Cecily Zamora
The United States and the European Union have two of the most influential systems of competition regulation in the world. The US has a common law approach to antitrust legislation, with courts interpreting open-ended statutes through case law. This allows firms more leeway to exclude rivals, as long as it benefits consumers. The EU, on the other hand, takes a more centralized and political approach, with the European Commission's Directorate General for Competition (DG Comp) having significant discretion over how the law is enforced. This approach is more focused on maintaining a competitive free market and preventing market concentration. While the US system may be more conducive to innovation, the EU stands out in regulating the digital economy and has successfully fined Big Tech companies for anticompetitive behaviour.
| Characteristics | Values |
|---|---|
| History | The US has older anti-competitive laws, with the Sherman Antitrust Act enacted in 1890. |
| Regulatory Approach | The EU takes a more centralized and political approach, with the European Commission having significant discretion over enforcement. The US takes a common law approach, with courts elaborating on statutes through case law, allowing more leeway for firms to exclude rivals. |
| Focus | The US focuses on consumer welfare and is less concerned with companies charging high prices. The EU takes a structuralist approach, focusing on maintaining a competitive free market and preventing abuses of dominant positions. |
| Merger Control | The US has a voluntary merger control regime, while the EU has stricter rules under the Merger Regulation 139/2004. |
| Penalties | The EU can fine companies up to 10% of their annual worldwide turnover, and individuals may face penalties including prison. The US has treble damages under antitrust law. |
| Digital Economy Regulation | The EU has passed legislation limiting "gatekeeper" corporations and has successfully fined Big Tech companies. The US has also shown momentum in this area under Lina Khan's leadership of the FTC. |
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What You'll Learn
The US's bottom-up approach to antitrust law
US antitrust law is primarily concerned with protecting the process of competition for the benefit of consumers. The objective is to ensure strong incentives for businesses to operate efficiently, keep prices down, and maintain quality. The Sherman Antitrust Act of 1890 outlaws "every contract, combination, or conspiracy in restraint of trade" and any "monopolization, attempted monopolization, or conspiracy or combination to monopolize". However, the Supreme Court has interpreted this to mean only \"unreasonable\" restraints of trade are banned, and most business practices are evaluated on a case-by-case basis.
The US approach to antitrust law is generally more hospitable to innovation, as there is no built-in regulation of conduct for innovators who acquire a successful market position through normal competition. US antitrust law is also unconcerned with companies charging high prices, as long as it does not involve predatory pricing. Predatory pricing is subjected to two strict conditions: monopolists must charge prices below their incremental costs, and there must be a realistic prospect of recouping these losses.
In addition to federal antitrust laws, most US states have their own antitrust laws enforced by state attorneys general or private plaintiffs. These laws are based on federal statutes and modified in specific cases, such as for media companies, to protect free speech.
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The EU's centralised approach to antitrust law
The EU has strict rules to protect free competition. The European Commission's Directorate-General for Competition (DG Comp) has significant discretion over how the law is enforced. The EU's antitrust law is derived from Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU), which prohibit agreements between market operators that restrict competition and the abuse of dominance. Article 101 prohibits "all agreements between undertakings, decisions by associations of undertakings, and concerted practices which may affect trade between member states and which have as their object or effect the prevention, restriction, or distortion of competition within the common market." This includes both horizontal and vertical agreements.
Article 102 of the TFEU addresses the abuse of a dominant position in the market, which can include predatory pricing, refusals to deal, and exclusive dealing. The EU's antitrust law also covers cartels, which are considered the most flagrant example of illegal conduct infringing Article 101. The formation of a cartel between competitors may involve price-fixing and/or market sharing. The EU's competition rules also apply to public enterprises, which must play by the same rules on collusion and abuse of dominance, although Article 106(2) of the TFEU states that nothing in the rules can obstruct a member state's right to deliver public services.
The European Commission is responsible for investigating suspected infringements of Articles 101 and 102 and has been granted extensive investigative powers, including the power to carry out dawn raids on the premises of suspected undertakings and private homes and vehicles. If a violation of the competition rules is found, the infringing party may be fined up to 10% of its annual worldwide turnover. Despite these strict rules and enforcement mechanisms, victims of competition law infringements often do not obtain reparation for the harm suffered, leading to ongoing debates and discussions on facilitating antitrust damages actions.
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The US's focus on consumer welfare
The United States' approach to antitrust law has been characterised as a bottom-up approach, derived from arguments made by litigants and defendants. The US antitrust law is largely unconcerned with companies charging high prices, instead focusing on protecting the process of competition for the benefit of consumers. The objective is to ensure strong incentives for businesses to operate efficiently, keep prices down, and maintain quality.
The US antitrust law, or the Sherman Antitrust Act of 1890, outlaws "every contract, combination, or conspiracy in restraint of trade" and any "monopolization, attempted monopolization, or conspiracy to monopolize". The Sherman Act does not prohibit every restraint of trade, only those deemed unreasonable. Certain acts are considered so harmful to competition that they are almost always illegal and are considered "per se" violations of the Sherman Act. These include agreements among competitors to fix prices or wages, rig bids, or allocate customers, workers, or markets.
The Clayton Act, another piece of antitrust legislation, addresses specific practices that the Sherman Act does not clearly prohibit, such as mergers and interlocking directorates. The goal of the Clayton Act is to maintain a fair marketplace, giving consumers more options and better prices, and ensuring a fair market for workers.
The consumer welfare standard has been the backbone of antitrust enforcement and litigation for over 40 years. This standard is measurable using economic analysis and empirical evidence, guiding antitrust enforcers and courts when evaluating the effects of a business practice or merger on the consumer. However, this standard has recently come under attack, with enforcers seeking to use antitrust policy as a tool to solve other societal issues, such as depressed employee wages and harm to competitors.
The US Supreme Court has also played a role in shaping the consumer welfare focus of antitrust law. In Leegin, the Court changed its approach to RPM, ensuring that the law no longer simply precluded consumer benefits. In United States v. Trans-Missouri Freight Association, the Court held that the goal of antitrust law is to protect 'small dealers and worthy men', even if it came at the expense of lower prices for consumers.
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The EU's focus on market dominance
The European Union's competition law is codified under Articles 101 to 109 of the Treaty on the Functioning of the European Union (TFEU). Article 102 of the TFEU prohibits the abuse of a dominant position by one or more undertakings having a dominant position in a particular market within the EU, or in a substantial part of it, insofar as it may affect trade between EU Member States.
A business can be said to be in a dominant position where it possesses "market power" and can, therefore, behave independently of its competitors, customers, and consumers. This typically arises when a business has a share of 35 to 40% or more of supplies or purchases of goods or services in a properly defined geographical and product market. However, the level of market share is only a guide, and the key issue is whether the business has market power.
Examples of behaviours that constitute an abuse of a dominant position include charging excessive prices, predatory pricing, tying and bundling, and refusing to deal with certain counterparts or supply goods, services, or access to key infrastructure or technology. Dominant businesses must also be cautious when offering rebates and discounts, as these can be considered anti-competitive if they are designed to prevent customers from switching to alternative suppliers.
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The US's merger regulation
The United States' approach to merger regulation is characterised by a common law approach, where courts interpret statutes through case law. This bottom-up approach is in contrast to the European top-down regulatory approach. The US merger regulation is primarily governed by three core federal antitrust laws: the Sherman Act, the Clayton Act, and the Federal Trade Commission Act.
The Sherman Act, enacted in 1890, is the first antitrust law passed by Congress. It outlaws "every contract, combination, or conspiracy in restraint of trade" and any "monopolization, attempted monopolization, or conspiracy to monopolize". The Supreme Court has interpreted the Sherman Act as a "rule of reason", evaluating business practices on a case-by-case basis according to their effect on competition. Certain practices, such as price-fixing, market-dividing, or bid-rigging, are considered per se violations of the Sherman Act and are almost always illegal.
The Clayton Act, passed in 1914, specifically addresses mergers and acquisitions. Section 7 of the Clayton Act prohibits mergers and acquisitions that may substantially lessen competition or tend to create a monopoly. It also bans discriminatory pricing and certain dealings between merchants. The Hart-Scott-Rodino Antitrust Improvements Act of 1976 amended the Clayton Act, requiring companies planning large mergers to notify the government in advance.
The Federal Trade Commission Act, also passed in 1914, established the Federal Trade Commission (FTC) as an independent agency with shared jurisdiction over federal civil antitrust enforcement with the Justice Department. The FTC Act bans "unfair methods of competition" and "unfair or deceptive acts or practices". It empowers the FTC to bring enforcement actions against businesses that act unfairly, even if there is no specific antitrust violation.
The US merger regulation system allows for innovation and market flexibility, as it does not heavily regulate innovators who acquire a successful market position through normal competition. The system also provides discretion for courts to evaluate business practices on a case-by-case basis, ensuring that only the most egregious practices are deemed illegal.
Overall, the US merger regulation framework aims to protect the process of competition, incentivise efficient business operations, and promote consumer welfare by keeping prices down and maintaining quality.
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Frequently asked questions
Competition law, also known as antitrust law, anti-monopoly law, or trade practices law, promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies.
The history of competition law reaches back to the Roman Empire, but the modern competition law roots back to the United States’ enactment of the Sherman Antitrust Act in 1890. Canada enacted what is considered the first competition statute of modern times in 1889, a year before the US. In Europe, competition principles developed in lex mercatoria.
The European approach is more centralized and political, with the European Commission’s Directorate General for Competition (DG Comp) having significant discretion over how the law is enforced. The US system, on the other hand, is more bottom-up and common law-based, with courts elaborating upon open-ended statutes through case law. The US system affords firms more leeway to exclude rivals, as long as it benefits consumers. The EU approach is more focused on structuralist considerations and regulating conduct to prevent market dominance.
The European Commission blocked the proposed takeover of Aer Lingus by Ryanair as it would have strengthened Ryanair's position in the Irish market. The commission also fined MAN, Volvo/Renault, Daimler, Iveco, and DAF a total of €2.93 billion for colluding on truck pricing and the costs of compliance with emission rules.
The US has the Clayton Antitrust Act, which addresses price discrimination and acquisitions of competing companies. The Hart-Scott-Rodino Antitrust Improvements Act of 1976 introduced additional scrutiny for mergers and acquisitions, requiring pre-merger notification. The Verizon v. Trinko case in 2003 demonstrated the US focus on consumer welfare, where monopoly power and pricing were deemed acceptable elements of a free-market system.
