Competition policy is an economics term referring to the body of laws of a state which govern the extent, and ability, to which bodies can economically compete. They hence attempt to restrict practices which remove competition from the market such as monopoly and cartel.

Most nations have their own competition laws, and there is a general agreement on what is and what is not acceptable behaviour. The degree to which countries enforce their competition policy does vary substantially, with The United States generally regarded as having the most strict competition laws and enforcement.

Antitrust laws in the United States

In 1890 the United States Congress passed the first policy to reduce monopoly power, it was called the Sherman Antitrust Act, it limited market power of the powerful "trusts". Section 1 of the Sherman Act states "Every contract, combination in the form of trust or otherwise, in restraint of trade or commerce...is declared illegal", section 2 states "Every person who shall monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce...shall be deemed guilty of a felony...". In 1914 the Clayton Act was passed and further increased the Governments power, it also allowed lawsuits against anti-competitive practices.

Antitrust laws would come into use if for example Microsoft wanted to merge with Sun Microsystems, lawyers and economists from the Department of Justice would study the proposed deal, and may decide that the merger would substantially reduce competition in the computer software market, they would therefore prevent the merger from occurring.

Antitrust laws also allow The US Government to break up companies, such as AT&T in 1984. The laws also prevent separate companies from coordinating their activities in a way so as to reduce competition.

Critics of antitrust laws are doubtful as to whether a government can accurately assess whether a merger or other agreement is actually harmful to society. This is because often mergers increase social benefit as they are able to run more efficiently.

European Union competition policy and The Treaty of Rome

European Union competition policy was agreed upon at the Treaty of Rome, in articles 85 ("Restrictive practices") and 86 ("Abuse of dominant markket power"). The policy aims to increase benefits to society by securing competitive markets; it aims to remove national barriers to inter-state competition and to prevent private barriers to competition. The Treaty states "The following shall be prohibited...:(a)directly or indirectly fix purchase or selling prices...:(b)limit or control production...(c)share markets or sources of supply...". The competition policy was designed to be consistent with existing national policies, however, individual states still have the right to develop competition policy on trade contained within their national boundaries, if the trade breaches the national boundaries, then EU policy comes into effect.

EU legislation looks at the effects of a competition restriction, rather than the form of the restriction as in the UK. Many would argue that the EU method is better as UK legislation means that minor infringements and even pro-competitive agreements can be punished, while anti-competitive agreements can be drafted in such a way to avoid the law. As EU law only deals with the consequences of agreements it is considered more efficient in dealing with anti-competitive behaviour. EU policy can punish anti-competitive behaviour even if there is no formal agreement to act in an uncompetitive way. The EU competition policy is also considered superior to UK policy by some as the UK courts have little power to impose a penalty for acts contrary to the public interest, Whereas EU law can fine a firm up to 10% of their turnover for being anti-competitive, firms do have the right to appeal.

Cartels, market sharing, exclusive marketing and other anti-competitive practices may be exempt from competition law if the behaviour increases consumer benefits or technical progress.

See also

• Resale price maintenance

External links

• World Bank article detailing competition policy