Competition Policy and State Aids

EU Competition Policy aims to guarantee an undistorted Single Market. The Treaty of Rome recognized that a common competition policy was essential if the consumer was to enjoy the benefits of European economic liberalisation.

The rules apply to all companies operating in the Single Market, irrespective of their ownership. While Member States have their own bodies to enforce national competition laws, the European Commission investigates breaches of the competition rules. The Commission has significant powers including imposing fines, forcing changes in merger agreements and blocking state aid. Decisions can always be challenged in the European Court of Justice.

EU competition policy covers the following situations:

• Abuse of a dominant position: this principle is laid down in Article 91 of the EU Treaty. Enjoying a large share of the market does not, in itself, bring an economic operator into conflict with competition rules. However, there are many examples of ways in which companies abuse a dominant position. These include making customers pay unfairly high prices or squeezing out smaller competitors through predatory pricing. Equally, dominant positions can be abused through distribution arrangements such as exclusive dealerships or imposed customer "loyalty" contracts.
• Anti-competitive agreements between companies: this principle is laid down in Article 92 of the EU Treaty. Companies in a given sector may choose to co-operate rather than compete with their rivals. They may collude in cartels to try to fix prices or carve up markets. Selective distribution systems are also potentially anti-competitive - although agreements between manufacturers and dealers can be justified in the interests of efficiency or through the provision of high quality after-sales service. They should not prevent consumers in one EU Member State buying a product in another where the price is cheaper. Certain industries rely on co-operation between competitors and the Commission has the power to lay down the conditions for such agreements to be considered compatible with the competition rules automatically (so-called "Block exemptions").
• Mergers and takeovers: the most recent addition to the EU competition policy came in 1990. The Commission was entrusted with the role of controlling mergers and takeovers which could restrict competition in the Single Market. This is limited to companies over a certain turnover size – though this is irrespective of ownership, and can even cover mergers between two non-EU companies. The Commission has the power to block mergers, or to impose conditions such as the sale of assets to prevent creation of a dominant position.
• State aids: decisions by Member States' Governments can also restrict or distort competition in several ways. Member States may be tempted to subsidise national firms to help them face competition from other parts of the Single Market. In most cases, state aid is deemed justifiable. This includes promoting the economic development of disadvantaged areas, culture and heritage conservation and projects of common European interest. But the Commission has the power to block, or to enforce the repayment, of aid. Particular emphasis has been placed on state owned companies subsidised to compete with private sector rivals.