Competition Policy Between the United States and European Union
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Transcript of Competition Policy Between the United States and European Union
Competition Policy Between Competition Policy Between the United States and the United States and
European UnionEuropean Union
By Chad Carta, Colin Mead, Eric Luoma, By Chad Carta, Colin Mead, Eric Luoma, Pablo Vives, Bob Grannatt and Kim Pablo Vives, Bob Grannatt and Kim
WeedenWeeden
Legislation and Competition Legislation and Competition BackgroundBackground
Goal of governments Goal of governments has always focused on has always focused on competitioncompetition
Europe originally Europe originally believed in an believed in an economic-nationalist economic-nationalist approach approach (mercantilism)(mercantilism)
In 19In 19thth century, century, governments evolved governments evolved to endorse free tradeto endorse free trade
Important Competition Important Competition LegislationLegislation
The Sherman Antitrust Act, 1890The Sherman Antitrust Act, 1890
The Clayton Act, 1914The Clayton Act, 1914
The Federal Trade Commission Act, The Federal Trade Commission Act, 1914 1914
Goals of EU Competition Goals of EU Competition LegislationLegislation
Regulate natural monopoliesRegulate natural monopolies Suppress the emergence of new Suppress the emergence of new
monopolies by regulating mergers monopolies by regulating mergers and acquisitionsand acquisitions
Dissuade collusive and Dissuade collusive and anticompetitive behavioranticompetitive behavior
Promote integration within the market Promote integration within the market
Vertical and Horizontal Vertical and Horizontal CooperationCooperation
Vertical Cooperation Vertical Cooperation occurs when anti-competitive
agreements are made between manufactures and distributors
Horizontal CooperationHorizontal Cooperation prevents economic integration within
industries
Merger Control within EUMerger Control within EU
To prevent collective dominanceTo prevent collective dominance The prevention of state aid which is The prevention of state aid which is
rampant in the European Unionrampant in the European Union Emerging companies are Emerging companies are
occasionally subsidized, which is occasionally subsidized, which is anticompetitive and a significant anticompetitive and a significant problem for competition control problem for competition control policies policies
Microsoft Anti-trust CaseMicrosoft Anti-trust Case
Case Against MicrosoftCase Against Microsoft
EU has taken action against Microsoft EU has taken action against Microsoft for not allowing adequate competition for not allowing adequate competition within the computer industrywithin the computer industry
Microsoft’s bundling technique has Microsoft’s bundling technique has drawn criticism from competitors like drawn criticism from competitors like Nokia, IBM, Oracle, Real Networks and Nokia, IBM, Oracle, Real Networks and Red HatRed Hat
Microsoft’s DefenseMicrosoft’s Defense
Microsoft claims to be producing a superior Microsoft claims to be producing a superior product, which is able to incorporate a product, which is able to incorporate a variety of necessities for the consumervariety of necessities for the consumer
It uses these bundling techniques to It uses these bundling techniques to minimize costs for consumersminimize costs for consumers
The variety of Microsoft programs are The variety of Microsoft programs are compatible with other systems and compatible with other systems and external appliances like digital cameras or external appliances like digital cameras or Firefox explorer Firefox explorer
EU DecisionEU Decision
The EU found that Microsoft was unfairly The EU found that Microsoft was unfairly influencing competition with the industryinfluencing competition with the industry
First penalty, $600 million in fines to EU First penalty, $600 million in fines to EU and competitorsand competitors
Second penalty, Microsoft is now Second penalty, Microsoft is now required to sell a stripped down version required to sell a stripped down version of its Windows operating system that will of its Windows operating system that will not contain Windows media playernot contain Windows media player
Defense of the EU DecisionDefense of the EU Decision
This decision is a precedent for the EU This decision is a precedent for the EU and will have an impact on monopoly and will have an impact on monopoly activity in the futureactivity in the future
Now competitors will have an equal Now competitors will have an equal chance at winning over competitorschance at winning over competitors
Microsoft is still likely to retain its 90% Microsoft is still likely to retain its 90% market share, but this will allow market share, but this will allow customers to have more choice in their customers to have more choice in their productsproducts
BoeingBoeingvsvsAirbusAirbus
SubsidiesSubsidies
International Trade PolicyInternational Trade Policy
Anti-Trust LawAnti-Trust Law
History…History…
1916: Company created by William Boeing 1992: Produces 60% of commercial aircrafts in
world
HistoryHistory……• 1966: Created by pooled resources of 4 European
countries-Aerospatiale S.A. (France)-Aerospace PLC (Britain)-Messerschmitt, Boelkow, and Bloom
(Germany)-Construcciones Aeronauticas S.A. (Spain)
Background of DisputeBackground of Dispute--Part 1-Part 1-
Early 1990s: American companies switch to Airbus Better technology Lower prices New designs vs. Boeing’s modified old
designs
Background Behind DisputeBackground Behind Dispute - -Part 2-Part 2-
Airbus SubsidiesAirbus Subsidies ““Loans” from European governmentLoans” from European government No repayment timetableNo repayment timetable Financial information not publishedFinancial information not published Leads to strategic trade policyLeads to strategic trade policy
Targets domestic industry for subsidiesTargets domestic industry for subsidies Captures monopoly profits on foreign salesCaptures monopoly profits on foreign sales
Boeing SubsidiesBoeing Subsidies Contracts with US Government for military Contracts with US Government for military
aircraftsaircrafts No official government subsidiesNo official government subsidies Held bidding war for location of new U.S. plantHeld bidding war for location of new U.S. plant
Local subsidies from Washington StateLocal subsidies from Washington State Airbus claims this was illegalAirbus claims this was illegal
Market StrategiesMarket Strategies-European--European-
Frequent subsidiesFrequent subsidies R&D, declining industries, new industries, regional R&D, declining industries, new industries, regional
development, and export promotiondevelopment, and export promotion Equity infusions, non-program-specific operating loans, Equity infusions, non-program-specific operating loans,
R&D funding, and production subsidiesR&D funding, and production subsidies Focus on alliances and cooperative venturesFocus on alliances and cooperative ventures ““Loans”Loans”
Payback periodPayback period InterestInterest
-American--American- Free market economyFree market economy Government is mainly regulatoryGovernment is mainly regulatory
The SolutionsThe Solutions
1979: Civil Aircraft Code of the General Agreement on Tariffs and Trade (GATT)
Eliminates tariffs, prohibits licensing requirements, and bans discrimination
Parties ensure a “reasonable expectation of recoupment of all costs”
The SolutionThe Solution--Part 2-Part 2-
1992: Variable 30-1992: Variable 30-33% cap on 33% cap on government subsidies government subsidies (“Airbus Accord”)(“Airbus Accord”) Also requires financial Also requires financial
info to be publishedinfo to be published Boeing pulls out in Boeing pulls out in
2004; 2004; counteraccusation counteraccusation against Boeingagainst Boeing
Airbus subsidies are Airbus subsidies are legal under 1992 accordlegal under 1992 accord
The ImplicationsThe Implications
Subsidy RegulationSubsidy Regulation Greater competitionGreater competition Higher production costsHigher production costs
Increased air travel costsIncreased air travel costs
No Subsidy RegulationNo Subsidy Regulation Unfair advantages Unfair advantages
between companiesbetween companies Lower market prices for Lower market prices for
aircraftsaircrafts Greater chance of a Greater chance of a
monopolymonopoly
Oracle and PeopleSoft Oracle and PeopleSoft MergerMerger
In June of 2003, In June of 2003, Oracle launches a Oracle launches a hostile bid for hostile bid for software rival software rival PeopleSoftPeopleSoft
Reaction of the European Reaction of the European CommunityCommunity
The European Commission challenged the The European Commission challenged the merger because of its potential threat to merger because of its potential threat to competitioncompetition
The EAS supplier market consists of three The EAS supplier market consists of three major companies; SAP, Oracle, and major companies; SAP, Oracle, and Peoplesoft. The Commission was Peoplesoft. The Commission was concerned that the number of competitors concerned that the number of competitors being reduced from 3 to 2 would decrease being reduced from 3 to 2 would decrease competition and result in higher prices. competition and result in higher prices.
Merger ProceedingsMerger Proceedings
-Oracle argued that the merger would not -Oracle argued that the merger would not cause a decrease in competition for 2 main cause a decrease in competition for 2 main reasons:reasons:
1. German company SAP is the largest 1. German company SAP is the largest player player in the sector in the sector
2. Smaller EAS vendors such as Microsoft, 2. Smaller EAS vendors such as Microsoft, Lawson, Intentia, and QAD have won Lawson, Intentia, and QAD have won
bids bids for enterprise software projects for enterprise software projects contributing contributing to competition in the marketto competition in the market
The EU DecisionThe EU Decision
The European Commission analyzed The European Commission analyzed hundreds of bids launched by smaller hundreds of bids launched by smaller vendors and overall conditions in EAS vendors and overall conditions in EAS market. market.
The Commission approved Oracle’s bid for The Commission approved Oracle’s bid for Peoplesoft on the grounds that the merger Peoplesoft on the grounds that the merger would not create a dominant position for would not create a dominant position for Oracle, and competition in the common Oracle, and competition in the common market would not be impededmarket would not be impeded
General Electric Honeywell General Electric Honeywell MergerMerger
42 billion dollar deal 42 billion dollar deal largest proposed largest proposed takeover in historytakeover in history
Both American Both American based firmsbased firms
Reason behind Reason behind merger both firms merger both firms are leaders in the are leaders in the aerospace industryaerospace industry
Governmental RegulationGovernmental Regulation
Proposed Merger was approved by Proposed Merger was approved by U.S. Justice Department U.S. Justice Department
Needs approval by EU, if not Needs approval by EU, if not GE/Honeywell would be unable to do GE/Honeywell would be unable to do business in Europe’s single market business in Europe’s single market
July 3July 3rdrd 2001 EU blocks proposed 2001 EU blocks proposed merger between GE and Honeywellmerger between GE and Honeywell
What Killed the GE What Killed the GE Honeywell MergerHoneywell Merger
Area of contention: The strength of GE’s aerospace Area of contention: The strength of GE’s aerospace component after the merger. component after the merger.
Two Main Aerospace marketTwo Main Aerospace market Jet aircraft engines Jet aircraft engines Avionics and non-avionics Avionics and non-avionics
GE’s Vertical IntegrationGE’s Vertical Integration
GE’s size and enormous amount of GE’s size and enormous amount of resources provide the firm with resources provide the firm with benefits its competitors do not havebenefits its competitors do not have
Important components to GE’s Important components to GE’s dominance in the Aerospace industrydominance in the Aerospace industry GE CapitalGE Capital GE Capital Aviation Services (GECAS) GE Capital Aviation Services (GECAS)
Future RamificationsFuture Ramifications Set precedent for Set precedent for
future mergers future mergers
US and EU merger US and EU merger regulations differ regulations differ significantly significantly
EU not afraid to block EU not afraid to block mergers between to mergers between to American firmsAmerican firms
Ford/Volvo MergerFord/Volvo Merger
Ford Motor Co. Ford Motor Co. offers $6.45 billion offers $6.45 billion for Swedish based for Swedish based VolvoVolvo
Auto Sales (1997)Auto Sales (1997)
Ford- 6.9 millionFord- 6.9 million
Volvo- 400,000 Volvo- 400,000 million million
Anticipated Result of MergerAnticipated Result of Merger
Increase competition in luxury market by:Increase competition in luxury market by:
1) Ability to use Ford parts in Volvos1) Ability to use Ford parts in Volvos
2) Distribution of Volvos through Ford’s 2) Distribution of Volvos through Ford’s networksnetworks
EU and Market Share EU and Market Share ConcernsConcerns
Merger would increase Ford’s market shareMerger would increase Ford’s market share Passenger and large car sectors would go from Passenger and large car sectors would go from
approx. 15% to 20%approx. 15% to 20% Ford’s national market share would end up below Ford’s national market share would end up below
25% even after merger25% even after merger
EU DecisionEU Decision
Merger is endorsed Merger is endorsed by the EUby the EU
Ford’s market share Ford’s market share is marginal after is marginal after mergermerger
Dominance and lack Dominance and lack of competition is not of competition is not a factor in this casea factor in this case
The EndThe End