The WSJ reported today: "A French court Friday declined to ban Uber Technologies Inc. from operating its service that uses drivers without professional licenses, wining the company time in a key market amid its regulatory battles world-wide." See further.
A new report also has just come out. "Taxi drivers are faster, less safe than Uber and Lyft counterparts, study finds." See here the blog and the link to the report.
The latter report is interesting, since the claim about safety is one of the most often cited reasons by supportters of licensed cabs.
Uber is good for competition, that's obvious. The Hungarian regulators in Budapest have made recently the not very bold step to introduce a high fixed tariff for taxis and obliged the taxi drivers to fulfil many costly requirements. These costs put taxi drivers at a competitive disadvantage compared to innovative newcomers who do not consider themselves bound by these regulations, but believe in customer satisfaction, rating and welfare.
Ride sharing services
Ride sharing service is based on a smartphone application connecting passengers with non-professional drivers of vehicles for hire.
One of the advantages offered is that customers can track the reserved vehicle's location and that there is no need to use either cash or credit card directly. Of the companies creating this market segment over the past years, Uber seems to have the fastest growing business. Other players include Hailo from Europe and other U.S. based firms like Lyft, GetTaxi and SideCar. Uber started with luxury cars for hire, UberX with smaller vehicles started in 2012. Some years later, experimenting with lower fees, they became extremely competitive with traditional taxi services. Passengers can nowadays choose from up to four different quality car services. A ride from downtown Chicago to O`Hare Airport costs USD 23-30 if you take an uberX car, 42-56 bucks with an uberXL, USD 75-98 riding on an uberBLACK and up to USD 123 if you opt for an UberSUV. In other cities, like Budapest, customers do not benefit from such a wide choice, they have to be satisfied with an uberX service.The base here is HUF 300 (USD 1,25), the fare is 25 HUF/minute and 130 HUF/kman amount below taxi price.
Thanks to digitalization, overheads of the companies are lower, without the minicab office and telephone operators. Uber's pricing is similar to metered taxis with the exception that all hiring and payment is handled exclusively through Uber and not with the driver personally. If the Uber car is travelling at a speed greater than 11 mph (18 km/h), the price is calculated on a distance basis. Otherwise, the price is calculated on a time basis. At the end of a ride, the complete fare is automatically billed to the customer's credit card. No swiping is necessary and gratuity is included. Since Uber is just a third party that passes on the jobs, it can charge competitive prices, and pay the drivers about 80% of the fare paid by the customer.Passengers can also be sent a photograph of the driver and the car's registration number. The whole journey is recorded on an emailed receipt.
Depending upon the size of the Uber car, the price can be more than a taxi ride would cost. But the premium is worth for those who are keen on ordering comfortable transportation on demand. During high demand times such as New Year's Eve, or severe weather conditions, Uber increases its prices to "surge price" levels to attract more drivers. Customers receive notice when making a reservation that prices have increased. This price fluctuation can be fairly intense. During New Year's Eve of 2011, prices were seven times higher than the normal rates.
Regulatory reactions in the U.S.
As it happened in the late XXth century in the telecommunication industry, technological development and the entry of new entrants may lead to significant restructuring of the cab business. Taxi and limousine services are usually subject to regulation usually adopted by municipalities or regional authorities. Regulations intend to secure the safety of the service by imposing rules both on drivers and the cars themselves. There are examples for price regulation as well. In Hungary, the city of Budapest recently introduced fixed tariff rates, fulfilling an important demand by the taxi drivers’ society. In other cities, like Chicago, tariffs are capped, leaving some room for price based competition. The more the taxi industry is regulated, the more tension arises with newcomer ride-sharing companies who challenge both the position of taxi companies and existing regulation of car passenger services.
For-profit ridesharing companies are strongly criticized by taxi drivers and their associations suggesting that they are illegal or at least grey market operators undermining fair business and endangering the safety of their passengers, and indirectly undermining the credibility of the person transport industry. Taxi service apps have run into opposition from established taxi operators and regulators nearly everywhere they started to recruit drivers.
The first regulatory issues arose in the U.S. in May 2011 when Uber received a cease and desist order from the San Francisco Municipal Transportation Agency. The order stated that it was operating an unlicensed taxi service, and another legal demand from the California Public Utilities Commission that it was operating an unlicensed limousine dispatch. Both claimed criminal violations and demanded that the company cease operations. In the fall of 2012, the California Public Utilities Commission issued a cease and desist letter to rideshare companies were fined each $20,000. However, an interim agreement was reached in 2013 reversing those actions. In September 2013, the CPUC made the agreement permanent, creating a new category of service called transportation network companies.
California was not the first jurisdiction to recognize this new service. In June 2012, the City Council of the District of Columbia legalized sedans used by Uber’s car-service partners. The legislative amendment will permit Uber to do business till the end of that year, when the legislation needed to be revisited. The D.C. Council adopted in October 2014 the Vehicle-for-Hire Innovation Act of 2014, heavily opposed by the taxi unions for not creating a level playing field but praised by Uber for codifying safety standards they say have already been in place. The law required background checks on Uber drivers going back seven years, annual safety inspections, a prohibition of street hails by UberX drivers, and $1 million in liability insurance when a driver is en route to a rider and when the rider is actually being transported. An amendment aimed to ban ride share app users from charging less than the minimum fare for a taxi was not approved. The legislation “could be a model for the rest of the country and maybe the world,” commented David Plouffe, Uber’s chief strategist and former aide to President Barack Obama.
New York City initially barred Uber and its competitors from launching an e-hail service. Then in December 2012, the local regulator approved a year-long "pilot program" that would test out a few apps in a limited area in order to ensure smooth integration with existing payment systems and regulations. A court ruling in Manhattan in April 2013 ensured that the pilot program will proceed and incumbents will have to adapt. Most recently, the Committee for Taxi Safety has called the Taxi & Limousine Commission to suspend Uber’s license after reports that it has been abusing access to data about its passengers’ rides. This move follows a Buzzfeed report that Uber had used the company’s “God’s View” technology to track the movements of one of its reporters. Before that, a senior executive at Uber suggested that the company should consider hiring a team of opposition researchers to dig up dirt on its critics in the media — and specifically to spread details of the personal life of a female journalist who has criticized the company.
There are cities that chose another path. Seattle limited the number of ride-sharing drivers, companies like Uber, Lyft, SideCar could operate up to a total of 150 cars. That would have resulted in a significant decrease from the estimated 2,000 drivers the three companies operate in the city. On April 17, 2014, the council's ordinance was suspended by a coalition that obtained 36,000 signatures to put the question to voters in a referendum.
Regulatory non-action can also lead to lawsuits. Several taxi operators and associations are suing the City of Chicago. The City of Chicago has regulated the taxi and limousine businesses for almost one hundred years controlling virtually every aspect of the taxi and limousine businesses. Even tariffs are regulated through setting maximum metered rates for taxi transport services. The City has issued about 6,800 licenses called “medallions” sold at very substantial prices to operate taxis. To give an example, on September 13, 2013, the City tried to auction 50 medallions at a minimum price of $360,000. Against this background it is not surprising that Illinois judicial decisions have recognized that Chicago taxi medallions are property, and that the relationship between the City and medallion holders is contractual, not merely regulatory. Plaintiffs thus claim that medallion owners, and lenders holding security interests in medallions, own property that may not be taken by the City without payment of just compensation. By the way, Uber also experimented with relying on taxi drivers in Chicago in 2012, relying on to the high ratio of cabs in the city and the low price stemming from fierce competition.
Plaintiffs describe Uber, Lyft and SideCar as Unlawful Transportation Providers blatantly disregarding taxi regulations. They have not acquired or leased medallions thereby unfairly undermining plaintiffs’ investment-backed expectations. The City’s decision not to apply local regulation to the newcomers has imposed very serious adverse consequences, so runs the argument of the transportation plaintiffs. A strong point of their argument is when their public service obligations are emphasized. Unlike taxis owned by medallion owners, ride-share companies do not require drivers to respond to calls from persons in underserved areas or to serve passengers with disabilities. Rather, their drivers are free to turn down calls and thereby cherry-pick the customers.
Expanding the service in Europe did not go smoothly either. The San Francisco-based company faced opposition from taxi operators in major European cities, with thousands of drivers in June bringing traffic almost to a standstill in London, Paris and Madrid. These protests might also have had an unintended effect. Before the massive demonstrations Uber had been relatively unknown among the general population in Europe. Now they know about it. On the same day when ten thousand taxi drivers protested in central London, Uber reported an unprecedented rise in sign ups to its mobile application.
In Germany, where Uber operates in five cities, Berlin officials ruled on two occasions against the company reacting on complaints of the Berlin Taxi Association. The first decision of April 2014 ruled that Uber's limousine service was in breach of local legislation, while an August 2014 decision banned the service from operating in Berlin due to safety and lack of insurance concerns. Authorities in Hamburg tried to ban the app in 2014 the same way, citing a lack of proper permits and insurance. However, local administrative courts suspended the bans in Berlin and Hamburg, pending procedural decisions and further hearings. Finally, in August 2014, a Frankfurt court issued an immediate cease and desist order against Uber that applies to all of Germany. The temporary ban remains in place until a full hearing takes place, and Uber could face a €250,000 (£198,000) fine per ride. This case was brought by the Taxi Deutschland Servicegesellschaft company, which offers a rival app that links users to registered taxi drivers. The company argued that Uber was not operating a legitimate service because its drivers did not have permits, were not properly insured, and were not subject to checks. German law allows non-registered drivers to pick up passengers but they cannot charge more than the operating cost of the ride. Uber resisted, appealing the judgment: "You cannot put the brakes on progress".
Taxis and minicabs are regulated differently in London. Black cabs, allowed to use bus lanes and to pick up passengers who hail them in the street, are more tightly regulated and their fares are metered. Licensed minicab drivers are subject to less regulation but also benefit of fewer privileges. London black cab drivers tried to argue a case based on infringing their exclusive right to use taxi meters in London. London's transport authority did not believe Uber's car service was breaking the law by using an app to determine charges. However, it would invite the High Court to give a binding ruling on the matter given the level of concern among the trade.
Federal antitrust regulator in the U.S. raised concerns in April this year that Chicago's attempt to regulate the fast-growing ride-sharing industry could restrict competition and hurt consumers. The Federal Trade Commission (FTC) explained in a letter that any regulations should be limited to safety and consumer protection concerns and not impose higher license fees or insurance requirements than traditional taxicabs have to meet. The FTC quoted a Supreme Court judgment underlying that “The assumption that competition is the best method of allocating resources in a free market recognizes that all elements of a bargain—quality, service, safety, and durability—and not just the immediate cost, are favorably affected by the free opportunity to select among alternative offers”. The letter points out that these software applications provide consumers with expanded transportation options, at potentially lower prices, thereby increasing competition and promoting a more economically efficient use of personal vehicles. The FTC criticized parts of the ordinance that unnecessarily impede competition by requiring ride-sharing services to pay higher annual license fees and carry more liability insurance than conventional taxis, and by prohibiting pickups or drop-offs at Chicago airports or the McCormick Place convention center.
Also the D.C. Taxicab Commission’s regulation attracted comment from the FTC. The FTC letter recalled that, in the taxi market, competition takes place on a variety of dimensions, including price, availability, timeliness, convenience, quality, vehicle type, payment mechanism, and other amenities. “A regulatory framework should enable these various kinds of competition and not directly or indirectly restrict the introduction or use of new types of applications or the novel features they may provide absent some significant evidence of public harm.” The FTC letter criticized the proposed regulation to require sedan-class vehicles — the vehicle class of choice for some new entrants — to be of a specific size and color because the regulation would prevent entrants from using smaller, more fuel-efficient vehicles.
Commissioner Wright of the FTC recalled in his opinion in Washington Post that advocacy letters are not the only tools at the disposal of the FTC to protect consumers. For example, the FTC brought lawsuits against the cities of Minneapolis and New Orleans alleging that regulatory agents had unfairly combined with operators to impose regulations increasing taxi fares, limiting the number of taxi licenses and engaging in other methods of unfair competition.
More lawsuits in the pipeline
In addition to the legal disputes attacking the core of Uber’s business model, there are other procedures providing work for the company’s legal counsellors. A consumer protection class action lawsuit was filed at a federal court challenging its gratuity 20% surcharge policy in April 2014. Uber retains "a substantial portion" of the gratuity rather than giving it to drivers, according to a complaint by an Illinois resident who accused the ride-share company of misleading customers about the true cost of its service. Caren Ehret proposed to represent a class of everyone who has arranged for a ride through Uber and paid the company's gratuity in a revised complaint filed. In another lawsuit filed in January 2013 in Chicago, Uber drivers request compensation for their tips.
Uber also faces a dozen of state insurance agencies over its insurance policy. Insurance experts say the only way to provide coverage for driving commercially is obtaining commercial coverage. Yet Uber believes it complies with all laws and regulations and maintains that claimants are motivated to deprive the public of this safe and convenient transportation option. Uber is also wrestling with a wrongful death lawsuit following an Uber driver struck a girl during the New Year’s Eve of 2013 in San Francisco.
Uber is fighting not only with taxi groups and city councils. One of its competitor, Lyft, is claiming in a lawsuit that its former chief operating officer took proprietary information on Lyft’s international plans with him to his new job at Uber.
Rivalry can hurt. Competition may take the form of “creative destruction” whereby mavericks using a new technology or business model transform an industry and question prevailing regulation. Regulation protecting the position of incumbents and hindering or at least postponing the effects that newcomers bring with relying on new technologies and apps often distort competition and hurt consumer interests. It is also true, though, that if not everyone is playing according to the rules, unfair competition may hurt law obeying companies.
The appearance of ridesharing companies will have two immediate consequences. First, the need and depth of regulation of the taxi industry is to be revisited. It’s beyond doubt that the rules of the game should be the same for individuals or companies providing personal transport services in towns. But, do we need rules on tariffs, car specifications, colors, special insurance, etc.? Importantly, by “we”, I mean consumers, not incumbent operators. Second, traditional taxi companies should compete as much as they are lobbying against newcomers. They should also introduce similar or even better applications to comfort their drivers and clients. Why should I choose an Uber car if my reliable, inexpensive taxi company could tell me what time I can expect my car to arrive? One example can be Curb, a new version of Taxi Magic, one of several mobile apps that work with local cab and driver companies to “e-hail”. Driving apps like this can identify the passenger’s position, showing what cabs are nearby and allows you to enter the requested destination for a fare estimate. Furthermore, users have the option to store their credit-card information in the app.
All in all, the response to technology based market entrance should be better services provided by incumbents and the revision of the regulatory framework to abolish unnecessary, non-consumer protection sort of rules.
Uber was founded as "UberCab" by Garett Camp and Travis Kalanick in 2009 in San Francisco. As of December 4, 2014, the service is available in 51 countries, about 250 cities, mostly in the U.S.. One of the latest international additions is Budapest. The start-up closed a new $1.2 billion round of financing in December 2014, with investors valuing the company at $40 billion. Known as the market leader in the ridesharing segment, the company has also signaled its ambitions to be a one-stop shop platform for delivering anything, anytime, anywhere based on its smart phone application.
"Fundamentally, we're trying to use technology to get people a better ride". Niall Wass, Vice President of Uber, pronounced these words last month in the European Ecommerce Conference in Bilbao, Spain.
According to their own description of the service, Uber consists of a technology platform that enables users of its mobile applications or websites to arrange and schedule transportation and/or logistics services with third party providers of such services, for personal use.
Mr. Wass said consumers have already embraced the technology, and it is now up to regulators to adapt regulation to allow them to flourish. However, he didn´t detail what sort of regulations they thought reasonable. "Where we will obviously need to mature, is hopefully the policy makers and regulators look at us and also agree this is a good thing".
In Europe, the walk for such an apparently simple and good idea, now operating in more than 200 cities, in 50 countries, has not been easy. After bans and fines in Germany, Belgium and Spain and taxi drivers’ massive protests in London and Madrid, the company believes that the problem is in the legislation. They say it is technologically anachronistic, enacted before the consolidation of the use of smart phones. Also, the power of European trade unions, very active and strong, is an obstacle for new competitors entering crowded markets such as the taxi business.
Precisely, one of the main arguments of these trade unions is that the lack of licenses and insurance of Uber’s drivers constitutes a violation of the countries' competition law. They say that not being regulated is an unfair advantage for Uber drivers. Besides, the development of a parallel market in taxi business makes the social security system inoperative for them. And the pensions, medical leave and paid holidays inexistent for the ones taking this insecure opportunity of earning money.
Uber has also been accused of unfair commercial practices such as planning on investigating critic journalists and airing their dirty linen or boycotting similar applications such as Lyft by asking for their services and cancelling right away thousands of times, therefore destroying the competition.
In Madrid, in its first 200 days of existence, the use of this application has grown 2.7 times faster than in London and Paris because in Spain there is a huge demand of drivers and customers. Wass stated that "We are creating fifty thousand jobs worldwide every month, and I don´t see why we shouldn´t create jobs in Spain”. He admitted to be "working under the legislation that allows to share cars. There are different ways of interpreting the law”.
What is clear is that countries’ legislation needs to be adapted to this new conception of business for the convenience and the protection of drivers and consumers, as Neelie Kroes, former European Commissioner for Digital Agenda stated last September.
Rick Noack writes about foreign affairs. He is an Arthur F. Burns Fellow at The Washington Post. Why Germany (and Europe) fears Uber
Uber Open to 'Debate' With European Regulators over Ride-Sharing Rules. By Frances Robinson
Uber crece más rápido en España que en el resto de Europa. El País Journal
Uber pretendía espiar a periodistas críticos con su servicio. El País Journal
We are starting a blog series about UBER, cabs and antitrust. Our first blog post is written by one of our new members.
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.
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.
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.)
Margrethe Vestager had a hearing before the European Parliament today. She mentioned fair competition policy several times. Wonder what that will mean...
By the way, what are fairly priced inputs?
Will Marianne Thyssen be the new commissioner for competition policy? 12 hours to go...
Update: The answer is no. The job went to former Danish deputy Prime Minister Margrethe Vestagerormer Danish deputy Prime Minister Margrethe Vestager.
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?
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.
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/
One of the very good competition law events:
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...
Our 5th annual conference just started, you can follow the conferene at our Twitter page @VKCLRC
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.
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.
The book edited by Barry Rodger is partly an upgrade to the project he coordinated on private enforcement on competition law. We had the opportunity to particiapte, it was a very thorough and well stuctured research, the book is more than recommended.
Tihamér Tóth held a presentation on Morality in Competition and Competition Regulation. You can download the slides here.
This is not from the presentation, but anyways: