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)
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 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. |
Dutch brewers including Heineken and Grolsch have been fined a total of nearly £185m between them for stifling competition and sharing price information with the intention of fixing prices. This cartel was discovered by EU investigators and the fine has been imposed by the EU competition commission.
Dutch brewers fined over cartel BBC News Online (18/4/07)
Beer makers fined in Dutch price probe Business Week (18/4/07)
EU fines Heineken for fixing beer prices Business Week (18/4/07)
Heineken and Grolsch fined for price-fixing Guardian (18/4/07)
Heineken fined 219m euro for fixing beer prices Times Online (18/4/07)
Questions
| 1. |
Explain the conditions required for a cartel to develop. |
| 2. |
Explain the methods used by the brewing firms to fix prices in the beer market. |
| 3. |
Evaluate two policies that could be used by the EU competition commission to try to prevent cartels reemerging in the future in the brewing industry. |