The European Competition authorities have just imposed a record fine of €1.06 billion for anti-competitive practices under Article 82 of the Treaty of Amsterdam. The fine was imposed on Intel, the world’s largest computer chip producer, for paying computer manufacturers to favour its chips over those of its main rival AMD. But were its practices against the interests of the consumer, as the European Commission and AMD maintain, or did it simply result in lower prices, as Intel maintains? The following articles explore the issues.
Intel on offensive in EU case BBC News (23/9/09)
Intel Fined $1.45 Bln by EU for Abuse of Dominance Announcement of fine by EU Competition Commissioner, Neelie Kroes: YouTube (13/5/09)
A billion-euro question The Economist (14/5/09) (see also)
EU fines Intel $1.45b for sales tactics The Chronicle Herald (Canada) (17/5/09)
Why Intel was fined in Europe — but not the U.S. USA Today: TechnologyLive (15/5/09)
EU slaps a record fine on Intel (plus video) BBC News (13/5/09) (see also)
European commission and Intel fine: Q and A Guardian (13/5/09)
Intel’s chipped credibility CNN Money, Fortune (14/5/09)
Intel–Anti-competitive or No? BusinessWeek (13/5/09)
Anti-competitve Intel fined record €1bn Times Online (14/5/09)
Questions
- Does a firm giving its customers discounts to use its products instead of a rivals always constitute predatory pricing?
- Under what circumstances would behaviour such as that of Intel be (a) against and (b) in the public interest?
- What is meant by ‘ordoliberalism’? How is the concept relevant to understanding the different approaches of regulatory authorities in different countries? (see USA Today article)
The European Commission has fined four glass companies, including the UK firm Pilkington, for operating a price-fixing cartel in the market for car glass. As part of the cartel, managers in the firms, met in secret to fix prices and carve up the market between them. The largest single fine was handed down to the firm Saint-Gobain, the owner of the UK plasterboard group BPB. Saint-Gobain was fined 896 million euros. The four firms between them controlled around 90% of the market for car glass at the time the cartel operated.
Glassmakers fined record €1.4bn for price-fixing by European regulators Guardian (13/11/08)
Europe fines glassmakers record €1.4bn Times Online (12/11/08)
Questions
- Explain what is meant by a cartel and how it is able to increase the profits of its members.
- What market conditions are most likely to lead to the formation of a cartel?
- Compare and contrast the role of the UK Competition Commission and the European Commission in maintaining competitive markets.
- Evaluate two policies that can be used by governments to prevent price-fixing.
Energywatch, an industry watchdog, has argued in a recent report to MPs that Britain’s electricity and gas supply industry is a “comfortable oligopoly” that feels little need to innovate or compete. They have called for the sector to be subject to a Competition Commission investigation.
Power companies are ripping off consumers Times Online (21/5/08)
Age of cheap power is over Times Online (21/5/08)
Call to investigate energy ‘oligopolies’ Guardian (21/5/08)
Questions
| 1. |
Explain the main characteristics of an oligopolistic industry. |
| 2. |
What aspects of the electricity and gas supply market would the Competition Commission consider if asked to investigate the industry? |
| 3. |
Assess the extent to which the electricity supply industry exhibits oligopolist collusion. |
The Civil Aviation Authority (CAA) – the regulatory body for Britain’s airports – has allowed the main airport operator BAA to increase substantially the landing charges it levies on airlines. The airlines have reacted angrily and argued that the higher charges will simply be passed on to passengers in the form of higher fares.
Q&A: Airport landing fees BBC News Online (11/3/08)
BAA to raise airport landing fees BBC News Online (11/3/08)
Fares will rise as fees cap is lifted Guardian (cartoon) (12/3/08)
Fares will rise as fees cap is lifted, airlines warn Guardian (12/3/08)
Video
BAA to raise landing fees BBC News Online
Questions
| 1. |
Explain the regulatory system in operation for the control of landing fees at UK airports . |
| 2. |
Explain why the CAA has increased the landing fees that BAA can charge for planes landing at UK airports. |
| 3. |
Is raising landing fees an efficient method of internalising the externalities associated with air travel? |
| 4. |
Evaluate the extent to which the higher landing fees will be passed on to airline passengers. Use diagrams as appropriate. You may also like to consider the relevance of the price elasticity of demand for air travel in determining the extent to which the higher landing fees can be passed on by the airlines. |
The EU has imposed a record £680m fine on Microsoft for imposing unreasonable prices on their rivals for access to the Windows code that they required to be able to build complementary software. The record fine is a drop in the ocean for Microsoft, representing just two weeks cash flow, but they hope that this marks an end to the dispute with the EU. They argue that new working practices will help improve interoperability and that they have already begun to offer better access to code for their competitors.
Microsoft hit by 899m euro fine for failure to comply with EU ruling Times Online (28/2/08)
EU fines Microsoft record £680m ‘to close dark chapter’ in fight against monopoly Guardian (27/2/08)
The EU’s frustration with Microsoft Guardian (27/2/08)
Ten years of legal wrangling between Microsoft and EU Guardian (27/2/08)
Pity the big, bad wolf Guardian (27/2/08)
Questions
| 1. |
Explain why the EU Competition Commissioner has ruled that Microsoft has behaved anti-competitively. |
| 2. |
Describe the role of the EU’s Competition Commissioner in improving the competition in markets.
|
| 3. |
Examine other options available to the EU’s Competition Commissioner to improve the competitive situation in European markets. |