Competition and Fairness
Massimo MOTTA
DG Competition, and Barcelona GSE
CRA Annual Conference, 9 December 2015
Disclaimer
• The views expressed in this presentation are
personal, and do not necessarily represent those
of DG Competition or of the European Commission.
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Objectives of competition policy
• Broad consensus nowadays that competition policy is about
efficiency (or consumer/aggregate welfare)
• However:
1) In the EU, some lawyers and judges probably think otherwise
2) There is also a 'market integration' objective in the Treaty
3) In other jurisdictions, there may be public interest objectives
• "Fairness" (or equity), is sometimes aligned (e.g. predatory pricing),
sometimes in conflict with efficiency (e.g. supermarkets v. small
shops) and with the idea of fierce competition.
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Fairness: a vague concept
• There is no definition of fairness in competition law, but 'fairness'
mostly relates to "equality”, “equity”, "absence of discrimination”
• “Fairness” may refer to "treating rivals and/or customers fairly" and
be related to process, conduct or outcomes
•
Fairness towards consumers/buyers ("outcome fairness"?): art. 102
(exploitative practices); consumer protection laws; cartels?
•
Fairness towards rivals ("process fairness"?): art. 102 (exclusionary
practices); unfair trade (or unfair competition) laws
• “Fairness" may refer to equality in the market outcomes, i.e. "ex post
fairness”. It may contrast with concepts of efficiency and strong
competition (in markets there are winners and losers…)
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Ex ante fairness: reconciling fairness and efficiency
• Consider now “ex ante fairness”, that is, guaranteeing a levelplaying field and that each firm can compete and contest the market.
• Ex ante fairness can be achieved by ensuring free entry (e.g. by
eliminating administrative barriers to entry, by having good financial
markets, etc. – state aid may play a role here) and avoiding that a
dominant firm may prevent rivals from entering or growing.
• Ex post fairness (fairness in outcomes) will not necessarily follow
(and exit may well occur if a firm is unsuccessful)
• Ex ante fairness (fairness in process) is fully consistent with
economic efficiency: competition (=free entry and exit) promotes
productivity growth.
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Fairness in art. 102
• Two broad categories of ‘unfair’ conduct.
• Exploitative abuse: ex post fairness
•
Excessive prices (or non-FRAND terms in royalty rates for patents):
dominant firm extracting rents from customers/buyers.
•
Not
inconsistent
with
efficiency
principles,
if
exceptional
circumstances apply (market forces do not work, dominance not
gained through merit/investment/innovation; no alternative way to
remedy, e.g. by liberalisation) so that market incentives are preserved
• Exclusionary abuse: ex ante fairness
•
Predatory pricing, rebates, exclusive dealing, refusal to deal, etc.
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Price discrimination (art. 101 or art. 102)
• Price discrimination by a dominant firm may be associated with either
type (exploitative or exclusionary) of abuse
• Prohibition of clauses which impede parallel trading (art. 101) are
motivated by market integration objective. Is this also about fairness?
(Price “discrimination”: the very word already sounds bad!)
• Ex ante fairness?  Unlikely: little to do with keeping level-playing
field; ambiguous link between price discrimination and welfare
• Ex post fairness?  It may indeed be unfair that EU citizens pay
different prices according to their nationality or residence.  But
price discrimination brings higher prices for rich and lower for poor.
Suppressing it: lower price for the rich and higher for the poor.
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Equity and Efficiency Rationales in State Aid
• Efficiency rationale: correcting market failures
• Equity rationale: even if market outcome is efficient, it may not be
socially acceptable or desirable (i.e., ex post unfair).
• Example: aid for the provision of SGEI to citizens
• But equity and efficiency are not necessarily inconsistent: equity-
focused policies (education, health) may also promote economic
growth and social cohesion which is important for political stability.
• Rescue&Restruct. aid may allow valuable assets to stay in market
• Employment aid may foster use of resources else underemployed
• Regional aid – aiming at fostering economic cohesion – may not be
inconsistent with efficiency (do regional inequalities hinder growth?)
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Conclusions
• We often hear talk about fairness in competition policy
• I have argued that what matters is ex ante fairness, namely trying to
maintain a level-playing field, and ensuring that markets are
characterised by free entry (and exit) – therefore creating a good
environment for productivity growth
• Ex post fairness has less to do with competition policy
• Trying to achieve it might be bad for efficiency, e.g. when it
means keeping in the market inefficient firms or depriving
innovative firms of the profits they deserve
• But some competition interventions (exploitative abuse, some
forms of SA) may be both about equity and efficiency.
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