In this article, we focus on the economic impact of liberalization. We show that by liberalizing up to the 5th freedom right, given the expectations with respect to tourism development, national GDP is expected to increase yearly from 1% (Cambodia) to 6.1% (The Philippines). Regarding partner states involved in multilateral agreements, the case of China shows that ASEAN airlines might well face possible competition distortions as a result.

Individual concern in the State aid action for annulment in light of the notion of State aid

ABSTRACTCompetitors of aid beneficiaries bringing an action for annulment against a State aid decision must demonstrate that their position on the market is substantially affected. However, the interpretation of this criterion seems inconsistent with the concept of State aid, in particular with the notions of selective advantage and distortion of competition. Indeed, substantial effect privileges selective disadvantage over selective advantage and requires actual harm where a simple threat of distortion of competition is enough. This inconsistency has far-reaching implications because the interpretation of admissibility criteria encroaches upon the interpretation of the notion of State aid. Therefore, by narrowing down the scope of challengeable State measures, the Court effectively excludes from the scope of judicial review an important part of measures falling under Article 107(1) TFEU. Consequently, admissibility conditions should be mitigated and aligned with the logic of State aid law for the sake of completeness of EU State aid control.

The Exclusion of Participants from the Award Procedure for Reasons Linked to Competition Distortion

Bid-rigging represents a real concern in the present socio-economic context, not only in Romania, but also in other European Union Member States. Thus, Directive 2014/24/EU on public procurement (transposed by Law nr. 98/2016) is issued from the EU legislator’s effort to regulate, through public procurement legislation, the stringent problems regarding private corruption, problems that the Court of Justice of the European Union was concerned with. Thus, Directive 2014/14/EU incorporates the solutions of the European Court which has traced the principles for settling certain problems regarding public procurement and competition distortion by participants, solutions which should be respected also by the Romanian courts called upon to interpret and to apply Law nr. 98/2016 in a pan-European spirit.

The impact of implementing a consumption charge on carbon-intensive materials in Europe

ABSTRACT The production of basic materials accounts for around 25% of global greenhouse gas emissions. Existing measures to reduce emissions from industry are limited due to a combination of competitiveness concerns and a lack of technological options available to producers. In this paper, we assess the possibility of implementing a materials charge to reduce demand for basic industrial products and, hence, also reduce industrial emission levels. The modelling shows that a charge equivalent to around €80/tCO2 could reduce the EU’s total (energy plus process) CO2 emissions by up to 10% by 2050, depending on the substitution options available. The materials charge could lead to small GDP increases and a minor reduction in overall employment levels. Key policy insights Full carbon price pass through along the materials value chain creates incentives for resource efficiency and substitution in the value chain of material use. Most macroeconomic models ignore mitigation opportunities in the value chain, as do carbon pricing mechanisms for industrial emitters, which largely mute incentives for mitigation opportunities with free allowance allocation. Including consumption at a benchmark level in emission trading systems reinstates a full carbon price incentive for all mitigation opportunities while avoiding competitive distortions and carbon leakage risks. Macroeconomic modelling shows that this allows for an additional 10% emission reduction accompanied by a slight GDP increase and employment reduction. Long-term clarity on carbon leakage protection furthermore strengthens low-carbon investment frameworks.

A Research on the Exclusive Behavior of E-commerce Platforms under the “Free” Business Model

It has been frequently reported that many Internet platforms with the free” business model usually compete through signing exclusive dealings with their content providers （or sellers）, and this phenomenon becomes increasingly popular in the digital age. By far academic researches on the exclusive behavior remain ambiguous. In an effort to explore the potential motivations of platforms’ exclusive behavior, this paper path-breakingly analyzes the relationship between cross-network externality and the exclusive behavior from the angle of the business model by developing a duopoly dynamic game model within two-sided markets. The either-or” problem between the two internet giants of China’s E-commerce platforms—Tmall and JD, is under consideration as a case. This paper finds that: （1） In unilateral foreclosure, the platform unilaterally has the incentive to compel its multi-homing sellers not to join its rival platform when the cross-network externality in the seller side is relatively high. Holding the number of consumers constant, the exclusive platform is able to charge a higher per-transaction fee with a higher product price when compared to the benchmark case without exclusivity; while the non-exclusive platform charges a higher per-transaction fee with zero product price compared to the benchmark case, which could make its rival’s profits reduce to zero. Thus, it is suggested that the exclusive competition with the free” business model is more exclusive, and consumer surplus and social welfare are clearly lower than the case without exclusive dealings due to the distortion of competition in the seller side. （2） In bilateral foreclosure, duopoly platforms charge a higher per-transaction fee with a lower product price relative to the benchmark when the cross-network externality in the seller side is relatively high, which generates lower profits compared to the benchmark. At this point, the effective number of sellers becomes the lowest among the three cases, which would result in a lower consumer surplus and social welfare. When the externality is relatively low, both of the platforms will not foreclose （the benchmark）, and consumer surplus and social welfare are higher than the case of unilateral foreclosure, but is lower than the benchmark. （3） When the choice of the exclusive behavior is endogenous, both of the platforms will offer exclusive dealings when the cross-network externality in the seller side is high, though this would lead to the prisoners’ dilemma. However, duopoly platforms will not implement the exclusive behavior when the externality is relatively low. Different from the traditional research, this paper develops a theoretical framework based on the free” business model of Internet platforms, and incorporates the rationality of co-existence of multi-homing sellers and single-homing sellers. Traditional relevant studies only consider that all of the sellers are multi-homing in equilibrium and have not taken the business model into consideration, while this paper theoretically extends the related research on the platform exclusive dealing. When considering the distortion of competition, the exclusive behavior always results in the decline of consumer surplus and social welfare. Therefore, this paper is helpful for understanding the relationship between the business model of E-commerce platforms and the highly controversial either-or” debate in reality. In terms of protecting competition, the exclusivity of platforms with strong attraction for the seller side should be concerned by antitrust authorities.

Money Market Fund Regulation

MMFs provide short-term finance to financial institutions, corporations and governments thereby contributing to the financing of the EU economy. Those investors use investments in MMFs as an efficient way to diversify their credit risk and exposure, rather than relying upon bank deposits. On the demand side, MMFs are a crucial link bringing together demands and offers of short-term cash that provides a high degree of liquidity, diversification and stability of value of the principal invested, combined with a market-based yield. During the subprime mortgage crisis in 2008, one of the US oldest and largest MMFs - the Reserve Primary Fund - ‘broke the buck’ . The sequence of events caused by this in the MMF domain shed light on several features of MMFs that make them vulnerable when there are difficulties in financial markets in which case MMFs could spread or amplify risks throughout the financial system. The Reserve Primary Fund showed that when the prices of the assets in which a MMF has invested, start to decrease, especially during stressed market situations, MMFs cannot always maintain their promise to redeem immediately and to preserve the principal value of a unit or share issued by the MMF to its investors. Furthermore, large redemption requests during the 2008 financial crisis forced MMFs to sell some of their investment assets in a declining market that fuelled a liquidity crisis. Money market issuers faced funding difficulties as a result of the market for commercial paper and other money market instruments that dried up. This led to contagion within the short-term funding market and resulted in direct and major difficulties in the financing of financial institutions, corporations and governments, and thus the real economy. Following the 2008 financial crisis, the FSB and IOSCO identified that substantial and sudden redemption requests can be particularly serious for constant or stable net asset value (CNAV) MMFs potentially triggering broader macroeconomic issues. In the absence of European regulation setting out rules on MMFs, diverging measures would have been adopted at the national level. Such measures would have continued to cause significant distortions of competition resulting from significant differences in essential investment protection standards, leading to different levels of investor protection throughout the EU. For that reason, the MMFR introduced a ‘top-up’ harmonized European framework for UCITS and AIFs whose characteristics correspond to those associated with an MMF. This harmonized framework applies, in addition to, the regulation imposed by the AIFMD and UCITSD as it intends to promote the integrity and stability of the internal market by ensuring a mandatory investment policy that enables MMFs in the form of an AIF of UCITS to immediately redeem investors. The MMFR does not allow any collective investment undertaking to be established, marketed or managed in the EEA as a MMF, unless it has been authorized as AIF or UCITS under the regulation and complies with the mandatory MMFR requirements related to its managers, product and sales/distribution. These ‘lex specialis’ MMFR requirements will now be subsequently discussed.

Sankcje za niedozwoloną współpracę konkurentów: aspekty psychologiczne

Przedmiotem artykułu jest znaczenie, jakie błąd oceny z perspektywy czasu ma w procesie stosowania prawa, a zwłaszcza przepisów z zakresu konkurencji w Unii Europejskiej. Uwaga skupia się na tym, jak błąd ten może zaważyć na ocenie skutków kooperacji pomiędzy (potencjalnymi) konkurentami. Sprawa ma szczególne znaczenie tam, gdzie przyjmuje się, że kooperacja wywiera skutki w postaci zapobieżenia, ograniczenia lub zakłócenia na rynku wewnętrznym (co jest zabronione na podstawie art. 101(1) Traktatu o funkcjonowaniu Unii Europejskiej). W tekście nawiązuje się do sposobu, który w literaturze amerykańskiej przedstawiany jest jako metoda zapobiegania negatywnym wpływom błędu oceny z perspektywy czasu na proces stosowania prawa. W artykule przedstawiona również inną koncepcję uwalniania od odpowiedzialności za nieprawidłowe decyzje gospodarcze, niezwiązaną ze sprawą błędów poznawczych. Autor podaje w wątpliwość zastosowanie tej koncepcji w sprawach szkodliwej dla konkurencji kooperacji.

Instrumente der Klimapolitik: effiziente Steuerung oder verfehlte Staatseingriffe?

At the UN climate conference in Paris, participants committed to reaching climate neutrality in the second half of the 21st century. This is only possible, however, if climate protection measures are not concentrated on individual countries. Emissions trading is an efficient tool to help reduce greenhouse gas emissions on a global scale. The CO2 price would need to be harmonised globally in order to avoid distortions of competition and carbon leakage. To achieve this, there has been a call for the introduction of CO2 taxes. Germany will miss its climate policy targets for 2020. If the necessary significant reductions in greenhouse gas emissions are to be reached in the coming decades, a political and social rethink is needed. A comparison between the efforts of the past and those that must be undertaken in the future demonstrates just how far we have to go.

The Electricity Market Structure in Greece and the Paradox of Renewable Energy Sources

The European Union, in an effort to boost the use of Renewable Energy Sources (RES) in power generation, applies supportive tools consisting in financial motivation either as grants or as subsidies. According to welfare economics, a subsidy should reflect the external benefits; otherwise a distortion of competition takes place. The most widespread method to calculate externalities is the avoided cost approach, despite the fact that it encounters equally all the RES units leading to technological neutrality. In the present article, the avoided cost approach with the objective social justification of RES subsidies/feed in tariffs (FITs) in the case of Greece, for the year 2014, is applied. The results show a high gap between the current FITs and the suggested ones amounting to approximately 40%. This uncomfortable outcome indicates that, at least in the case of Greece, either the level of the current guaranteed tariffs is not socially justified, or the CO2 value derived from the European carbon market does not reflect the real social cost, or that the avoided cost method, alone, is not adequate to explain the level of subsidies. In light of the foregoing, the need for the development of a concrete and integrated methodology for calculating all RES externalities emerges.

International Post Organisations: A European Perspective

In Europe, there have not been evolved a single market for postal services so far. The markets for postal services are predominantly restricted to the national boundaries determined by the different socio-economic and legal conditions that are still present in the Member States of the European Union (EU).1 However, market integration of postal services, ending up to a single market, would intensify competition among postal services providers, thus, finally increasing welfare.2 One barrier of market integration could be the multilateral agreements for cross-border postal services of the International Post Corporation (IPC) and of the Universal Postal Union (UPU) that apply exclusively to the Universal Service Providers (USP). These agreements have the potential for several distortions of competition. For instance, agreements on the remuneration for both incoming cross-border letter items and incoming cross-border parcel items in the country of destination can generate cost advantages for the USP as the remuneration is not cost-based. Furthermore, the exclusion of competitors from developing and using technical and logistics standards reinforces their dependency on the postal networks of the USP and puts them at a timing, technological, and financial disadvantage. Furthermore, the abovementioned agreements can be incompatible with the EU Postal Services Directive and with Articles 101 and 102 of the TFEU.

Commercial Divisions of Public Entities and the Limits of EU Competition Law

Competitive behaviour by public entities is generally approached in the literature as concerning the traditional State-owned enterprises pursuing public interest objectives. However, increasingly we see examples of commercial divisions of public entities aiming to generate revenue per-se. Because these commercial divisions can enjoy competitive advantages over their private competitors, their behaviour may distort competition. This phenomenon has become prevalent throughout the EU, and member states tend to approach its anticompetitive effects through various competition law(-related) frameworks. This article points out, however, that a competition law framework may be ill-suited to address anticompetitive effects of commercial divisions of public entities. First, commercial divisions may not qualify as ‘undertakings’ under competition law to begin with. Second, competition authorities may face procedural and institutional challenges when enforcing against commercial divisions of public entities. With an ill-functioning and diverging legal framework across the EU, anticompetitive effects of commercial divisions of public entities lead to an uneven playing field between public and private firms with adverse effects on the internal market. Conduct that can be considered an infringement of competition law by a private firm may escape competition law scrutiny when perpetrated by a commercial subsidiary of a public entity. Before resorting to remedies, however, more research is necessary to appreciate and quantify the possible distortion of competition by commercial divisions of public entities, compile best-practice regulatory responses and further study effects on matters related to the rule of law.

Leverage and Risk-Weighted Capital in Banking Regulation

This paper offers a critical survey of the swings in banking regulation, notably with reference to leverage and Risk-Weighted Ratios (RWR). At the outset, a distinction is made between economic and Regulatory Capital (ReC) and between private and social costs/benefits of equity finance for banking firms. The inherent limitations of the transformation process of assets into a combined size-risk metric, amplified by Negative Nominal Interest Rates (NNIRs), are brought to the fore, as well as the relative ease of circumventing the rules. The complexity of regulatory risk weighting creates significant (fixed) compliance costs. Unless appropriate tiering is adopted, a competitive distortion is created in favor of large banking institutions. These shortcomings were especially evident in the Basel II standard. With reference to the Basel III/IV framework, it is argued that the two regulatory ratios (leverage and risk-weighted capital) can be complementary, but require close and constant supervision, rather than the quest for an optimal (steady state) ex ante calibration, which may prove time inconsistent. Emphasis should be placed on corporate governance and on the effective interaction between supervisory activity and internal controls. This is usefully complemented by stress-testing techniques which are less model-dependent. Potential drawbacks inherent in recent regulatory changes in the US (community banks have now the option of abandoning tiered risk-weighted requirements and adopting exclusively a leverage constraint, higher than 9%) are indicated.

Transnational effects of decisions of the antimonopoly office of the Slovak Republic

In this paper the author deals with transnational effects of decisions of the Antimonopoly Office of the Slovak Republic as an authority for the protection of competition of the national nature, however, in the European law context. The author points out the application of national competition law in close association with legal provisions contained in the essential documents of the EU. The paper also mentions the European tendencies of unifying competition protection legislation. In the context of a threat to competition, the author also points out the importance of complying with obligations in detecting and proving the same. He also refers to situations where, despite the potential presence of competition concerns, competition distortions do not occur.

Politika zaštite konkurencije u Srbiji - dometi i ograničenja

Competition encourages market participants to be more efficient, which increases the economic growth rate and the standard of living. Any distortion of competition reduces economic efficiency and social well-being. The need to protect competition raises the issue of the effectiveness of the competition policy. The rules protecting the right of competition are the basis of this protection, but the effectiveness of competition protection also depends on other state activities in the field of competition protection policy. The state policy can both protect and compromise competition (e.g. the state aid policy). Domestic businesses are not used to competition but often try to profit by using privileges. On the other hand, our country does not demonstrate a genuine willingness to implement an effective competition policy, nor does it engage in a serious fight against business-related corruption. The domestic Competition Protection Commission and the State Aid Control Commission are essentially not independent, especially the latter. The Administrative Court is directly competent to decide on competition protection issues in our country; it is in charge of overseeing the decisions of the Competition Protection Commission but, for the time being, there are no specialized departments that would deal with this area. There is no effective competition policy without an independent and expert body, which would competently apply the regulations in this area, and an efficient judiciary. The national Competition Protection Act is not perfect, but it provides a solid basis for competition protection. The major objection to this Act is that the government establishes closer conditions for the implementation of this law, thus giving the executive authorities the power to restrict legislative provisions by enacting by-laws. The Act on State Aid Control should undergo major changes because it has not accomplished its goals, especially concerning the position of the competent commission in charge of its implementation. Although the Serbian legislation in the field of competition is not perfect, the legal provisions are less of a problem than their implementation. Thus, competition protection implies that good legal solutions are in place and that there are independent and effective institutions for implementing the envisaged provisions.

The Never Ending ‘Saga’ of the Fallimento Traghetti del Mediterraneo · Case C-387/17 Traghetti del Mediterraneo · Annotation by Alessandra Franchi

This judgment continues the ‘saga’ related to the litigation between Fallimento Traghetti del Mediterraneo and the Italian State concerning the unlawful State aid granted to Tirrenia di Navigazione SpA as compensation for public service obligations from 1976 to 1980 and shows the complexity of the assessments by national courts on damages related to the granting of unlawful State aid. The CJ provides guidance on the notion of existing aid, clarifying that State aid measures which were granted in a period when the maritime cabotage market was not yet liberalized at Union level cannot be classified as existing aid because of the merely formal absence of liberalisation of that market, to the extent that those subsidies were liable to affect trade between Member States and distorted or threatened to distort competition. The CJ also emphasises the cooperation obligation of the national courts and their role in awarding damages related to the distortion of competition created by unlawful State aid. Member State cannot invoke the principle of legitimate expectation in case of breach of the notification obligation set in Article 108 (3) TFEU. Finally, the CJ clarifies that the ten-year limitation period set out in Article 15, paragraph 1, of Regulation 659/1999 (repealed by Regulation 2015/1589), only applies to Commission investigation under Article 108, paragraph 3, TFEU and only refers to the Commission’s power and time limit for recovery of illegal aid, but does not apply in damages proceedings before the national jurisdictions. Keywords: Existing aid; Recovery; National enforcement; Prescription; Damages.

Ancillary Copyright and Liability of Intermediaries in the EU Directive Proposal on Copyright

Ancillary Copyright and Liability of Intermediaries in the EU Directive Proposal on Copyright

Remedies in Antitrust

Competition is indispensable for proper function of market economy. In order to secure that competitive process is not harmed, competition authorities on both EU and national level observe conduct of undertakings. In case of a distortion of competition, the competition authorities are entitled to impose remedies. This article deals with the legal regulation of remedies within EU law and Slovak law, completed by discussion on significant cases and relevant opinions of scholars. It concentrates on antitrust part of competition law, providing complex view on the problematics. The discussion is supplemented by presentation of legal regulation of public procurement and cases, which were concerned with both antitrust and public procurement issues, bid rigging in particular. The dangerousness of this practice is confirmed by a recent Slovak case on luncheon vouchers, which is analysed in the last part of the article.

Moral Attitudes Toward Pharmacological Cognitive Enhancement (PCE): Differences and Similarities Among Germans With and Without PCE Experience.

Pharmacological cognitive enhancement (PCE), the use of illicit and/or prescription drugs to increase cognitive performance, has spurred controversial discussion in bioethics. In a semi-structured interview study with 60 German university students and employees, differences and similarities in moral attitudes toward PCE among 30 experienced participants (EPs) vs. 30 inexperienced participants (IPs) were investigated. Substances EPs used most often are methylphenidate, amphetamines, tetrahydrocannabinol and modafinil. Both EPs and IPs addressed topics such as autonomous decision making or issues related to fairness such as equality in test evaluation and distortion of competition. While most EPs and IPs were convinced that the decision of whether or not to use PCE is part of their individual freedom, their views varied considerably with regard to fairness. IPs considered issues related to fairness as much more critical than EPs. Thus, a person’s moral attitudes toward PCE may not only depend on moral common sense, but also on whether they have used illegal and/or prescription drugs for PCE before. This points to the importance of including the various relevant stakeholder perspectives in debates on the ethical and social implications of PCE.

Achieving Competitive Neutrality Step-By-Step

States are not only rule makers, they also are purchasers and often also suppliers of goods and services. However, the state is not a purchaser or supplier like any other. It may enjoy competitive advantages other market participants do not have. The concept of competitive neutrality addresses the problem of distortions of competition caused by state activity on markets. This article lists thirteen consecutive steps, which are clustered in three distinct groups, to improve the conditions of competition on markets where private enterprises are active as purchasers or suppliers next to the state.They reach from creating more awareness of competition-distorting state measures and the prevention of new distortions to the removal of distortions.