INTRODUCTION

In the recent past, economic theories have had an increasing impact on the application of competition rules at both sides of the Atlantic Ocean. The impact of economics has been most clearly visible in the United States of America (US), where competition law is commonly called antitrust law. Whereas the impact of economic theories on antitrust law became visible in the US already from the 1970ies onwards, the impact of modern industrial organisation theory on competition law in the European Union (EU) is a more recent phenomenon. It took until the launch of the so-called More Economic Approach (MEA) by the European Commission in the late 1990ies before economics started to make its way in the enforcement of the competition rules. Today, economic insights have become indispensable for every day antitrust practice. Competition law practitioners often are so heavily busy investigating the intricacies of the economics of competition that they lose out of sight the more fundamental questions about the use of economic theories in antitrust enforcement. This article takes on the latter issues and asks the important question whether more economics also implies better competition law.

Before assessing the MEA, a crucial preliminary question is whether competition law pursues only economic goals. Economic commentators often take the economic goals of antitrust law for granted and, in their analyses, they use sophisticated economic models to prescribe an optimal competition policy. In this way competition law is transformed into applied micro-economics. Such an approach is far from evident when the history of the competition laws is taken into consideration. In the US, antitrust law has experienced more and less economically oriented cycles. In the early days of US antitrust, protection of individual competitors and structural interventions in markets were widely accepted. This approach led to welfare losses by protecting inefficient small retailers or prohibiting mergers that could have achieved important economies of scale. The picture changed dramatically when these interventionist views were criticised by the Chicago School, which stressed the protection of the competitive process, rather than the protection of competitors, as an instrument of increasing total welfare. Today, the goals of allocative efficiency (total welfare) and consumer welfare have become dominant in the US.

Introduction

In order to enhance competition in markets which are not functioning well, governments may decide to assign new rights to supply (licences) in an auction. Because of differences in market power and financial strength, the starting positions of incumbent firms and newcomers are not the same (the playing field is not level). As an ordinary auction, in which all firms are treated symmetrically, may not do very well in creating a more competitive market when the playing field is not level, governments may wish to introduce asymmetries in the auction design (levelling the playing field among firms participating in the auction). This chapter discusses some devices to level the playing field and the conformity of such instruments with EC law. A detailed analysis of the conditions under which a level playing field should be created lies outside the scope of this chapter. However, the essence is well formulated by McMillan (1994, p. 157):

In other words, favouring disadvantaged bidders is only justified when it would prove helpful to economic efficiency, i.e. the sum of consumer and producer surplus.

Introduction

Professor Revesz discusses three prominent rationales for vesting responsibility for environmental regulation at the federal level: the asserted danger of a “race-to-the-bottom,” the problem of interstate externalities, and the public choice claim that state environmental regulation will be too lax. These three arguments are also relevant in the European context and may play a crucial role in the interpretation of the subsidiarity principle, as formulated in Article 3 B(2) of the EC Treaty. Following this principle, the Community shall take action “only if and in so far as [italics added] the objectives of the proposed action cannot be sufficiently achieved by the Member States and can therefore, by reason of the scale or effects of the proposed action, be better achieved by the Community.” By stressing the need to take the effects of the proposed action into account the EC Treaty itself rejects a pure legal formalistic approach and invites economic analysis. An assessment of the subsidiarity principle that is consistent with economic principles must take into account the implications for social welfare of a diffusion of powers between different levels of government. In a firstbest world environmental standards are decentralized: they are adapted to varying preferences of the population and they take regional diversity (i.e. differing costs and benefits across geographic regions) into account. However, in such a first-best world there are no externalities across jurisdictions. Each state bears the full costs of its own environmental regulation.