E.I. (Fach) / EU competition and State Aid policy (Lektion)

S. 8-10

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• Anti-competetive behaviour (collusions) Danger of collusion rises as the number of firms falls When there is non-collusive competition COMP curve is "normal" ⇔ Perfect collusion: monopoly price and sales (split sales between themselves)
• Economic effect of perfect collusion price increases -> mark-up increases (COMP curve shifts up?) more firms can breakeven eventually, zero profit condition is restored, i.e. price=AC
• Economic effects of partial collusion 2n' is too high for all firms to break even Industrial consolidation proceeds as usual but  only to nB (>n'') Price is higher pB>p', smaller firms, higher AC
• Welfare costs of Partial Collusion s.S. 8
• Commission tries to eliminate behaviours that restrict competition (e.g. cartels) abusive behaviour by firms that have a dominant position and block mergers that would create firms that would dominate the market
• Economics of cartels (S. 8) Consumer lose -a-b ("ripoff effect") Producer gain a -> net loss: b    -> technical inefficiency E.g. Vitamin cartel
• Exclusive territories E.g. Nintendo: high prices in Germany vs. UK (S.9) steepness of demand curve reflects "willingness to pay" German demand is more inelastic, i.e. more unresponsive to price UK has e.g. more opportunities to substitute Maximum profit where marginal revenue and marginal costs curve intersect -> higher price in GER
• Abuse of dominant position firms that possess excellent product can establish very strong positions in their market -> may reflect superior products and/or efficiency (e.g. Google) may temp to extract extra profitis from suppliers or customer or arrange the market to shield itself from future competitors (e.g. hiding the programme code) -> illegal e.g. Mircrosoft: charge high price for Word (no competition) and give free software where there is still competition
• Merger control Inititally p=AC after merger: p'>p and AC'<AC ΔCS= -a-b ("ripoff") ΔPS= +a+e In the long run p''=AC -> ΔCS=+c+d+e, no loss of PS since p=AC and p'=AC'
• Restructuring prevention by subsidies Government makes annual payments to all firms exactly equal to their losses all firms (2n') break even but no new firms economy stays in A (S.9) ineffeciency (=firms are small) pay taxpayers (before consumers)
• Does it make sense to subsizide Static welfare gains result from inefficiency of imperfect competition, i.e. differecnes between AC and MC -> higher production = higher welfare under increasing returns to scale However, subsidizing loss-making enterprises creates dynamic losses -> reduced innovation and technological progress
• Only some subsidize (unfair competition) FOREIGN pays BE-subsidies to firms, HOME pursues laissez-faire policy (= allows market to decide which firm should survive) 2n' moves to n'', all exits from HOME -> unfair
• EU policies on "State Aids" 1957: Treaty of Rome bans state aid that distorts competition -> empowered Commission with enforcement
• EU trade: facts 2/3 of EU25-exports go to other EU25 nations North America and Asia are main markets outside Europe (similiar with imports) manufactured goods 90% of total exports (1/2 machinery and transport equipment) 18% of imports is fuel, only 6% food and agriculture
• EU External Trade Policy: Institutions and trade in goods Recall: CU requires common trade policy European Commission has right to set tariffs and negotiate with WTO COuncil has final say
• EU External Trade Policy: MFN Tariffs ...reflect comparative advantage of EU industreis -> low tariffs in manufacturing (exeption clothes), high in food and agriculture (especially diary products)
• "Hub and Spoke" System E.g. Morocco esports 71% to EU but only 1%of EU imports are from Morocco -> EU has high leverage in dealing with these nations

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