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Topic - Competition Policy

Protecting free competition

Introduction

Competition policy is a core element of economic policy. It is tasked with making sure that competition can function with as few restrictions as possible in the interest of consumers and businesses.

The Social Market Economy is the foundation of German economic policy. The state does not prescribe what products are to be manufactured or what price they are to be sold at. That task is managed by competition. Different companies compete directly (for customers, trading partners, etc.) without government regulation to sell their products and services, in a system known as “free competition”.

This competitive situation means that the companies always have to expect their customers to switch to another supplier if that supplier offers comparable goods and services more cheaply, or produces better products. The upshot of this is a permanent incentive to keep developing products and services, and to keep offering them at lower prices. This generates a competition which can only be won by the better provider. Naturally, the consumers are the main beneficiaries of this, since they can seek out those products and services which best meet their needs.

Free competition ultimately results not only in fair price formation, higher quality, and products which correspond to the wishes of the consumers, but is also a strong incentive to deliver advances in technology. This in turn feeds into growth and jobs in the economy.

However, free competition does not emerge unaided or survive unaided in the long term. The pressures of competition are tough for companies, and this can cause them to try to evade or shut out free competition. Companies can do this, for example, by colluding with their rivals on prices, taking over a direct competitor in a merger, or forming cartels.

Competition policy is therefore tasked with safeguarding free competition on the market. Special rules and interventions help to prevent economically or socially damaging effects of anti-competitive behaviour. Economic power must be restricted where it impedes effective competition and its incentive to improve performance.

Fields of competition policy

Opening Markets, Stimulating Competition

The aim of competition policy is to open up markets and to keep them open. Functioning competition creates fair market conditions, benefits consumers and develops fresh potential for growth and jobs.

Network Markets

The liberalisation of network markets is a particular focus of competition policy in Europe and in Germany. Network industries are characterised by the need for a grid or network, such as railway tracks or the electricity grid, to be in place so that the goods or services can be produced.

There cannot be competition at the network level, because it is not commercially viable to build parallel networks. On the upstream markets like electricity generation, and on downstream markets like railway transport, however, competition is possible.

Infrastructure and networks therefore need to be opened up to third parties where this is necessary for competition to function in the interest of consumers. At the same time, incentives are required for investment not only in maintaining the existing infrastructure, but also in the building of new infrastructure, so that new technologies can penetrate the market.

The reform of legislation on the energy industry, the liberalisation of posts and telecommunications, and the railway reform have opened up key markets which used to be monopolies in Germany. If there is to be effective competition in these network sectors, there must be rigorous state network regulation to ensure non-discriminatory access to the network. New providers on the upstream and downstream markets rely on access to the network without being placed at a disadvantage, and at fair prices.

The regulation of network access is intended to stimulate competition on the downstream markets. State intervention in the interest of non-discriminatory access to the regulated networks must be restricted to what is absolutely necessary, and must not turn into harmful over-regulation. That is the task of the Federal Network Agency, which holds the powers to regulate the five sectors of telecommunications, posts, electricity, gas and railways. The Monopoly Commission regularly produces reviews of the status and likely development of competition in these areas. 

The aim: to stimulate competition

The liberalisation of the telecommunications market in particular has had an extremely positive effect in Germany. The outcome of this competition-oriented policy which, in the field of telecommunications, has also been boosted by rapid advances in technology, is new services at falling prices.

The preconditions for functioning competition on the electricity and gas markets have been and are still being gradually improved. 

In the field of the postal service, the gradual market liberalisation has resulted in an increasing intensity of competition throughout the sector in which companies need a licence to operate. At the end of 2007, the exclusive licence for Deutsche Post AG expired for deliveries of letters weighing less than 50 grams. In the railway sector, the track system was opened up to third parties back in the 1990s in the course of the railway reform. Free access has created competition in regional and freight transport in particular.

Further information

Construction workerssymbolizes Social Market Economy; Quelle: Getty Images/Helen King

© Getty Images/Helen King

Competition Law

Imposing controls to protect competition

In Germany, the Act against Restraints of Competition has served as the central antitrust act to protect free competition as the foundation of the German economic system since 1957. In order to take account of developments in the economy and the market, the Act has been repeatedly updated and supplemented over the years. The Economic Affairs Ministry is currently working on the 9th revision of the Act.

The freedom of commercial competition is protected in Germany by two acts: the Act against Restraints of Competition (in german) and the Unfair Competition Act (in german). The two pieces of legislation pursue different goals.

The Unfair Competition Act and its ancillary laws aim to provide protection against unfair and illicit competition from individual actors. The intention is that individual competitors on the market should act “decently”. The Federal Ministry of Justice and Consumer Protection has the lead responsibility for the Unfair Competition Act.

In contrast, the Act against Restraints of Competition aims to protect competition per se, maintaining freedom of competition in the general interest, so that there is no risk of restrictions to or denials of freedom to act for those engaged in commercial activity. The Act against Restraints of Competition is Germany’s fundamental antitrust law. Some sectors of the economy, such as telecommunications, posts, railways and energy supply, however, have sector-specific features necessitating the adoption of more specific legislation.

A background document summarises the main aspects of national cartel and competition law in Germany.

The relationship between European and national cartel law

Germany’s system of competition is determined not only by German law, but also by rules at EU level. European cartel law, and especially Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU), are indispensable for the functioning of the single European market. German cartel rules must not contradict the purpose of EU cartel law, so the Act against Restraints of Competition is largely guided by the cartel law of the European Union. It is very important for the rules to be harmonised in view of the Common Market in the European Union and day-to-day cross-border commerce. If there is any impediment to trade between the Member States, the rules of European cartel law will either be applied exclusively, or in tandem with national cartel law.

The main pillars of the Act against Restraints of Competition

The Act against Restraints of Competition anchors the principle of the free market economy in law. The aim is to maintain free competition as a guarantor of prosperity and efficiency in our society, by preventing impediments to competition. Companies participating in competition should not have the possibility to impact negatively on competition.

The Act against Restraints of Competition consists of three main pillars: the ban on cartels, supervision of abuse of dominant positions, and merger control.

You can find out more about the topic here (in german).

Monopoly Commission

The Monopoly Commission is an independent advisory body which provides the Federal Government and the legislature with advice in the fields of competition policy, competition law and regulation. The Monopoly Commission produces expert studies on the basis of legislation, on behalf of the Federal Government, in cases involving the “ministerial authorisation”, and on its own initiative.

The body is required by law to produce its main study every two years, for example. This study assesses the state of corporate concentration in terms of economic and competition policy and provides a legal evaluation. For example, the Monopoly Commission regularly investigates what companies in Germany belong to the 100 largest (in terms of sales) and examines their macroeconomic significance for Germany and the world, their number of employees and the volume of their business. The Monopoly Commission also analyses individual sectors, e.g. transport or services. It is required by law to produce regular studies on the development of competition in the fields of railways and telecommunications.

A list of the special studies can be found here.

General pricing law

The law on pricing also makes an important contribution towards functioning competition. In our economic system, prices are normally set freely by supply and demand. Nevertheless, certain pricing standards must be complied with. A distinction is drawn here between material and formal pricing law: Material pricing law (e.g. the system of retail price maintenance for books) regulates the setting and level of prices – and monitors the effectiveness of and compliance with agreements. It intervenes in free formation of prices for social, competition policy or other reasons.Formal pricing law, in contrast, regulates the form, i.e. the way in which prices are marked and announced. One piece of legislation in this regard is the "Price Indication Ordinance".

The ministerial authorisation

An instrument of competition policy for exceptional cases

If the Federal Cartel Office has refused to permit an intended merger in the course of its merger control, the parties to the merger can apply for permission to proceed from the Federal Minister for Economic Affairs and Energy. The precondition for this is that the restraint of competition in this particular case is offset by the macroeconomic advantages of the merger, or the merger is justified by an overarching public interest.

This means that, in exceptional cases, the Federal Minister for Economic Affairs and Energy acts as a cartel authority. There are clear formal and material preconditions for a ministerial authorisation, and these derive particularly from Section 42 of the Act against Restraints of Competition:

  • The procedure is only launched if there is a corresponding application from at least one of the companies involved in the envisaged merger.
  • Also, the merger must have been prohibited by the Federal Cartel Office. A ministerial authorisation cannot be issued before the cartel authorities have finished their work, or if the Federal Cartel Office has permitted the merger under certain conditions.
  • The Federal Minister for Economic Affairs and Energy examines whether public benefits (macroeconomic benefits from the merger and/or an overriding public interest) outweigh the restraint of competition identified by the Federal Cartel Office. If this is the case, a ministerial authorisation can be issued, possibility also subject to conditions. The assessment must also take account of the competitiveness of the relevant companies on markets outside Germany. Also, the authorisation can only be issued if the extent of the restraint of competition does not pose a danger to the market system.

An overview of the ministerial authorisations issued so far can be found here (PDF: 298 KB in german).

The procedure for the ministerial authorisation can be roughly subdivided into the following stages:

The procedural steps to a ministerial authorisation

1

The companies apply for a ministerial authorisation.

2

Comments from the Monopoly Commission and the supreme Länder authorities

3

Affected third parties can be invited to participate.

4

Investigation by the Economic Affairs Ministry

5

Public oral proceedings

6

The decision on the ministerial authorisation

7

Legal recourse

All of the companies involved in the planned merger can apply for a ministerial authorisation. The application must be submitted in writing to the Economic Affairs Minister within a month of the serving of the order of prohibition by the Federal Cartel Office.

The Monopoly Commission makes comments and examines whether macroeconomic benefits or overarching public interests justify a ministerial authorisation. The minister is not bound by its opinion. The relevant Länder can also comment.

In addition to the companies involved in the merger procedure, other persons or associations of persons whose interests are significantly affected by the decision can be invited to participate, e.g. competitors and suppliers to the two parties, associations or workers’ representatives.

In this procedure, the Federal Ministry for Economic Affairs and Energy is a cartel authority – like the Federal Cartel Office. The procedure is therefore based on the procedural law of the Act against Restraints of Competition. The Economic Affairs Ministry holds its own investigations, e.g. written surveys, discussions or hearings. The parties must be granted due process.

The procedure includes the holding by the Economic Affairs Ministry of public oral hearings with the parties to the procedure.

The decision by the minister should be taken within four months of the receipt of the application. The ministerial authorisation may be tied to conditions.

A party to the procedure can challenge the minister’s instruction at the Düsseldorf Higher Regional Court.

International competition policy

New challenges on global markets

The ongoing liberalisation of world trade enlarges the markets, thus increasing competition and confronting competition policy with fresh challenges.

The number of acquisitions and attempted acquisitions of companies is increasing in the wake of globalisation. Competition policy does not evaluate the motivations for mergers or cooperation. The key issue is to maintain competition as a functioning instrument allowing the market to steer itself. Mergers must not result in the emergence or strengthening of a dominant position. Dominant companies could push or keep small and medium-sized enterprises out of the market.

If the markets are becoming larger, this must be given appropriate consideration when the competition authorities examine a merger. But monopolies and oligopolies must also be prevented on global markets. Here, enhanced cooperation at international level must result in an alignment of the standards applied by competition authorities.

International cooperation in the context of the WTO, OECD and UNCTAD: setting common standards

Against this background, international cooperation between the competition authorities is becoming more and more important. The Federal Ministry for Economic Affairs and Energy works together with the Federal Cartel Office in the competition committees of international organisations like the WTOOECD and UNCTAD. The aim at international level is not to harmonise competition law, but to agree on minimum standards for the international community.

International dialogue: other international bodies for cooperation

Discussions also take place in the International Competition Network (ICN), which also regards itself as a forum for dialogue on competition policy. The ICN is a network of competition authorities set up in 2000, not least at the urging of the Federal Cartel Office. Some 130 national and multinational competition authorities are members of the ICN.

Annual conferences give the heads of the competition authorities the opportunity to engage in dialogue, to improve cooperation between the cartel authorities, and to make recommendations. The work is organised in a number of expert working groups. The involvement of developing countries is particularly welcome. The ICN has thus grown into another important forum for competition advocacy.

Ruder-Wettkampf symbolisiert Wettbewerbspolitik; Quelle: picture alliance/dpa