Comparative analysis on competition policy: USA vs.

EU

Table of contents
INTRODUCTION.1 1. COMPETITION POLICY IN THE EUROPEAN UNION 1.1 Definition and importance of competition and competition policy.4 1.2 History of competition policy in the EU5 1.2.1 From ECSC to EEC6 1.2.2 From 1958 to 1972.9 1.2.3 From 1973 to 198110 1.2.4 From 1981 to the present day.11 1.3 Objectives of competition policy in the EU..12 1.4 Antitrust law in the EU. Cartels and monopoly13 1.5 European Union antitrust case study: ENI..21 2. COMPETITION POLICY IN THE UNITED STATES OF AMERICA 2.1 History of competition policy in USA..23 2.1.1 History of competition laws..23 2.1.2 The emergence of the Sherman Act24 2.2 Objectives of competition policy in USA..25 2.3 Antitrust law in USA. Cartels and monopoly..25 2.4 Interpretation and enforcement of antitrust laws.35 2.5 United States antitrust case study: Microsoft36 3. COMPARATIVE ANALYSIS ON COMPETITION POLICY: USA VS. EU. ACCOMPLISHMENTS AND SETBACKS 3.1 Comparing the objectives ..............................................................................................38 3.2 Competition policy enforcement: USA vs. EU.................................................................39 3.3 Bilateral cooperation in competition policy between USA and EU.................................42 3.4 Convergence and divergence between the EU and US competition systems.................44 CONCLUSION....46 APPENDIX EC table of fines.48 BIBLIOGRAPHY ......................................................................................................................49

Introduction
The motive for choosing this subject is to present both the competition systems of the European Union and the United States, and to make a comparison between the two in order to identify the common and distinct points, as well as the particularities of each system. Competition is an important subject because it is represents an essential part of business. Due to the existence of competition, producers lower prices, innovate, or improve their product in order to attract consumers. Competition policy is also important because it seeks to achieve an efficient allocation of resources by promoting effective competition. By establishing a consistent competition policy, markets become and remain competitive through the application of antitrust measures and through liberalisation. The research methods used for putting forward and emphasizing competition aspects in the paper are literature review and case studies. The first chapter contains the definition of competition, general information about competition and competition policy, as well as its essence and importance. It also includes the history of competition policy in the EU. Further on in the chapter objectives of competition policy in the EU are laid out, meaning its intentions and aims. Then the subject confines to antitrust law, practices and legislation. Antitrust law comprises regulations opposing trusts, monopolies, cartels, or similar organisations, in order to prevent unfair competition. Antitrust is the emphasized subject, the one that is to be dealt with in detail. There is also a discussion on articles 101 and 102 of the Treaty on the Functioning of the European Union, concerning cartels and the abuse of dominant position. The concept of dominance contained in Article 102 of the Treaty relates to a position of economic strength on a market. The article prohibits abuse of a dominant position if this dominant position may affect trade between Member States. Lastly, an antitrust case study is presented. ENI is an Italian oil and gas group that offered in February 2007 to sell its Transitgas and TENP pipelines on the market and to sell its TAG pipeline to a public entity, while keeping transport rights. Under these
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circumstances, the Commission charged the company with blocking rivals access to the pipelines and so it became an antitrust case. Finally, ENIs offer to settle European Union antitrust charges by selling stakes in natural gas pipelines was formally accepted by the EU. Under the settlement, Italys largest oil and gas company will avoid possible antitrust fines for restricting access to its transmission network. The second chapter integrates the objectives of competition policy in USA and its competition history, starting from the Sherman act in 1890 and going all the way into present day, in order to give a clearer image on how legislation has evolved. Antitrust legislation is presented in a detailed manner, including the Sherman Act (1890), Clayton Act (1914), Federal Trade Commission Act (1914) and Robinson-Patman Act (1936). Hereinafter, a case study is brought out concerning Microsoft Corporation. Americas history of antitrust concerning Microsoft started in 1991 when the Federal Trade Commission began its investigations on the claim that Microsoft had monopolized the market on PC operating systems. The case contains the legal battle between Microsoft and Department of Justice, USA. In 1997, the Department of Justice sued Microsoft, alleging that it forced computer manufacturers to ship Microsoft Internet Explorer Web browser with its Windows 95 operating system. On April 3rd, 2000, the final decision was made. The conclusion was that Microsoft violated the nations antitrust laws by using its monopoly power in PC operating systems to supress all other competition. In July 2004, Microsoft appealed in court. The appeal was denied by the attorney general of Massachusetts. The third and final chapter weighs and compares both EU and USA objectives on competition policy, as well as antitrust legislation from a variety of stand points. Policy enforcement is looked into at length, in an attempt to find out the particularities of both policies and to be able to assert what are the strengths and weaknesses of the two. Cooperation between USA and EU is another subject to be pursued in the paper, together with examples of convergence or divergence between the two systems as far as competition policy goes.

On the one hand, cooperation regards situations in which USA and the EU work together in order to settle diverse issues concerning competition policy. On the other hand, convergence or divergence between the EU and US systems regarding competition policy takes the shape of examples where the systems are in tune with one another, or conversely, examples where the systems are incongruous. The overall result of these matters is gathered in a conclusion, reflecting the comparison between the two competition policies.

1. Competition policy in the European Union

1.1 Definition and importance of competition and competition policy Competition is a concept that illustrates the rivalry among firms from which only the strongest ones survive and thrive. Competition has been defined as the struggle or contention for superiority, [which] in the commercial world [...] means a striving for the custom and business of people in the marketplace. (Whish, 2008) Perfect competition is the notion which describes a multitude of small firms competing in the supply of a single product provided that none of the firms can influence price or sale conditions. It is considered to be an abstract notion, which cannot exist in the real world. This notion was first introduced by Adam Smith in his book Wealth of Nations. Later on, it was improved by Edgeworth, receiving its complete formation in Frank Kights book Risk, Uncertainty and Profit (1921). Richard Leftwitch has defined market competition in the following words: prefect competition is a market in which there are many firms selling identical products with no firm large enough, relative to the entire market, to be able to influence market price. The opposite of perfect competition is the concept of monopoly. Monopoly describes the situation in which prices increase due to the existence of a single supplier that can restrict the supply of goods and services. Competition policy represents the regulatory framework created by governments to encourage competition. Such a policy is created in order to prevent certain anticompetitive practices that may be undertaken by firms. These practices include: monopolies, collusions, as well as dominant market position and vertical agreements. The prime purpose of competition policy is [] to promote and maintain a process of effective competition so as to achieve a more efficient allocation of resources. (Vickers and Hay, 1987 cited in Cini and McGowan, 2008)

Several objectives of competition policy in general, are (Cini and McGowan, 2008): consumer welfare; protection of the consumer; redistribution of wealth; protection of small and medium-sized enterprises. Competition objectives Competition is important because it is a mechanism for driving out inefficient producers. Competition forces producers to lower prices, or improve their product to attract consumers. When competing, they look for ways to produce more cheaply, so that they can lower their prices even further. In this case, the consumer is favoured. The economic benefits of competition are (Brusick, 2008): lower prices; better quality; more choice; efficient allocation of resources; management, processing and technological improvements; product innovation. Competition policy is also important because it aims at achieving a more efficient allocation of resources by promoting effective competition. Competition policy ensures that markets (Toft, 2009 cited in Cini and McGowan, 2008): remain competitive (through antitrust / anti-cartel enforcement / merger control); become competitive (through liberalisation). In this way competitive markets can produce benefits for consumers and lead to technological innovation.

1.2 History of competition policy in the EU Competition law in Europe commenced with a series of pro-competitive measures adopted in 1951 by France, Germany, Italy, Belgium, Luxembourg and the Netherlands in the Treaty of Paris, the treaty that shaped the European Coal and Steel Community (ECSC).

It prohibits both trade barriers and restrictive practices that may distort competition among the six countries which later became the founding members of the European Economic Community (EEC). Competition policy deals with several developing stages, beginning in the 1960s with an accent on restrictive practices, continuing in the late 1970s with a monopoly policy, and in the 1980s-1990s with state aid and merger control. The following subchapters reveal a foray through the essential points and changes of competition policy from its inception to the present day, from the formation of the ECSC, to the EEC and to the establishment of EU.

1.2.1 From ECSC to EEC In 1951 American impact on European affairs was ample, though the ECSC Treaty was a West European initiative. There were definitely remarkable similarities between Jean Monnets Memorandum and the US provisions of the 1890 Sherman Act, even though the firm implication of US representatives in the drafting of the coal and steel competition provisions was ambiguous. There is even some evidence to suggest that the precise wording of the ECSC competition provisions was influenced by the US representatives. (Berghahn, 1986 cited in Cini and McGowan, 2008) While the provisions governing the policy on restrictive coal and steel agreements, contained in Article 65 and 66, precede the competition rules laid out later on in Articles 85[101] and 86[102] of the 1957 EEC Treaty, it is known that by the late 1950s these regulatory instruments were not considered adequate for other European markets. The competition provisions of the European Economic Community were significantly weaker in force compared with the ECSC rules, even if they had a broader range than their predecessors. European competition policy being based on Article 3(g) of the Maastricht Treaty on the European Union seeks to provide a system ensuring that competition in the internal market is not distorted (The Treaty of Maastricht on the European Union, article 3(g)).

The provisions of the article include: regulation of anti-competitive monopoly behaviour and public sector firms, the Commissions control over restrictive agreements, as well as its monitoring of state aid granted nationally. The components mentioned above represent the central pillars of the competition policy until the end of the 1990s. At the creation of European competition policy, the initial member states, excluding Germany, had very feeble competition rules as opposed to those envisaged in the EEC Treaty. While Luxembourg and Belgium had no legislation, in Italy restrictive practices and monopolies were regulated under the Civil Code, and in France there was forceless regulation on restrictive practices. Among these states, Germany was the only country with a well-established competition system. In 1962, when the procedural regulation was finally concluded, it was plain that it had been laid out to provide the Commissions control over the policy. The Commissions aim was to establish not just a coordinated competition policy, but a common one. This proceeding laid the foundation of what would become the ECs first truly supranational policy. (McGowan and Wilks, 1995 cited in Cini and McGowan, 2008) In 1962 Regulation 17 was created, assigning significant power to the European Commission, and enabling it to take decisions on the compliance of cartels with the Rome Treaties. Consequently, every firm within the EEC was obliged to state its agreements with other firms in case they might hinder trade in the Community. All agreements were prohibited unless they had a clear permission from the Commission. Regulation 17, based on a German model of notification, evaluation and exemption, effectively centralised enforcement and marginalised the national authorities. (McGowan and Wilks, 1996 cited in Cini and McGowan, 2008) Ultimately, the Commissions success was double-sided, as Regulation 17 swiftly became related with administrative blockage. Regulation 17 has become the foundation of the European Unions restrictive practices and monopoly policy. It brought to light the rights and powers of those involved in the policy and impacted by it. It contains (Cini and McGowan, 2008):
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notification requirements (Article 4 and 5); the conditions under which individual exemptions are granted (Articles 6 and 8); the institutionalised consultation mechanism for national governments (Article 10); the investigatory powers of the Commission in the practical administration of the policy (Article 14); the upper limits of fines and penalties (Article 15 and 16); the rights of the member states and of third parties within the investigation process (Article 19). The implementation of Regulation 17 brought about a great deal of setbacks. The regulations requirement of notification regarding agreements between firms, produced in 1962 approximately 900 notifications for multilateral agreements, and 34,500 notifications in the case of bilateral agreements. The solution for the problems incurred by Regulation 17 came up in 1963 and consisted in the exemption of the whole groups of agreements. The bulk of agreements was absolved under Article 85 (3)[101 (3)]. However, once the Directorate General for competition (DGIV) officials inspected them, the issue was to find a method of clearing these agreements, and removing the backlog. As a consequence, the block exemption regulation was applied. Block exemption had two purposes: to diminish the proportion of the backlog and to help induce firms to observe the competition rules. Regardless of the recognition it received from the Council on its powerful significance, the block exemption regulation did not advance with its application until the Directorate General had acquired a certain degree of preparation in dealing with relevant cases, so that the regulation would not be absorbed in a political and legal void. There were several cases during the year 1964 which ensured the necessary experience, thus making possible the drafting of the first regulation in 1965. (Cini and McGowan, 2008) The regulation that solidified the block exemption policy was issued in 1967 by the Commission and was called Exclusive Distribution and Purchasing Regulation.

Starting with 1967, block exemption regulation has been used in order to facilitate the improvement of competition policy and to contract the administrative overload.

1.2.2 From 1958 to 1972 The starting years of competition policy were defined by the gradual development of a consistent range of primary policy issues. Creating an institution was paramount at that stage. Competition policy at the beginning of the 1960s was in fact a restrictive practice policy. Although the role of the European Court of Justice was reduced initially, the situation swiftly changed as a completely developed policy took shape. The state aid along with the monopoly policy were omitted for the most part, until the mid-1960s when the Commissions Memorandum on the Problems of Concentration in the Common Market (in 1966) catered a critical transformation. The two policies expanded when the Directorate General established a broad policy regarding horizontal and vertical restrictive agreements. The consistent development of the policy unfolded in the 1970s-1980s. (Cini and McGowan, 2008) Due to its gradual development the staff of the Directorate General was able to acquire a certain policy expertise. In the late 1960s there was a pro-consumer bias, as the accent was put on the consumer that was coping with mistreatment from strong firms or cartels and the competition goals were centred mainly on benefits for consumers. Nevertheless, this perspective diminished in 1967. The United States had supported the release of a solid European competition system, and so the Europeans started applying their regulations outside the European territory, leading to trade strife that would pursue transatlantic relations. The Commission was actively favouring the transnational firms, by assisting both crossborder mergers and the advancement of job creation by boosting growth industries. Competition policy further gained ground at the end of the 1960s pursuant to the retreat in the political activity related to supranational issues.

The ECJs juridical activism along with the quasi-juridical policy-making that represented the Commissions responsibility allowed for a different option to the customary legislative process. (Cini and McGowan, 2008)

1.2.3 From 1973 to 1981 After the year 1973 policy developments were considerably influenced by the external economic scene of that period. A biting difficulty appeared along with the recession that followed the oil crisis of 1973-74, introducing more sensitive policy. Industrial policys recovery took shape in 1972, when at the end of the Paris Summit a release provided that there was a need for the formation of a single industrial fundament within the Community. In 1973, the Council took up several programmes which would contribute to the foundation of the industrial policy for future action. A multitude of suggestions were advanced, but there was little consensus and the negotiations seemed uncertain. (Cini and McGowan, 2008) During this period a notable area of activity was represented by the management of regressive sectors. Two instruments were used by the Commission: import quotas in order to protect European industry from outside competition and state aid control in order restrict subsidies. Because of the damaging effects of the recession, temporary crisis cartels were permitted and the Commissions annual reports on competition policy informed of the contraction of inflation. DGIV had a harsh time dealing with the crisis fighting with the practical matters brought by the surge of restrictive agreements and subsidies aimed at protecting national economy, which made it extremely challenging to apply the policy productively. Severe dominant practices prevailed in the 1970s, all eyes being on the problems of keeping mergers in check. Article 86[82] was deemed an instrument likely to be employed for merger control in 1973, exposing the idea of an effective merger system. As there was an anti-supranational bias until the mid-1980s, The Commission had to employ regulations that it previously concurred with in the 1960s.

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That was a period of incertitude, and legal assurance was necessary in order for the competition system to self-adjust and for the firms to observe the law. The Commission had to create and refine its own industrial strategy, and until that was achieved it was the responsibility of the authorities of Member States to establish their own alternatives to cope with the crisis. In the mid-1970s the Commission relaxes its position towards the grant of state aids in recognition of the need for national measures against unemployment and failing industries. (Merkin and Williams, 1984, cited in Cini and McGowan, 2008) Consequently, the state aid regulations were neglected, leading to a succession of poor examples which would begin to be sorted out later on in the mid-1980s. There were various factors emerging at the end of the 1970s and the beginning of the 1980s that brought forth an unprecedented policy transformation of significant proportion.

1.2.4 From 1981 to the present day Competition policy nowadays, has as its primary aims market integration and economic efficiency. As the European Commission reported in 2000: the first objective of competition policy is the maintenance of competitive markets. Competition policy serves as an instrument to encourage industrial efficiency, the optimal allocation of resources, technical progress and the flexibility to adjust to a changing environment. In order for the Community to be competitive on worldwide markets, it needs a competitive home market. Thus, the Communitys competition policy has always taken a very strong line against price-fixing, market sharing cartels, abuse of dominant positions, and anti-competitive mergers. It has also prohibited unjustified state-granted monopoly rights and state aid measures which do not ensure the long-term viability of firms but distort competition by keeping them artificially in business. In this time span, state interventions and monopolies attracted more and more attention. Several 1985 cases called for fundamental obligations (present in the Treaty) opposing national legislation. They tampered with the activity of the Communitys competition law. Encouragement of adjustment regarding monopolies in infrastructure service
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industry was

the Commissions

purpose and

it

began

with

the field

of

telecommunications, having the support of the courts. In 1988 a line of action aimed to dispose of those monopoly rights that impaired competition expanded on prior directives that had compelled straightforwardness concerning state owned enterprises. (Cini and McGowan, 2008) Community competition policy changed directions since the mid-1990s towards the restraints on service trade and the basic competition policy fare of monopolies and cartels, as the market integration objective was chiefly fulfilled. The cornerstone of economic rehabilitation in 1997 represented the definition of the relevant market. The prime modifications reflected the amendments of the rules on vertical and horizontal restraints. The decisions made by the Commission could be appealed more easily since 1989, when the Court of First Instance (CFI) was added to the system. In 2002 DGIV introduced a new economic unit and employed industrial economists in order to expand its range for economic inquiry, as well as additional quality control inspection into the case assessments. The Community put in place an upgraded policy enforcement operation in 2004. National authorities must implement Community law as well as their own, and national law is not permitted to forbid restrictive agreements if they do not violate the Treaty. Competition policy was and continues to be a policy auxiliary to the creation of a common market, as it brings forth an apparatus for clearing barriers to trade between the member states, while driving forward market integration.

1.3 Objectives of competition policy in EU The essential goal of competition policy is to enhance market efficiency by supporting or safeguarding competition between firms, thus reducing the resource misallocation effects of the exercise of market power. Competition policy aims to promote consumers well-being, economic efficiency, the optimal allocation of resources, as well as technical progress. The main three objectives of the EU competition policy (DGIV, 2004)

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1. European competition policy must guarantee the unity of the internal market and must avoid the creation of agreements between firms that are capable of restricting internal trade and the free manifestation of competition. 2. Competition policy is aimed at preventing those situations in which one or more companies try to exploit their economic power in an abusive manner in relation to other companies that are less powerful (abuse of dominant position). 3. Moreover, European competition policy must prevent those interventions of Member States' governments, interventions that may falsify the rules of the free game of the market through discriminations in favour of state enterprises, or through granted aid to certain companies in the private sector (state aid). Other objectives include (Motta, 2004): Welfare, represented by total surplus which is in turn divided in consumer and producer surplus. The consumer surplus is the utility for consumers by being able to purchase a product for a price that is less than the price they would be willing to pay. The producer surplus is the amount that producers benefit by selling at a market price that is higher than the lowest price they would be willing to sell for; Defence of small companies from the abuse of larger competitors; Promotion of market integration. It is one of the main objectives of the EU competition policy, stated in the Maastricht Treaty; Economic freedom; Fairness and equity in the marketplace;

1.4 Antitrust law in EU. Cartels and monopoly. Antitrust law is a body of law and policy aimed at either supporting or safeguarding economic competition. European Union antitrust law controls competitiveness and is aimed at blocking those agreements that are unjust and that can be represented by methods such as price fixing. It also controls the way corporations handle business, preventing them from reaching monopoly from abusing positions within a market. There are two main Articles that regulate uncompetitive practices:
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Article 81, now Article 101, is aimed at preventing the emergence of cartels. Article 82, now Article 102, is aimed at preventing businesses dominating the industry they operate in, and obtaining unfair advantageous positions. The article prevents firms from: generating inequitable competition by selling their products/services at considerably low prices, or immoral conditions of trade; maintaining a level gap between different businesses, creating a market dominated by unfair competition and putting competing firms at a loss; refusing to cooperate with other businesses unless the parties involved comply with certain conditions unrelated to the initial contract.

There are several bodies that regulate antitrust in the European Union, respectively DGIV National Competition Authorities (NCAs) of each Member State that handle cases with a national impact. Further, there is the Commission that deals with cases that produce an impact on several Member States. An array of Commission decisions on mergers and antitrust cases based on economic grounds have been appealed to the General Court or to the European Court of Justice. In 2003, the position of Chief Competition Economist and a support team were established by the Commission, in the attempt to secure economic competences. A group of academic economic councillors was also created, called the Economic Advisory Group on Competition Policy. In 2001, antitrust officials from 14 countries launched the International Competition Network (ICN) to bring forth a new framework for interaction and collaboration among government officials, enterprises and non-governmental organisations. The fundamental principle of ICN is that intensive interaction among competition authorities will act for promoting the development of proper enforcement policies worldwide.

Monopolies Monopoly is defined as a market comprising a single firm, or as a situation in which a single company owns all or the most part of the market for a certain good or service.

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Monopolies are characterized by a lack of competition, which takes the shape of high prices and inferior quality products for consumers. Monopolist firms may also limit the quantity of products sold on the market having little to no interest in customers needs. European Union Monopoly Policy The article that regulates monopolies is Article 102 of the Treaty on the Functioning of the European Union. Article 102 states that: Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market in so far as it may affect trade between Member States. Such abuse may, in particular, consist in: (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, markets or technical development to the prejudice of consumers; (c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. There are four conditions that must be met in order for a business to be deemed abusive. These conditions are: the firm must be dominant, its actions must have an effect on the common market, the dominant firm must be abusing its position in the market the abuse must have an effect on trade between Member States.

Article 102 cannot be applied if one fails to demonstrate the presence of dominance. There is no statutory definition of market dominance, and this leads to diverse issues for DGIVs monopoly related regulation.

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However, the Commission established two criteria for assessing the concept of dominance. The first criterion is called relevant market and the second one is called market power. The relevant market criterion sets the context within which the Commission is able to assess the companys dominance. Market power analyses the companys position both in quantitative and qualitative terms in that specific relevant market. As far as the relevant market goes, there are three dimensions for the market analysis: assessment of the product market; the geographical market; the temporal market.

A relevant product market assumes that the market is defined in terms of the possibility for the product to be either interchangeable or substitutable. The fundamental aspect is the extent to which the market for that specific product can be differentiated from other markets. A relevant geographic market represents the area in which the conditions of competition are sufficiently homogeneous and companies are involved in the supply of products or services. A temporal market refers to the time period in which competition conditions are maintained relatively homogeneous. The temporal market is usually considered as an inherent part of the product market. Consequently, companies under investigation are interested in having the market defined as broadly as possible, because it is more difficult for the Commission to establish dominance in a broad market. Market power was defined for the first time as the ability or power to prevent effective competition in an important part of the market (Sirena v. Eda case, no 40/70 [1971] ECR 49).

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Several criteria are to be applied in order to determine if a firm is dominant: the extent of the market independence the anti-competitive effect.

However, the most important criterion is market share. The percentage of the market dominated by one company is an essential signal of dominance. Generally, when a company has power over 40% of a market, one can say that company is dominant. The European Court of Justice claimed that dominance of a firm or undertaking relates to a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by giving it the power to behave in an appreciable extent independently of its competitors, customers and ultimately, of its consumers (United Brands case no 27/7 [1978] ECR 207). The last phase in establishing the dominance of a company implies an evaluation of the companys rank within the market. An abuse of a dominant position is forbidden within the common market or in a substantial part of it. (Article 102 TFEU) Several practices describe the term abuse and in the same time characterize monopolies. These practices are: selling at an extremely high price, charging excessively low prices in order to eliminate competitors, restricting production and imposing exclusive purchasing agreements for a category of products. Nevertheless, companies that are in a dominant position should not apply themselves to these practices. Twenty-Fourth Report on Competition Policy states: a dominant company has a special obligation not to do anything that would cause further deterioration to the already fragile structure of competition or competitors who might challenge this dominance and bring about the establishment of effective competition (European Commission, 1994).

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Cartels Cartels, whether in the form of price fixing, restrictions on output, or bid rigging, are formal arrangement concluded between two or more firms, inclined to the abuse of information on profits/products, resulting in the inequitable treatment towards consumers. In the European Union cartel sanctions are in the form of fines. The following figure illustrates the average cartel fines applied by the European Community between 1990 and 2007. Figure 1: Average cartel fines given by the EC (1990-2007) and by the Community Courts

Source: http://ec.europa.eu/dgs/competition/economist/motta.pdf

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European Union Cartel Legislation Article 101 of the Treaty on the Functioning of the European Union states, cartels are forbidden by law. The disciplinary action in case such agreements occur is a fine up to 10% of the turnover. The article prohibits: attempts to set selling prices at a certain level; limiting or controlling production, hampering innovation, technical development, or investment; information exchange related to share markets, as well as sources of supply; disparities among competing companies, because of the unfair treatment of competitors; any unjust and insubstantial refusal to trade or work with other firms. Cartels are normally covert, and in the majority of situations they are also difficult to detect. In order to prevent the formation of monopolies, the European Commission has established a policy called leniency policy, aimed at supporting enterprises involved in any type of cartel to admit they are part of one and at notifying the competition authorities. The enterprises that admit to being a part of a cartel can avoid being sanctioned, or they bear a smaller fine. The following figure illustrates the number of cases in the leniency program between 1996 and 2007.

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Figure 2: Leniency program

Source: http://ec.europa.eu/dgs/competition/economist/motta.pd Not all business agreements are illegal. There are certain exceptions to the rule, such as: agreements which enhance production of goods and services, which promote technical or economic progress and which do not take advantage of customers; businesses that amount up to 10% of the market .They are authorised to conclude agreements with businesses within their primary industry. businesses with no more than 15% of the market are authorised to conclude agreements with businesses above or below the supply chain. Cartel enforcement is effective when all countries have operating anti-cartel laws and when they apply those laws. Nowadays, there are more than 90 countries in the world that have antitrust laws, and the majority of the laws include anti-cartel provisions.

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1.5 European Union antitrust case study: ENI ENI Spa is an Italian state owned company that activates on various production, transportation and supply chain levels within the energy sector. The company operates on the most part in Italy, being the largest supplier and importer of natural gas on both the retail and wholesale markets. On the 20th of April 2007 the Commission opened an investigation against ENI focusing on the management and operation of ENI transmission pipelines that allows the import of natural gas from Austria (TAG pipeline) and Germany (TENP/Transitgas pipelines) to Italy. In order to have market integration in Europe, it should be possible for gas infrastructure to be accessed freely. Any restriction of ENI on transport networks is believed to have a negative impact on the gas supply in Italy, and to be in breach of the EC Treaty dominant market position regulations. ENIs may have blocked competitors access to capacity available on the transport network (called capacity hoarding), permitting access in an impracticable way (called capacity degradation) and confining investment (called strategic underinvestment). Supply stability is likely to be negatively influenced by limited investments in transport capacity and by a lack of suppliers, leading to an increase in the dependence on any single supplier and its particular conditions. This antitrust case came to life in the wake of an inspection performed in 2006 on ENI ENI subsidiaries in Italy, Austria and Germany. The focus of the case was on whether ENI intended to exclude competitors on the Italian gas supply market. The practices mentioned above were presumably applied by ENI and its subsidiaries including: Trans Austria Gasleitung GmbH(TAG), Trans Europa Naturgas Pipeline GmbH & Co. KG(TENP), ENI Deutschland S.p.A. and Eni Gas Transport International SA. On the 6th of March 2009 the European Commission sent a Statement of Objections under EU antitrust rules to the Italian company. The Statement of Objections carried forth the Commissions preliminary view, which was that the operation and management of

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ENIs natural gas transmission pipelines might be in breach of Article 102 of the EC Treaty regarding abuse of dominant position. Consequently, the Italian companys proposition was to dispose of its shares in the three subsidiaries of international transport pipelines: the TAG, the TENP and the Transitgas pipeline. After developing a market test, on the 29th of September 2010, the Commission accepted ENIs proposition to dispose of its shares, as this solution could set aside the concern that stayed at the heart of the investigation. The Italian company would no longer be the subject of inevitable conflict of interest, as it used to be while operating both as a transmission system operator and as a company active on the Italian wholesale market. As ENI would lose control over the transport infrastructures, it would not be able to: refuse access to those specific transport infrastructures; permit access in an impracticable way; confine investments in new capacity of transporting gas into Italy.

Taking into account the commitment made by ENI, the Commission deliberated that no grounds for action applied any longer and the proceedings in the case should be concluded. The commitment could represent a paramount step towards facilitating competition on the Italian gas markets and could bring significant benefits to gas customers while registering an increase in security of supply.

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2. Competition policy in the United States of America

2.1 History of competition policy in USA The root of competition policy in the United States is represented by the Sherman Act of 1890, as well as the Clayton Act and the Federal Trade Act of 1914. The main goal of competition policy was to prohibit monopolies. Over the last 20 years, competition policy has fulfilled the part of reforming sundry regulations that were discrimination competition, in fields such as: energy, transport, telecommunication. Reform has been made easier in the majority of situations where anti-competitive practices were encountered, by tuning regulation to competition. Moreover, by concentrating on competition matters and application of competition policy other regulators could achieve their regulatory goals more easily.

2.1.1 History of competition laws: The end of the XIXth century came with the revolution in transportation and communication, leading to a single US market; Technology advancements, economies of scale, as well as modern managerial methods; Economic crises and price wars, leading to market imbalance and proclivity towards trusts and cartels; 1890, the Sherman Act: Section 1- Conspiracies and Section 2- Monopolisation; 1897: the firs Supreme Court decision against trusts; 1911: Standard Oil (oil trust) was divided in 34 companies; 1933: Appalachian Coals (coal cartel) vs. US. The first case decided under the Sherman Act; 1950-60s: active enforcement; 1970s: focus on efficiency; 1980s: laissez-faire and Ronald Reagan (Reaganomics). The goal was to diminish government intervention and increase private capital. His approach: free markets, strong national defence, and traditional family values.
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2.1.2 The emergence of the Sherman Act Manufacturing industry, as well as communication and transportation underwent significant changes in the second half of the 19th century that shaped an extensive single market. The single market offered firms the chance to take advantage of economies of scale, and the coming into existence of developed capital markets together with new managerial methods, brought forth the opportunity of expansion. The 1880s and 1890s were represented by a massive merger trend mainly due to unstable prices resulted from price imbalance and recurrent economic crises. Competition intensified along with the rise in communication and transportation, as companies faced the challenge of rivalling with competitors from other states in America and abroad. The period from the mid-1870s until the end of the century was characterised by low prices, resulted from intense competition. During that period firms strove to operate at full capacity in order to defray the high fixed costs and because of that they were inclined to bring down prices, thus creating price wars. Consequently, trusts and cartels were trying to respond by creating price agreements to conserve high prices. These high prices affected both consumers and other producers in a negative way. According to Senator Sherman, the popular conscience is troubled by the emergence of new problems that threaten the stability of social order. The most serious of them is certainly the result of the increase in one generation, inequality of opportunity, wealth and social conditions through the fault of the concentration of capital in broad coalitions to control trade and industry and to destroy free competition. (Denoix and Klargaard, 2007) Hence, a federal law appeared in 1890 that would regulate the economic abuse of trusts and cartels. This was called the Sherman Act. Other similar laws are: the Clayton Act of 1914, the Federal Trade Commission Act of 1914, the Robinson-Patman Act of 1936.

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2.2 Objectives of competition policy in the USA Over the last approximate 20 years, competition policy has expanded its range considerably, to comprise attenuating the negative effects of government intervention within the marketplace. The most familiar objectives are the preservation of the competition process, of free competition, or of the support and safeguarding of actual competition. Safeguarding businesses from inequitable ways of creating monopolies or equivalents aimed at restricting or eliminating rivals, as well as preventing abuse of economic power are also strongly grounded objectives of US competition policy. (Motta, 2004) Competition policy has as its pivotal goal the removal of market dominating behaviour of businesses, behaviour manifested through price fixing or market-sharing cartels, as well as abuses by powerful firms. US policy promotes competition as a means of creating markets responsive to consumer needs, of providing the efficient resource assignment in the economy and of producing efficiently. The desired effect is to obtain the best possible quality, the lowest prices and best supplies for consumers, in the attempt of increasing consumer welfare. Efficient assignment and use of resources lead to accrued competitiveness followed by considerable growth and development. Other objectives include: improving access and opening markets by reducing barriers to entry through: tariff reduction; removal of quotas and licenses;

freedom of trade; freedom of choice and access to markets.

2.3 Antitrust law in USA. Cartels and monopoly. Antitrust law is a body of law and policy aimed at either supporting or safeguarding economic competition. The US Department of Justice stated that the purpose of antitrust laws is to establish broad principles of competition that are designed to preserve an unrestrained interaction
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of competitive forces that would yield the best allocation of resources, the lowest prices, and the highest quality products and services for consumers. Antitrust laws have had numerous shifts of goals, but with a small number of solid, basic, underlying objectives (Givens, 1984): 1. giving consumers a chance to get the best services and products with fair prices and without arrangements to increase them through monopolies or combinations; 2. giving businesses the opportunity to do their best without being blocked by unnecessary unfair devices of rivals. Antitrust differs from other laws in several ways (Givens, 1984): 1. Antitrust does not provide rights. Instead, antitrust laws have developed to protect consumers and the economy from monopolistic activities. Other than the Robinson-Patman price discrimination Act, antitrust law ordinarily does not insure anyone the ability to bring a successful suit or complaint before the government unless the public would benefit. 2. Clients, especially small business people who may be removed from a connection with a larger one- particularly find it difficult to understand that an unfair dismissal is not ordinarily illegal under the antitrust laws. 3. Reductions of prices to injure rivals are sometimes thought to be clearly illegal under the antitrust laws. 4. The larger objectives of antitrust efforts, especially the Federal Trade Commission, include inquiries into problems affecting public and overall business interests. 5. Development of worldwide antitrust concepts may become necessary, including overcoming of mercantilism. 6. Freedom for investigations, businesses and non-bureaucratic governmental thinkers are needed to achieve long-term advances vital to nation and even worldwide objectives. In this case, openness needed to permit advances is an ultimate gain from the wise use of antitrust objectives. In the United States, antitrust law penalizes unruly conduct by applying criminal fines. The following figure shows the evolution of criminal fines over the past decade.

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Figure 3: Criminal antitrust fines

Source: http://www.justice.gov/atr/public/criminal/264101.html

Antitrust Acts Unites States has two main antitrust laws, namely the Sherman Act and the Clayton Act. They can be applied by the Justice Department, the Federal Trade Commission and the Antitrust Division, or by individuals who claim economic injury resulting from the violation of the acts. There are two other acts, namely the Federal Trade Commission Act and the RobinsonPatman Act that can be applied by the Federal Trade Commission, as well as individuals. These four acts contain the behaviour of firms and activities that are forbidden on the market. The Sherman Act Section 1. Trusts, etc., in restraint of trade illegal; penalty Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or

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conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court. (the Sherman Act, Section 1) The Sherman Act was established as a consequence of the caveat made publicly in connection with predatory activities. The main targeted industry was the railroad system, which was accused of forming abusive trusts that lead to unjustified high prices. The legislation from that period deemed such practices illegal and set sanctions against them. The Sherman Act had direct provisions which took the shape of fines or even prison sentences that could go up to one year. Section 2: Monopolizing trade a felony; penalty Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court. (the Sherman Act, Section 2) It is believed that the Sherman Act authors were intentionally evasive in defining restraint to trade, as the act has no mention of specific practices like bid-rigging, price-fixing, or refusal to sell. They left the task of determining the trade restraints up to the courts.

The Clayton Act Because of the fact that the Sherman Antitrust Act was formulated in a broad language, a significant number of activities considered to be uncompliant with the ideals of the free market were not sanctioned. Consequently, the need for well-grounded antitrust regulations manifested itself during the 1912 presidential elections. Two essential antitrust acts came into existence in 1914. They are the Clayton Act and the Federal Trade Commission Act.
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The Clayton Act brought distinctiveness to the previous antitrust act by prohibiting practices like exclusionary business practices, price discrimination, and specific forms of mergers. Section 2 of the Clayton Act was created in order to eliminate monopolies by acting on discovering and sanctioning practices that may lead to corporate mergers in the early phase of their existence. Price discrimination having negative effect on competition is also present in the Clayton Act. The provisions were adverted to enterprises that sold the same goods at different prices in various areas, hindering local business for small sellers. The most important, substantial provision of the Clayton Act is perhaps Section 7. As opposed to the Sherman Act which prohibited activities that effectively restrain trade, Section 7 of the Clayton Act is aimed at precluding activities that restrain trade from their very beginning.

The Federal Trade Commission Act The fragment of the Federal Trade Commission Act that forbids unjust competition and commercial acts is Section 5. This section applies to unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce. (the Federal Trade Commission Act, Section 5 (a) (1)) The section applies in cases where to the unfair practices affect trade in a direct and considerable way. The Federal Trade Commission has the authorization to: 1. bring forward regulations clearly applicable to unjust or delusive actions and appoint conditions in order to detain such actions; 2. detain unjust competition practices; 3. sanction the parties that behave in an unfair manner;

4. inquire into the management, organisation and activities of companies involved in trade; 5. forward legislative recommendations and report to Congress.

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The unjust practices and ways of doing business can demonstrate merely the likelihood of negatively affecting consumers, they do not need to happen per se. In this case, the act is enforceable. The Federal Trade Commission is the only legal entity authorized to enforce the Federal Trade Commission Act. Ultimately, the act is intended to detain trade restraints, price-fixing and other unfair business methods.

The Robinson-Patman Act The Robinson-Patman Act of 1936 forbids mainly price discrimination by providing that a seller must impose the same price on two or more than two buyers of the same goods. Section 13, called discrimination in price, services, or facilities, of the RobinsonPatman Act can be applied to commodities of like grade and quality only. This section does not concern services, and it provides solely for goods sold within the United States, not for export goods. In regard to small businesses that may incur losses because of competitors, the act provides that it is illegal for companies to offer discounts to large enterprises for the same good/service without applying the same benefit to smaller businesses. In situations in which goods are manufactured with different methods, if the quantities needed in the process vary, or if the delivery methods are distinct, the law allows for the products to be sold at different prices. In order to prove a price-discrimination act, a thorough analysis must be conducted, demonstrating effective damage on, or intention to harm competitors.

Monopoly Monopoly is defined as a market comprising a single firm, or as a situation in which a single company owns all or the most part of the market for a certain good or service. They are deemed to be deleterious trade restraints that affect competition, and incur unjust price controls.

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Monopoly Policy in the US Monopolies were among the first unruly business behaviours the US government endeavoured to regulate in the public interest. The Congress created in 1890 an act aimed at preventing such restraints on trade, called the Sherman Act. The act forbids monopolies and trade restraints and it considered illegal every contract, combination [] or conspiracy in restraint of trade or commerce (the Sherman Act, Section 1) among American states or foreign countries. The Clayton Antitrust Act, consolidated by the Robinson-Patman Act, forbids discrimination through price setting and it disfavours acquisitions, mergers, or takeovers that have a harmful effect on competition. The Antitrust Division of the US Justice Department is responsible for applying antitrust laws. However, private lawsuits may also set bounds to antitrust activities. Most of the states in USA have comparable statutes prohibiting monopoly, price fixing agreements and other practices that restrain trade. The next figure illustrates the number of monopoly cases brought to court over the last 10 years, based on Section 2 of the Sherman Act. Figure 4: Monopoly civil cases

Source:http://www.justice.gov/atr/public/workload-statistics.html

Cartels Cartels, whether in the form of price fixing, restrictions on output, or bid rigging, are formal arrangement concluded between two or more firms, inclined to the abuse of information on profits/products, resulting in the inequitable treatment towards consumers.
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Forms of cartel I. Price Fixing Price fixing is a commitment among competitors to fix, maintain or raise selling prices for goods and services. There are several ways of fixing prices, including (Antitrust Division, US Dept. of Justice: Price fixing, bid rigging and market allocation schemes: What they are and what to look for): Establishing or adhering to price discounts; Holding prices firm; Eliminating or reduce discounts; Adopting a standard formula for computing prices; Maintaining certain price differences between different types, sizes, or quantities of products; Adhering to a minimum fee or price schedule; Fixing credit terms;

II. Bid Rigging Bid rigging is the manner of raising prices in cases where customers acquire goods/services by claiming competing bids. The main practice is for competitors to agree in advance on who will place the winning bid on a contract for goods or services at a pre-determined price. Bid-rigging can be divided in the following categories (Antitrust Division, US Dept. of Justice: Price fixing, bid rigging and market allocation schemes: What they are and what to look for): Bid suppression. In cases of bid suppression, one or more competitors who would normally place a bid, agree to abstain from bidding or draw back a previous bid in order for the bid of a pre-established competitor to be the winning one. Complementary bidding. This type of bidding is the most frequent and it takes place when several competitors accept to place bids that are either too high to be considered, or hold particular conditions that the buyer would deem inadmissible. They are intended look like an authentic competitive bidding.
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Bid Rotation. In these situations, each participant places a low bid at a turn. The turns of the bid rotation imply the existence of collusion. Subcontracting. The bid winner offers subcontracts or supply contracts to the competitors who settle not to bid or who settle to place a losing bid.

III. Market Division Market division represents situations in which competitors agree to split markets among themselves. They assign certain types of customers, products, or territories among themselves. Cartel enforcement in the US Cartels are discovered and prosecuted by the Justice Department of the United States through a program whose success is owing to the leniency policy. This policy was created to determine members of cartels to self-report. Under the leniency policy, applicants who report first have the opportunity to avoid fines and criminal sanctions. (Libow and DAllaird, 2009) Cartels can bear very significant criminal fines, such as sanctions for violations of the Sherman Act that can go up to 100 million dollars for companies and 1 million dollars for individuals. (the Antitrust Criminal Penalty Enhancement and Reform Act of 2004) Moreover, the Justice Department can impose fines that surpass the statutory limit and can amount to sums that represent twice the gain/loss derived from the cartel. The Justice Department frequently applies this method for establishing antitrust criminal fines mainly in cases of international cartel activity. The Antitrust Division, during the 1990s, offered deals that involved no jail time for foreign nationals who wanted to cooperate in the investigations. International cooperation increased substantially and, as a result, the Justice Department created a policy that required jail sentences for both foreign and domestic defendants. The extension of average jail sentence for foreign nationals in antitrust cases has been considerable, from 3.4 months in 2000 to 12 months in 2007, and to 18 months in 2008. (Libow and DAllaird, 2009)

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The following two figures illustrate the number of trade restraint cases, both criminal and civil, brought to court over the last 10 years, based on Section 1 of the Sherman Act. Figure 5: Restraint of trade civil cases

Source: http://www.justice.gov/atr/public/workload-statistics.html

Figure 6: Restraint of trade criminal cases

Source: http://www.justice.gov/atr/public/workload-statistics.html

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2.4 Interpretation and application of antitrust legislation As the interpretation of antitrust regulations varies with the economy and public opinion, judges have come to use certain mechanisms that enable them to interpret antitrust legislation in accordance with the particularities of each case. A clear example would be the modification of the concept of trade restraint with the rule of reason. A company has the chance, under this rule, to absolve itself from actions related to antitrust if its activities fall in line with the law. Opposing the rule of reason is the per se rule. In this case, a convention between competitors that restrains trade is unjust in itself. Price-fixing suits the per se rule that is used on a more frequent basis when the public favours the application of more constraints on business practices. Antitrust cases are often solved by consent decrees, in situations where the government or a private party that suffered an injury is offered a consistent sum of money in damages from the firm/firms that are culpable of infringing antitrust laws. The Justice Department of the United States can support both antitrust regulation through criminal charges and civil suits in their attempt to receive a court-ordered damage settlement. A similar practice is the one named cease and desist and it can be enforced by the Federal Trade Commission. Antitrust actions can be brought to federal courts by individuals pursuing compensation since 1976, as it was established by every state. The Robinson-Patman Act forbids price discrimination between buyers of a product if discrimination hurts competition considerably. The Clayton Act forbids a company from purchasing an interest in the stock or assets of another company if doing that may create a monopoly or may diminish competition. A federal court may enter a disposition order, determining the culpable party to forfeit the purchased property.

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2.5 United States antitrust case study: Microsoft Founded in 1975, Microsoft is the worldwide leader in software situated in Washington. In 1991the Federal Trade Commission (FTC) of the United States initiated an investigation on Microsoft, as the corporation was believed to hold monopoly on the market of PC operating systems. The investigation ceased in 1993 when FTC wished to proceed with a formal complaint on antitrust violations against the corporation, but did not receive the necessary votes to continue. At the same time as the ending of FTCs investigation, the Justice Department and European Commission initiated their own examinations. Microsoft managed to settle the Justice Department and the European Commissions antitrust claims in 1994, when it disposed of several restrictions used on various software markets and it modified its contracts with PC makers. In October 1995 Microsoft faced another trial opposing the Justice Department who claimed that the American corporation violated the agreement settled in 1994 by conditioning that Internet Explorer was to be installed on each personal computer that operated with Windows 95. Compaq, the worlds largest personal computer maker, accused Microsoft of acting unlawfully because of Microsofts threat of terminating Compaqs Windows 95 licence if it did not install Internet Explorer on each computer operating with Windows 95. Consequently, the Justice Department incriminated Microsoft with a restrictive practice charge, as Microsoft in its attempt to gain Netscape Communications market incorporated its web browser into Windows 95. A US district judge decided in 1997 on a preliminary interdiction against Microsoft, forcing the company to quit requesting personal computer makers to incorporate Internet Explorer on their computers. Reaching a partial settlement with the Justice Department, Microsoft permitted personal computer makers to extract the web browser on the new Windows 95 versions, while Netscape Communications decided to make their internet software available free of charge. In 1998 the corporation broke the settlement with the launch of Windows 98 by incorporating the internet software and putting a browser icon on the desktop.
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The corporation also intended to request such a browser icon from other computer makers, stating that the settlement was only concluded for Windows 95. Both Netscape and IBM chief executives gave evidence that Microsoft menaced to put their businesses in danger because of their collaboration with competitor companies. The judge ruled, on the 5th of November 1999, that the corporation had a monopoly on the market for personal computer operating systems, affecting consumers in a negative way. Following the ruling, Microsoft and the government initiated a four month negotiation process and on April 3rd the judge made the final decision. The decision was that Microsoft breached national antitrust laws and used its advantageous position to eliminate competition. On April 3rd 2000 Microsoft was found liable for violations of Sections 1 and 2 of the Sherman Act. On the 7th of June 2000, the judge in charge with the case issued the final judgment and enforced a structural remedy of conveyance concerning the corporations violation of the two sections of the Sherman Act. Microsoft appealed. The United States and Microsoft managed to arrive at an agreement in the form of a proposed consent decree, filed with the Court under the name Revised Proposed Final Judgement on the 6th of November 2001. The proposed decree provided that Microsoft shared its application programming interfaces with other companies and that the corporation designated three people who would have complete access to its records and source code for a period of five years, in order to comply with the requirements. Tanking the settlement into account, the Justice Department did not forward any request for Microsoft to change its code and it did not prohibit the company from linking other software with Windows in future periods. Microsoft made several changes in order to comply with the proposed consent decree. However, in 2002, nine states opposed to the decree, arguing that it did not cover enough ground in order to block the corporations anti-competitive conduct. In 2004 the US appeals court decided that the objections presented by the nine states were inappropriate and it approved the proposed settlement.
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3. Comparative analysis on competition policy: USA vs. EU. Accomplishments and setbacks
3.1 Comparing the objectives On the one hand, European Union competition policy must guarantee the unity of the internal market and must avoid the creation of agreements between firms that are capable of restricting internal trade and the free manifestation of competition. Competition policy is aimed at preventing those situations in which one or more companies try to exploit their economic power in an abusive manner in relation to other companies that are less powerful (abuse of dominant position). Moreover, European competition policy must prevent those interventions of Member States governments, interventions that may falsify the rules of the free game of the market through discriminations in favour of state enterprises, or through granted aid to certain companies in the private sector (state aid). (DGIV, 2004) On the other hand, the most familiar objectives of competition policy in the US are the preservation of the competition process, of free competition, or of the support and safeguarding of actual competition. Safeguarding businesses from inequitable ways of creating monopolies or equivalents aimed at restricting or eliminating rivals, as well as preventing abuse of economic power are also strongly grounded objectives of US competition policy. US policy promotes competition as a means of creating markets responsive to consumer needs, of providing the efficient resource assignment in the economy and of producing efficiently. (Motta, 2004) US and EU competition policies have similar objectives. They both aim at promoting consumers interests and at safeguarding the free flow of goods in the economy. They both aim at safeguarding consumers freedom to choose and market access for competitors. Though there are clear similarities between the EU and US objectives, in the case of antitrust law it is often claimed that the US system seeks to promote competition, while the EU focuses on protecting competitors. (Kovacic, 2008)

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3.2 Competition policy enforcement: USA vs. EU One of the most notable differences between the EU and US in competition law is antitrust enforcement. Despite the fact that US antitrust regulations are to a certain extent more powerful than EU regulations, their application has been considerably more solid in the EU than in the US in recent years. (Fox, 1997) There are similar points in the two systems of law, as well as contrasting points. Both Article 101 of the Treaty on the Functioning of the European Union (TFEU) and Section 1 of the Sherman Act (in the US) address concerted practices that restrain trade. The meaning of concerted practice in Section 1 of the Sherman Act concerns at least two firms whose activities lead to trade restriction. The main examples of concerted practices that restrain trade are price-fixing and bid-rigging. Article 102 of EU antitrust law corresponds to a certain extent to Section 2 of the Sherman Act, related to monopoly creation and preservation. In the EU, firms that infringe antitrust regulations suffer serious monetary sanctions that may lead up to 10% of their yearly revenue. Unlike the EU, the US provides criminal sanctions for infringement of antitrust regulations. In the case of mergers, there is a clear difference between the two systems. In order to detain a merger in the US, the authorities have to call on the federal court to issue an interdiction. As opposed to the US, in the EU the Competition Commissioner has the capacity to detain a merger with no implication of the court. A definite distinction between the EU and US antitrust legislation is reflected in the comparison of Article 102 of the TFEU and Section 2 of the Sherman Act. Section 2 of the Sherman Act states: Every person who shall monopolize, or attempt to monopolize [] shall be deemed guilty of a felony, and [] shall be punished by fine or by imprisonment. Based on the text of Section 2, two conditions must be fulfilled in the US in order for monopoly to be considered outside the law: a company creates monopoly or preserves its monopoly power and it takes actions in order to exclude competitors.

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The purpose of Section 2 is to preclude actions that lead to the appearance or consolidation of monopoly. Article 102 of TFEU states: Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market in so far as it may affect trade between Member States. On the one hand Article 102 of TFEU seeks to regulate the behaviour of companies that already have a dominant position. On the other hand Section 2 of the Sherman Act covers the creation or preservation of monopoly power. Section 2 is aimed at blocking companies from gaining strength through actions that exclude competitors, while Article 102 is aimed at blocking companies from taking unfair advantage of their market power. The mere existence of monopoly or of market power does not represent a reason for prohibition neither in the US or EU. The actual reason is represented by the unfair behaviour of firms having market power. Another part of antitrust law than can bear comparison is the standard called rule of reason. (Kovacic, 2008) In the US the rule of reason provides that not every contract in restraint of trade is illegal and that only unreasonable conduct leading to competition confinement is to be sanctioned. US courts use the rule of reason to analyse and determine if a firm breached Section 1 of the Sherman Act. The rule of reason was integrated in the European Union law in relation with the free movement of goods in the internal market and is present in two articles of the Treaty on the Functioning of the European Union that forbid quantitative restrictions on both imports and exports. (Kovacic, 2008) The rule of reason consists of a proportionality exercise that is to be performed by the European Court of Justice in order to determine if the effects of Member State legislation on the free movement of goods are justified in proportion with its goals. Consequently, the rule of reason in the EU is clearly different from the one present in the US legal system.
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Criminal prosecution for cartels is accentuated in the United States. The US law lays emphasis on the use of lawsuits by private parties and government as well as damage complaints. In contrast with the US, the European Union system pursues the enforcement of administrative fines and administrative orders meant to limit unjust conduct. (Matsushita, 1999) US enforcement of competition policy is litigation oriented. The statutes are generally concise and the law has been made through judicial interpretation. (Fox, 1997) United States has a multitude of sources of regulation enforcement. At the federal level there is the Antitrust Division of the Justice Department and the Federal Trade Commission. In case of injury, both states and individuals can bring action to court. As opposed to the US, in the EU competition policy enforcement has a more restrictive and bureaucratic characteristic. Also, law enforcement is more lenient in the EU than in the Unites States. (Fox, 1997) Both similarities and differences between the two enforcement systems are visible at the level of cartel related activities. The resemblance in both the US and EU systems is that cartel behaviour is severely sanctioned. Nevertheless, the sanctions are applied differently. One distinction is that price-fixing, bid rigging and market division schemes suffer penalties in the form of fines and damages in the EU, and in the US they are subjected to criminal sanctions. The European Union has several cartel-related exceptions that are not present among US antitrust regulations. The exceptions are represented by crisis cartels and situations of cooperation among European firms. Another distinction is that the Justice Department of the United States has a consistent number of staff members in charge of cartel discovery and blocking, while the European Union has little staff members that deal with such matters. The main method of official activity initiation in the European Union is the complaint. In contrast with the United States, the EU dedicates less resources to anti-cartel activities.

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3.3 Bilateral cooperation in competition between USA and EU A variety of cooperation agreements among law enforcement authorities for competition can be distinguished. There are: bilateral agreements between two nations, regional agreements, plurilateral agreements and multilateral agreements. (Matushita, 1999) The majority of bilateral agreements establishes a sum of conditions for the cooperative relationship. Such agreements are concluded between the United States and the European Union. In theory, an international agreement on competition policy should ensure the following guarantees for the parties involved (Matsushita, 1999): 1. the due process principle is observed whether it is an administrative, civil, or criminal process; 2. the admission of a well-founded complaint filed by a private party suffering from a violation; 3. no distortion or disregard of duly filed evidence; 4. the process as a whole generally is made public. The EU and US competition authorities cooperate mainly in conformity with the 1991 Cooperation Agreement and the 1998 Positive Comity Agreement.

1991 EU/US Competition Cooperation Agreement It is an agreement between the United States government and the Commission of the European Communities in connection with the application of competition laws, and it is aimed at supporting cooperation between the competition authorities of the two blocks. Under this agreement meetings are held on a regular basis in order to share information on current enforcement activities and priorities, as well as on economic sectors of common interest, to discuss both policy modifications and other matters of mutual interest concerning the application of competition laws. The Agreement provides for (European Commission, Bilateral relations: United States of America): exchange of information from one party to the other on the matter of relevant cases that concern both parties, as well as information related to the implementation of competition rules.
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collaboration and coordination of the actions of competition authorities representing both parties; a traditional comity process in which each of the parties involved have to take into consideration the interests of the other party when it takes action to enforce its competition rules;

a positive comity process in which either party can request the other party to take appropriate actions concerning anti-competitive behaviour implemented on its territory, affecting the requesting partys interests.

1998 EU/US Positive Comity Agreement The Positive Comity Agreements allows for the party affected by anti-competitive conduct to require the other party to remedy the situation. The agreement points out both the way the positive comity cooperation tool works and the situations in which it can be utilised. Positive comity provisions are not used on a regular basis, because firms would rather refer directly to the competition authority they deem best fitted for that specific case. Certain areas, such as mergers and takeovers, fall outside the scope of the agreement. (European Commission, Bilateral relations: United States of America)

Administrative Arrangement on Attendance The Administrative Arrangement on Attendance, adopted in 1999, establishes arrangements of administrative nature regarding mutual attendance of the two competition authorities at certain procedure phases in individual cases, comprising the application of competition rules of each party. The above mentioned arrangements were concluded between the EU and the US emphasizing the enforcement of competition rules, especially the provisions regarding co-ordination of enforcement activities. (European Commission, Bilateral relations: United States of America)

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3.4 Convergence and divergence between the EU and US competition systems There are significant convergence and divergence points between the Unites States and the European Union concerning competition systems. The differences are significant for several reasons. The first reason would be that there is a high and increasing degree of interdependence between the regulatory regimes of individual jurisdictions.(Kovacic, 2003) In a multitude of areas, the authority with the most intervention-biased policy and an instrument capable of enforcing rules has the potential to determine a global standard. The enforcement procedure represents the second reason. Although the standards applied by both the US and EU may be the same, as well as the evaluation of the same commercial procedures, distinctions may appear in the decision making and investigative processes. (Kovacic, 2003) The third and last reason constitutes the creation of new competition systems worldwide. Considerable resources are spent by both the European Union and the United States on technical aid for emergent competition policies and for states that pursue the adoption of new competition rules. The EU institutional platform is more compatible with the institutional arrangements in most civil law countries, and so, many transition economies are inclined to look first to EU models in designing and implementing their competition systems. This condition means that EU, rather than US, norms tend to be more readily absorbed into the newer competition policy regimes. (Kovacic, 2003) Convergence Both the EU and US competition systems are inclined towards mutual assent of basic standards and the concepts that set these standards. Cartels are regulated and strictly kept in check both in the EU and in the US. Those who violate competition policy rules suffer severe sanctions. The distinction appears in the sanction itself. EU is prone to applying fines, while the US is oriented towards criminal sanctions. There are also exceptions in the EU, of countries such as UK and Ireland that follow the US model and pursue detention for individuals who violate such rules.

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William Kovacic, commissioner of the Federal Trade Commission states that: Cartel enforcement is a major example in which the EU embraced techniques most notably, leniency that had been tested extensively in the US. The EU and US are considerably similar in the field of horizontal mergers. The commissioner also supports the idea that both EU and US have converged extensively over the past 20 years on the analytical framework due to the elaboration and revision of merger guidelines. Divergence The treatment of dominant firm behaviour is one of the significant differences between the two systems. Generally, EU policy applies harsher restrictions than the United States on companies that are in a dominant position. US law has no correspondent to the excessive pricing interdiction present in Article 102 of TFEU. (Kovacic, 2008) The Court of Justice and the General Court have created a broader liability area, under Article 102 of the TFEU, for firms with a dominant position on the market than is provided by Section 2 of the Sherman Act. EU law considers a company to be dominant if it possesses approximately 40% of the market share, while the US law holds this view for companies having more than 50% of the market share. Tying arrangements are another area of distinction between EU and US competition systems. Tying agreements are practices in which a supplier sells a certain product and requires that the buyer also purchases a different product (positive tie), or agrees not to purchase that specific product from any other supplier (negative tie). These agreements are subject to prohibition, both in the United States and European Union but in the US what the Supreme Court still calls a per se rule increasingly has come to resemble a variant of a reasonableness inquiry. By contrast, EU law relies more heavily on per se condemnation, with minimum resale price maintenance being one noteworthy example. (Kovacic, 2008)

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Conclusion
The paper took on several issues related to competition and competition policy in the European Union and United States. General information about competition and essential characteristics were presented, in order to establish the importance of the concept. History of competition policy in the EU and US was laid out with the intention of creating an overview on aspects, both economic and legal, that influenced its evolution and stabilization. The large perspective narrowed to the focal point represented by antitrust law and its application on cartels and monopolies. Articles and legal acts specific to the European Union and the United States were analysed, highlighting their provisions and effects on businesses that do not observe the law. In the case of the EU, the discussion narrowed down to Articles 101 and 102 of the Treaty on the Functioning of the European Union. Article 101, dealing with cartels and Article 102, dealing with dominant firms that abuse their position were discussed, along with the prohibitions and sanctions they impose. In the case of the US, the focus was on several antitrust acts (the Sherman Act, the Clayton Act, the Federal Trade Commission Act and the Robinson-Patman Act) and their impositions on cartels and monopolies. In the first chapter a case in point for the practical application of EU antitrust law was represented by the situation of ENI, an Italian gas company, and in the second chapter an illustration of the enforcement of US antitrust regulations was provided by the Microsoft case study. Further on, a comparison between the two competition systems was achieved from several perspectives such as: competition objectives, policy enforcement, bilateral cooperation related to competition, and points of convergence and divergence. By taking into consideration all the common and contrasting points between the European Union and the United States competition systems, a clear outlook was established concerning the specific features of each system. The comparison also revealed which of the two competition systems is more fitting to be applied and in what circumstances.
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Generally, most countries jurisdictions have civil law systems. The EU institutional framework being based on fixed, contingent norms, and developing policy through an administrative body, would be the most popular institutional model among the competition authorities of other countries. The US competition law framework, grounded mainly on a common law methodology, relies substantially upon open-ended statutory commands and the elaboration of doctrine through case-by-case litigation in the courts. (Kovacic, 2008) Based on the history and current practices, relatively few jurisdictions are prone to embrace such a model. In what regards the operating systems of the worlds competition laws, the institutional arrangements of the EU are meant to obtain a dominant share. The US has provided applications of rules for areas such as cartels and horizontal mergers. These rules are used nowadays in most of the worlds competition law systems. Both the EU and US competition laws have influenced other countries, being taken as an example to a certain extent. Overall, the leading share of applications regarding substantive analysis and investigative methods is registered by the two analysed blocks. Taking into consideration their specific characteristics, as well as their common points, the EU and US competition systems prove to be of utmost importance for the economy as a whole.

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Appendix
EC fines from 2003 to 2008

Source: http://www.petersandpeters.com/sites/default/files/publications/TheUSPerspectiveonCarte lEnforcement.pdf

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