What, if any, is the difference between a competition policy and an industrial policy?
In this assignment I will look to analyse and provide in-depth explanation into what is competition policy provide examples of this, I will also provide the same for industrial policy. The information will allow me to provide an in-depth conclusion between competition & industrial policy.
Competition policy I will look at the its aims and look into the EU’s competition and how it tries to increase market efficiencies & ensure a competitive market and the measures it does to ensure it achieves its aim’s and objectives which basically are to enhance efficiency by promoting or safeguarding competition. The five pillars of the pillar the EU’s competition policy is as follows.
- Antitrust & cartels.
- Merger Controls
- Market Liberalisation
- State aid control
- International cooperation.
What are cartels how do they affect the economy? A cartel is a group of similar independent firms which come to an agreement to distort prices, the prices rise but this isn’t done as a reflection of supply, demand or quality. The cartels see an increase in profits and keep the same market share. This breaks EU competition law a break in this law can see firms hit with heavy fines from the European commission. Due to the difficult nature to prove this an incentive was brought forward for firms to come clean this is known as the “ leniency policy” the first company out of the cartel to come clean & providing evidence against other members . An example would be the vitamin cartels in 2001 eight companies where fined as they attempted to alleviate competition in the vitamins market. These companies where fined a combined total of EUR 800 million an astonishing fine which offers a disincentive for companies to partake in such activities in the future thus helping maintain a competitive market.
There are also anti-trust policies to make sure monopolies are market leaders do not abuse their power. Firms with strong market powers can engage in a manner which affects consumers & competitors. Charging unreasonable prices that will exploit the customers, just as dangerous are the firms who enjoy the benefits of economies of scale so are able to charge dangerously low prices, which in turn damages competitors forcing them out of the market and creating barrios to entry. An example of this would be Wal-Mart, in 2002 Wal-Mart was convicted of predatory pricing in Germany and just 6 years later it pulled out of the country entirely due to loss of reputation. There are other examples like discriminating between trading partners and forcing unjustified trading conditions on trading partners. Microsoft has been found guilty of both these crimes they withheld information from rival firms windows based PC’s went hand in hand with Microsoft rivals couldn’t compete fairly also fitting every single computer with windows media playing distorting competition.