Competition authorities in the USA and Europe tend to have a different approach to firms that have a dominant market position by virtue of their ownership of specific intellectual property, such as software codes. Thus companies such as Microsoft can exploit network economies, thereby making it hard for rival firms to compete. After all, if most people use Windows, there is an incentive to keep using it so as to be compatible with other users. Similar arguments apply to the ownership of physical property, such as ports, airports, railways and power lines, where the owners may choose to deny access to competitors.
So should companies such as Microsoft grant rivals access to their intellectual property? Would such access increase competition, or would it be a disincentive for rivals to innovate? The following article from The Economist considers the issue and refers to a recent paper by Sir John Vickers, former head of the Office of Fair Trading and now Warden of All Souls College, Oxford and President of the Royal Economic Society. He argues for a mid-way course between Europe and America – more interventionist than in the USA, but less rigidly regulated than in the EU.
What’s mine is yours The Economist (28/5/09)
Competition Policy and Property Rights, John Vickers Oxford University , Department of Economics, Discussion Paper Series (26/5/09)
See also
‘Intel inside’ could be outside the law
Questions
- Explain what is meant by ‘network economies’ and give some examples.
- What are the arguments for and against requiring companies to give rivals access to their intellectual property?
- If companies are required by the competition authorities to give others access to their intellectual property, should they be allowed to charge their rivals for using such property, and, if so, how would the authorities determine the appropriate amount?
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)
Nationalisation has been coming back into fashion lately with the UK bank bail-outs. In other parts of the world though, it has been back in fashion for longer and the articles below look at two recent cases in Latin America: the nationalisation of the Chaco energy company and the renationalisation of Spanish-owned airline, Aerolineas Argentinas (AA).
Bolivia nationalises energy firm BBC News Online (24/1/09)
Argentina renationalises airline BBC News Online (18/12/08)
Questions
- Explain what is meant by nationalisation.
- Discuss the arguments for and against nationalising (a) an airline and (b) an energy firm.
- Assess why nationalisation has become more prominent in the media recently than privatisation.
- Discuss the arguments for and against privatisation.
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.
Nationalisation has been seen by most people as something very much of the past. However, the financial crisis has changed all that and the recent nationalisation of banks in Iceland and part-nationalisation of UK banks has brought the concept under the economic microscope once again.
Iceland struggles for control as it nationalises Kaupthing Times Online (10/10/08)
Brown and Darling have bitten the bullet – and set the world an example Guardian (9/10/08)
G7 ministers forced to think the unthinkable Guardian (11/10/08)
Questions
| 1. |
Define the term ‘nationalsation’. |
| 2. |
Assess why the Icelandic government felt that the nationalisation of Kaupthing was the best solution to their financial situation. |
| 3. |
Discuss the extent to which other countries may be obliged to nationalise their banks. |
| 4. |
Discuss whether the current tranche of nationalisation is likely to be extended beyond the finance industry. |