NEW MEMBER OF THE RC - MARÍA ZAFRA SAURA

We are happy to welcome as our member María Zafra Saura. You can read her short bio under the about us menu title, and find her first blog post under the blog menu.

STATE OWNERSHIP / PRIVATE OWNERSHIP BENEFITS

Today I was invited as a panel member for a discussion on the benefits of state ownership or private ownership in the economy. I am a competition lawyer with a large amount of reading behind me on IO and microeconomics, so wouldn't call myself an expert. However, my idea that which one is better was basically strengthened during the discussions with my learned colleagues. The whole debate is pointless in theory and a matter of reality in practice. And the latter one is a matter of political culture.

HUNGARIAN CARTEL ENFORCEMENT BUSTED? FUNDAMENTAL RIGHTS PROTECTED

In one of the most famous Hungarian cartel cases the defence finally succeeded in an important issue, but basically lost the case. The Hungarian Constitutional Court decided (IV/01629/2013) that competition enforcement is a quasi-criminal type of enforcement under the Hungarian Constitution (as under the ECHR) and therefore in cartel cases the presumption of innocence requires that the cases have to be proven beyond doubt. More on this case in the second edition (will be published on the 1st of November) of my book on fundamental rights protection.

(The title is of course a bit overemphasising.)

MORE PUSH TO SOFTEN ANTITRUST ENFORCEMENT...

Yesterday we cited The Economist fearing the independence of competition policy. Today The Wall Street Journal cites that French officials want relaxed antitrust rules. Not a very bright future in the pipeline for competition policy, or is there?

Read more here and here.

Update: we are not alone however. An old-school type of Harvard School lawyers is running for Senate. He wants to cap e.g. the market share of banks at 5 percent. See here.

THE ECONOMIST: JUNCKER THREATENING THE IDEPENDENCE OF COMPETITION POLICY?

At least this is what The Economist indirectly suggested in a column in this week's article:

"The second, deeper problem is that Mr Juncker has been chosen by an indirect system known as Spitzenkandidaten, or "lead candidates'', which sets a bad precedent. Instead of being picked by a consensus of European leaders, the Commission president has emerged via a promise from the main pan-European political parties that the candidate from the largest group would run the commission. Mr Juncker was the choice of the centre-right European People's Party (EPP), which came top in May. The change shifts power from elected governments to the parliament, and endangers the commission's many functions requiring impartiality, including competition policy."

Before I get discredited, read this also :D : https://www.competitionpolicyinternational.com/eu-almunia-shoots-down-ec-candidate-over-competition-overhaul/

If you would like to read more competition focused articles today, read this and this.

(EFFECTS BASED?!) FUNDAMENTAL RIGHTS AND COMPETITION LAW - AN EFFECTS BASED FUNDAMENTAL RIGHTS PROTECTION

We had a great conference in Bratislava last week (Fifth Annual Conference on Competition Enforcement in the CEE Member States). I was the chair of the panel on due process and competition law and had great panel members.

There have been occasional blog posts (So What; Alrosa, negotiated procedures and the procedural economy/due process conundrum – one step forward, three steps back?Yes European Competition Law Enforcement is Open to Abuse, But at Least Firms in Europe Can Appeal; etc.)

Many papers already written on the subject.

Many of the papers, decisions, judgements are very relaxed (probably for good reason) on the issue. I can't keep thinking on how lawyers can state the followings:

Menarini judgement of the ECtHR: „[...] provided that the judicial body does in fact exercise this unlimited
jurisdiction." Italian administrative courts had in fact exercised full jurisdiction, notwithstanding general statements as to their jurisdiction being limited.

I know it is a theoretical question: How can a court do something to which it has no right to do?

One of the great academic-practitioner, who I think is a great mind writes: „What is decisive is whether the General Court in fact exercises full jurisdiction, not any general statements which the Courts may make as to its
powers." Wils, Wouter P. J., The Compatibility with Fundamental Rights of the EU Antitrust Enforcement System in Which the European Commission Acts Both as Investigator and as First-Instance Decision Maker.

I am preparing a book on Fundamental rights and competition law for two years now. I just gave a new titel to it: Effects based fundamental rights protection in EU competition law. (out in two month)

It seems all that matters in EU competition law recently is effects based, even if we talk about fundamental rights protection...

WHAT IS IN THE BASKET? POVERTY AND COMPETITION

Today we are celebrating Saint Nicholas, the bishop from Myra who helped poor people. It is therefore excellent timing that the Hungarian Competition Authority (hereinafter: GVH) has organised a half-day conference examining the connection between poverty and cartels within the framework of the World Competition Day initiated by Consumer Unity & Trust Society from India. At the conference an OECD study written by a Hungarian author dealing with the role of competition in poverty was presented to the participants (the documents of the round table can be downloaded here).

Mr. Miklós Juhász, the President of the GVH, found it very challenging during his opening speech to draw a parallel between the two topics. There are a lot of examples from abroad (especially in Africa) and also in Hungary where competition authorities are helping less wealthy people by breaking down the cartel prices concerning basic food products. I do agree with Mr. András Tóth, the vice-president of the GVH, who believes that the protection of competition and the fight against poverty are only engaged in a distant relationship with each other. Competition law commences roughly where poverty ends: those people who are not able to afford prices that are near to the marginal costs, and which are a result of effective competition, are not on the map of competition policy. Malfunctioning in competition is certainly harmful for poor people and competition within unregulated circumstances and can easily lead to poverty – as can be seen by the problems stemming from mortgage loans.

However, it is important to note that even if competition law is not the best weapon in the fight against poverty, this does not mean that there is no need for the existence of a strong competition authority devoted to the protection of competition and that there is no need to fight against poverty with every possible tool. The following questions are worth considering – what is actually poverty? Who are the poor people? Is poverty a sin, a virtue, a temporal or a lasting-inherited life situation? According to the statements of the New Testament, Jesus placed himself in the position of poor people on many occasions and though he regaled thousands of starving people, he did not help them by placing bags of money into their pockets. We tend to interpret the parable on the camel and the needle’s eye favourably upon ourselves; however, rich people generally struggle to gain eternal salvation. Still, poverty will never be a desirable way of life, because just as richness does not involve by all means hard-hearted attitude, poverty to a degree is soul destroying.

The protection of free and fair competition is primarily in the interest of those who actually have money to spend. Competition law is the game of wealthy people. However, poor people are also afflicted by the effects of an exploitative local monopoly; in fact, they are perhaps afflicted even more than wealthy people. In line with one of the examples heard, it is scandalous if the owner of the only local store prescribes the price of three breads in case if a customer bought one bread at the end of the month as a credit. Is it possible to assume that if the customer was in fact his competitor, he would be forced to be more human?

If we were to ask a poor person about the usefulness of competition, he/she would probably respond with an uncomprehending glance. The theory of competition is often difficult to understand, however, poverty can be very concrete and tangible. The situation would probably be different if we could see competition as a field of possibilities, the playing field of economic freedom which is required for human dignity. Concurrency is not good, but what is before and behind: the possibility of realising my dreams, of trying to create and sell it to others, sounds attractive. Optimism and hope are driving forces behind competition and without hope; poverty could also truly be destroying.

Well-functioning local markets, “human-faced competition” could help poor people in two ways. If state administration does not make it impossible, and if there is entrepreneurship and a connection network required for prosperity, then it is possible for small businesses to operate. Individuals who are unable to launch small businesses could still find employment with the help of the state through different measures. Additionally, if local cartels do not increase the price of basic food products then individuals will be able to spend less money from their salaries on basic food items such as bread, sugar and flour.

One of the central questions of competition policy is: how much is needed from free competition and how much from the state? Who should be the flag-bearer in the fight against poverty: the welfare state or the market? As far as the latter question is concerned, many may have doubts about the role of the market, as tense competition often results in unemployment due to the corresponding reduction in the number of underperforming market players. However, it is true that whatever competition takes with one hand, it gives back with the other hand: lasting, true and value-creating workplaces do not originate from the state, but from market players. However, beside the interaction of the market and the state, no one should forget the third factor. We could definitely do more for poor people on the level of civil society, churches, foundations, associations or family communities. The welfare state should support the latter societies or the individuals. The state should only intervene directly where smaller groups of society have failed. State intervention is only beneficial if it takes place on an occasional basis. Excessive help could result in a loss of personal responsibility and in the will to act, but only if these have not already been destroyed by poverty.

Tihamér Tóth

 

DO WE NEED FREE COMPETITION?

The importance of the freedom of competition is probably a self-evident assertion for competition lawyers, economists and civil servants dealing with this issue. However, a lot of businessmen, politicians or even average people see the world in a different way. Instead of the abstract world of impressive theories and competition they are much more interested in actual matters, like job security or the monthly rate of overheads (not to mention the values that are truly important from the perspective of Mankind).

In its 27 November issue the Frankfurter Allgemeine (FAZ) newspaper devoted a whole page to the results of the survey conducted by the Institut für Demoskopie Allensbach. The piece was given the not so promising title of “Stille Liebe zur Planwirtschaft”. The conclusion of the article is that residential support of free market economy is not that obvious even in the country regarded as the economic engine of Europe. People still expect the state to provide solutions for several problems. The FAZ recalls what an ambiguous choice it was of the Germans to vote for the free market after World War II: economists of France and the United Kingdom in those days were thinking in terms of centralized economies. The pro-market change of perspective led by Ludwig Erhardt could only be considered as an economic wonder afterwards. According to the results of the survey, it would be just as equally important for today’s politicians to campaign for market economy and competition.

According to 61% of the respondents, the level of social fairness has decreased recently in Germany and only 7% of them believe that it has increased. An encouraging fact though is that 66% of the respondents associate welfare with the market and only 26% with the state. 23% of the respondents link deficit to the market, while 40% of the respondents relate it to the state. The lack of efficiency is overwhelmingly attached to the state, and, not surprisingly, bureaucracy as well. The market is blamed for negative consequences related to craving, aggression and exploitation. A higher proportion of respondents put the blame on the market for high prices (49% compared to 35% who think it is the state to be held responsible). Respondents simply do not expect social justice from the market (only 12% do so, as opposed to the 43% who regard this as a competence of the state).

The responses given to the following conflict situations are also very informative. Let us assume that the country is undergoing a serious economic crisis. In order to remedy the negative consequences, the state decides to launch a serious economic intervention and therefore fixes the prices, subsidises distressed businesses and bans redundancies. However, the situation is still not getting any better. What should be the next step? Well, only 15% of the respondents felt that in such a situation ineffective state intervention should be withdrawn. 40% of the respondents were of the opinion that the state should not retreat, but uphold its previous position. However, 25% of the respondents (10% more than those who were pro-market) thought that the state should actually take on a more active role to resolve the problems.

The other question concerned the implementation of a price regulation scheme managed by the state. Respondents were asked if they would support the state fixing the prices of basic food products so that they would be available to everybody, or if they think this measure would result in a reduced range of products due to a loss of motivation among some companies to manufacture their products (as they would only be making a low - or even negative - profit). Most of the respondents voted in favour of the former, interventionist solution (46%), with only 37% of the respondents realising the drawbacks of the well-intentioned price regulation scheme.

Regarding the house-rental fee, which is a topic that affects a lot of people in Germany, the number of those in favour of the supply-demand mechanism was more overwhelming: almost two thirds of the respondents would prefer rental fees regulated by the State.

For many years, the Competition Culture Centre of the GVH (Hungarian Competition Authority) has been reinvesting some of the revenue collected from fines to promote the importance of competition both for academics and the general public. Not only the above-mentioned German survey, but also the surveys conducted by GVH and our research centre show that pro-competition advertising activity is constantly needed. Controlled free competition, even if it is not a value in itself, is a tool and mechanism vitally important for the success of a well performing economy and society. However, as this hypothesis is not evident for many, it needs to be proven from time to time.

Tihamér Tóth

IP RIGHTS AND COMPETITION LAW

I have just been involved in training of competition authorities organized by OECD-GVH Regional Centre for Competition in Budapest (RCC). The event was: Workshop on Intellectual Property Rights and Competition Law.

Here are my slides:

pptxIP rights and competition law

pptxThe AstraZeneca Case

The workshop way very interesting. One of the rules in the participating countries was that the authority can get a minister resigned if the minister cannot explain the reasons for an anticompetitive regulation and that individuals may be fined if the company did not know about the wrongdoing of the employee.

BIGGEST EVER FINE IN HUNGARIAN COMPETITION LAW

The Hungarian competition authority just imposed its biggest ever single case fine in history, 9.488.200.000 HUF (cca 31,6 million Euro) on 11 financial institutions. See the press release here: http://www.gvh.hu/gvh/alpha?do=2&st=2&pg=133&m5_doc=8456

Later tomorrow, after reading the decision.

The differences are striking. Will be intersting to see the reasoning:

 

HUF

Euro

Budapest Bank Zrt.

283.50.000

ca. 945.000

CIB Bank Zrt.

835.400.000

ca. 2.785.000

Citibank Europe plc., Hungarian branch office

800.000

ca. 2.700

Erste Bank Hungary Zrt.

1.725.700.000

ca. 5.752.300

Kereskedelmi és Hitelbank Zrt.

983.300.000

ca. 3.278.000

Magyar Takarékszövetkezeti Bank Zrt.

1.000.000

ca. 3.300

MKB Bank Zrt.

783.000.000

ca. 2.610.000

OTP Bank Nyrt.

3.922.400.000

ca. 13.074.700

Raiffeisen Bank Zrt.

583.600.000

ca. 1.945.300

UCB Ingatlanhitel Zrt.

63.200.000

ca. 210.700

UniCredit Bank Zrt.

306.300.000

ca. 1.021.000

INDUSTRIAL POLICY AT GLANCE

Yesterday the Hungarian Parliament adopted an amendment to the Hungarian competition act with great majority. Final bill available here. The details here.

The amendment goes as follows:

"Article 24/A. The Government may classify a concentration of undertakings on public policy reasons - in particular for protecting employment or securing supplies - as a concentration of national importance. For such concentration there is no need to ask for the allowance of the Gazdasági Versenyhivatal according to Article 24.

Article 97 The Government is hereby authorized to classify in a regulation a concentration of undertakings as a concentration of national importance."

This fits nicely into the recent developments in Hungarian competition policy.