The benefits of EU competition policy in improving customer benefits and economic growth in the UK

Academic Paper , 2019 , 12 Pages , Grade: B+

Law - Civil / Private, Trade, Anti Trust Law, Business Law

The paper explores the competition policy of the European Union, by exploring the benefits of the liberalization to the UK's customers and economic growth. The European commission seeks to ensure that the businesses offer the best possible prices for the best possible products. The commission ensures that the market is functioning well by correcting or preventing anti-competitive behaviour through monitoring agreements between companies that seek to restrict the competition. The commission also monitors mergers and abuse of a firm’s dominant position.

BENEFITS OF EU COMPETITION POLICY AND LIBERALISATION IN IMPROVING CUSTOMER BENEFITS AND ECONOMIC GROWTH

The EU competition policy has a number of key objectives. The objectives are geared towards offering benefits to the consumers. The European commission seeks to ensure that the businesses offer the best possible prices for the best possible products. The commission ensures that the market is functioning well by correcting or preventing anti-competitive behaviour through monitoring agreements between companies that seek to restrict the competition. The commission also monitors mergers and abuse of a firm’s dominant position. The commission also seeks to liberalise the market with a focus on opening the markets for competition. The objectives include increased customer choice. The competition in the market will lead firms to diversify their products to set them apart from the competition thus greater choice for the customers; an achievement of the proper balance between quality and price (European Commission, 2012, online). Secondly, it also seeks to achieve competitive pricing as such prices are the only way through which the firms can gain greater market share. Competition pushes the prices down. The policy also helps to bring about economic and corporate growth and efficiency as the firms seek to produce more thus boosting the economy. The other objective is improved service quality as firms seek to improve the quality of services and products to expand their market share and attract a higher number of customers. The quality can be taken to mean better sales and technical support, proper and long lasting products and friendly service etc. Finally, the policy also supports innovation through the production of better products and the delivery of greater choice. The firms will be more innovative in their production, services, design and product concepts to attract the consumers (European Commission, 2012, online). The next section will focus on the analysis of the patterns in the indicative data sample to determine if the competition policy has been achieved or not in the three industries.

Based on the patterns of the indicative data sample, the consideration of whether the policy has been achieved in the energy, air transport and telecoms. First, the essay considers the energy prices. The Department for Business, Energy & Industrial Strategy (2017, p. 5) indicated that the domestic fuel prices reduced by 2.5% in from quarter 1 2016 to 2017 while the domestic gas prices reduced by 6.0%. See appendix one. The industrial prices on the other hand rose by 2.2% over the same period. The petroleum and oil prices increased by 4.3% and 5.3% in June 2017 as compared to June of 2016. The pattern in the data shown in Appendix 1 shows that the price of motor vehicle fuels have risen in real terms by 15 percent in the period under consideration (Q1 2016 to Q1 2017). The prices of wholesale gases in the UK have been increasing since early 2000s as a result of the upward pressure on the gas prices in Europe as well as the UK continental shelf decline in gas production. The prices of electricity have also been on the rising trend as the gas is one of the important components of the electricity generation mix in the UK (Department for Business, Energy & Industrial Strategy, 2017, p. 7). The rising prices can also be attributed to the higher prices of coal. Coal levels are unsustainably low in the UK. Moreover the 2005 introduction of the Emissions Trading Scheme (ETS) has also led to the increase in the electricity prices as higher charges are levied on unsustainable sources. See appendix 2. Average household energy bills reduced in 2016 from the 2015 bills even though the price of electricity increased. The price of has reduced during the same period. See figure 1 below. See Appendix 3 for the data on the average annual domestic gas bills for the period 1996 to 2017. The competition policy does not seem to work in the energy sector as the prices have been increasing in some of the sectors. This has had a great impact on the consumers.

The Sample Indicative Data collected for the average air prices between London and Manchester, UK indicate that the prices for the airline tickets have been volatile based on a number of factors which include the competition, time of the year, whether a person is a frequent flier and a host of other factors. Based on the statistics the lowest price is £45 while the average is £86 (Fare Detective, 2018, online). The highest price stood at £224.79 and was recorded in November 2017 (Fare Detective, 2018, online). The indicative data shows that the policy is not working well as the customers have greater choice in terms of the price and the airline to travel with based on the quality of service as well as other factors but the prices are also affected by the alliances which can lead to greater prices (Gerardi and Shapiro, 2009, p. 29; Gaggero and Piga, 2011, p. 555).

The indicative data on the telecommunication prices indicate that the competition policy is working. See appendix 5. The customers are able to make calls in any EU country at the same charge regardless of the country where their service provider is located (European Commission, 2017, online). The prices for making calls have reduced and consumers have greater choice regardless of the country which they visit. The next section of the essay will consider why Oligopoly Theory and practices of companies mean that poorly applied EU policy creates the patterns of pricing behaviour observed.

Oligopoly theory is abstracted from the real-life complexities with regards to the corporate strategy. There are two main models of corporate strategy that a firm will use such as the price or output (Dixon, 2001, p. 129). Oligopoly is the scenario where a few large companies dominate the industry. The other important features in an oligopoly include firm interdependence, entry barriers, non-price competition and collusion in some cases. The collusion can lead to higher prices. A case of oligopoly in practice is Case AT.39964 (Air France/KLM/Alitalia/ Delta) (European Union, 2015, p. 5). The Agreement between the airlines would be against the competition policy as they would engage in joint price setting. Companies in the telecommunication sector such as Intel have also used the lax nature of the policies to engage in anti-competition practices. Intel attempted to reduce the competition it faced by offering rebates to the manufacturers of PCs such as HP, Lenovo, Dell and NEC (Chee, 2017, online). The main challenge that arose from the case is how rebates should be treated. The need for review of the case has been premised on whether there are any anti-competition effects of rebates (European Commission, 2014, online; Chee, 2017, online). The final antitrust case such as the EC investigation of Shell, BP and Statoil who manipulated the prices of crude oil (Brown, 2013, p. 6). Each of the companies were fined € 320 million by the General Court in 2012 (Brown, 2013, p. 16). There have also been other breaches such as the exclusionary abuses by RSE, ENI, E ON Gas and GDF Suez where the competitors were prevented from accessing the network (Stefanimi, 2009, online). The other abuse was the exploitation in terms of price increases to the customers. This is the case of E. ON power (Brown, 2013, p. 17).

The economic activity in the EU has improved as the competitiveness of the various industries have increased leading to better products at lower costs such as in the mobile telecommunication. The corporate efficiency has also improved in some cases such as in the airline sector where firms have found ways to work together to reduce the costs that they incur. The bodies controlling the markets have focused on the improvement of the efficiency of the competition through the consideration of the practices in the mergers and formation of alliances (Kovacic, 2008, p. 6). The bodies such as the EC and the EU competition authority have handed down fines to firms that have breached the competition policy. Such fines have been handed out to Google and Intel in the last couple of years. Intel was fined £975.27 million in 2009 while Google was fined 2.4 billion Euro in June 2017 (Chee, 2017, online). The EC also works actively to ensure the principle of competitive neutrality is adhered for. The various public bodies must not abuse the general economic principle provision in their competition with private enterprise firms (Briguglio, 2012, p. 8).

Brexit may affect the competition policy in a number of ways. A soft Brexit may lead to continued corporation between the UK and EU thus the compliance will still be checked by the EC. However, in the case of a hard Brexit, the United Kingdom may be forced to undertake its own anti-competition investigation. This will create even greater problems and red tape to the process of business. The Competition and Markets Authority (CMA) is the body that will be mandated to undertake the role currently done by the EU competition authority (Hirst, 2017, online)

In conclusion, it is recommended that the EC develop clear guidelines regarding anti-competition. These include the need to clearly explore and define the anti-competition instances so that the enforcers can be able to determine when a violation has occurred. The case of Intel should serve as a wakeup call for the EC. Secondly, it is recommended that the firms that engage in anti-competitive practice be denied the amnesty. The firms will thus be discouraged from engaging in the practices as whistle blowing will no longer prevent a firm from being punished. The firms will thus engage in competitive practices as no benefits will be granted to such firms as long as they were part of the original anti-trust action.

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• College: University of Nairobi
• Grade: B+
• Author: International Business Management David Onditi (Author)
• Publication Year: 2019
• Pages: 12
• Catalog Number: V916691
• ISBN (PDF): 9783346738912
• Language: English