1. INTRODUCTION

In chapter II, some recent theoretical developments were described. Chapter III served to present recent developments in business environment and their consequences for the (strategic) behaviour of firms. In this chapter, possible consequences of the theoretical as well as the factual developments for competition policy will be examined. In the last section of chapter II, it was pointed out that the recent theoretical developments have led to new commonalities between representatives of the new industrial organisation and transaction cost economics, but that consent was far from being complete. Heterogeneity of competition policy will thus remain. This means that economists still do not come up with the one and only policy implication but rather that, depending on the specific assumptions one subscribes to, a variety of different policy implications might be derived.

We are here not interested in infighting concerning basic assumptions. Rather, we try to present various possible policy implications that would follow from the various approaches as convincingly as possible. This chapter deals with three important topics of competition policy. Firstly, the procedure used for assessing the incompatibility of a proposed merger with the Common Market. Until April 2004, a merger was prohibited if it created or strengthened a dominant position. Starting in May 2004, proposed mergers will be prohibited if their consummation would “significantly impede effective competition … in particular as a result of the creation or strengthening of a dominant position” (Art. 3 EMR). The substantive criterion to be used in order to assess the compatibility of a merger with the Common Market has thus been expanded. Yet, there are two reasons still to focus on the Commission’s assessment of dominance: Even after the reform, it is supposed to remain the most important reason for prohibiting a merger. And: in describing Commission practice, we have to rely on the old substantive criterion as systematic evidence concerning the application of the new criterion is not available yet. The new criterion as well as the newly passed Guidelines will, however, be explicitly dealt with in various sections of this chapter.

Secondly, the procedures used to evaluate the severity of barriers to entry are analysed. This is important in order to determine whether the behaviour of market incumbents can be expected to be constrained by competitors who are not actually competing but who could be expected to enter the market should super-normal profits appear to be realised on a specific market. It is thus the topic of potential competition. Strictly speaking, the assessment of barriers to entry as well as of potential competition needs to be done before dominance can be assessed. Section two is thus really a part of section one. On the other hand, the topics have received increased attention due to both theoretical and empirical developments. It was therefore decided to deal with them in a separate section. Thirdly, the possibility that not a single firm but a (low) number of firms will jointly dominate a market has played an important role in the decisions by the Commission. Some of its decisions have been highly publicised, the last one being the AIRTOURS/FIRST CHOICE decision that was brought to the Court of First Instance by AIRTOURS. The Court of First Instance decided that the Commission committed a number of grave mistakes and reversed its decision. It is therefore timely to have a closer look at the concept of collective dominance and its potential use in competition policy. As a consequence of the recent reforms, the Commission now prefers to speak of “coordinated effects” rather than of collective dominance. We have decided to deal with this change much in the same way as we deal with the change of the substantive test of Merger Policy: namely to describe and evaluate the way the Commission has dealt with collective dominance in the past and to deal with possible changes as a consequence of the recent changes in the outlook which closes this chapter.

The three parts are all organised in an identical fashion: we first set out to present the standard theory and the competition policy consequences that follow. We then present some modifications that might be in order due to theoretical developments (subsections 2) or to developments in business environment (subsections 3). The fourth step consists in having a look at the current practice of the EU and the last one in proposing reforms. Proposals for reform will always be made bearing the importance of predictability in mind.