Goals of Antitrust and Competition Law Revisited

by

CHRISTIAN KIRCHNER*

Abstract

Goals of antitrust in the United States of America have been discussed for more than a century. The discussion on goals of European competition law has focussed on the relationship between the competition goal and the integration goal up to the turn of the century. Today with the introduction of the ‘more economic approach’ into European competition law a sort of convergence between goals of antitrust and goals of competition law may be observed. The paper engages in a positive analysis of the process of defining goals of European competi tion law by studying the law-making process in which such goals are being defined. Developments in economic theory play a role in the law-making game as they change the moves of actors of that game. The paper will bring forward a hypothesis that the European Commission is using the ‘more economic approach’ as a device for attaining two goals: (1) reducing frictions between US antitrust and European competition law, (2) strengthening its relative position vis-à-vis the European Courts. The second part of that hypothesis will predict how the courts will accept and modify the ‘more economic approach’.

1 Introduction 1.1 Preliminary Remarks

The discussion of ‘goals of antitrust’ has been of practical and intellectual relevance since the first antitrust act of the United States of America – the Sherman Act – has been passed.1 In the European Community, later the European Union, the goals of com-petition policy and competition law have been a matter of dispute since the early days of the European integration process.2 The characteristic feature of Community competition law has been, that it served two goals: the competition goal and the integration goal. Whereas the former is focussing on promoting and protecting competition, the latter stresses the impact of competition and competition law on the process of integrating formerly separated national markets into one Single European Market. Today the focus of the European discussion has shifted towards the competition goal 3 and has thus been moving closer to goals of US antitrust law. Thus a transfer of antitrust concepts and goals to European competition law has been facilitated.

The perspective of this paper will be a European one. In the European Union competi-tion policy means application and enforcement of competition law by the European

* Kirchner, Christian (2008), Goals of Antitrust and Competition Law Revisited, in: The More Economic Approach to European Competition Law, edited by Dieter Schmidtchen, Max Albert, Stefan Voigt, Tuebingen, pp.7 – 26.

1 Jones (2006), pp. 18 - 23; Act of July2, 1890, ch. 547, 26 Stat. 209, known as ‘Sherman Act’.2 Kirchner (2005a), pp. 409 - 411.3 Ehlermann/Laudati (1998).

Commission, the European Courts (and to a certain degree by national competition authorities and national courts of Member States). Thus it makes sense to focus on goals of Community competition law rather than of competition policy.

The present discussion on revisiting goals of European competition law may be seen as part of a world-wide trend into the direction of an ‘economic approach’.4 In Europe this trend was first visible in Commission statements in the late 1990s and early in the first decade of the new century under the name of ‘more economic approach’.5 This ap-proach has been first adopted in the revised Merger Regulation of 2004.6 Meanwhile the economic approach has reached the competition law provisions of the EC Treaty (Art. 81 and 82 EC).

1.2 Economic and Legal Approaches

To revisit ‘goals of competition law’ is an economic topic and a legal topic as well. In economic theory competition and competition law are subject matters of industrial or-ganisation.7 But from a legal perspective goals of Economic competition law are a sub-ject matter of law.8

Economic and legal approaches are structurally different. Economic approaches are often using formal models which are to demonstrate welfare effects of different goals of competition law (e.g. maximisation of total welfare vs. maximisation of consumer wel-fare) Legal approaches may - from a constitutional perspective - view goals of competi-tion law as sub-goals. They have to be defined in a manner that they best fit into the constitutional set of goals. To define goals of competition law becomes an exercise of law-making institutions, such as the legislature or law courts, so far as they go beyond applying Community law but engage in law-making via interpreting the law.

From a normative perspective economic approaches and legal approaches differ in so far as (mainstream) economic approaches stress welfare goals and ultimately efficiency,9 whereas legal approaches are functional and focus on economic goals of the European Union and on ‘constitutional goals’ like ‘the rule of law’, ‘legal certainty’ and ‘legitimacy of law-making’. Behind the two approaches, the economic and the legal one, stand different legitimisation concepts. Whereas (main stream) economists use a utilitarian concept (enhancing welfare), legal scholars leave the legitimisation to the legislature and courts. Whereas the legislature derives its legitimacy from democratic

4 Voigt/Schmidt (2005), pp. 53 – 117.5 See Monti (2001); Schmidtchen (2006).6 Council Regulation (EC) No. 139/2004 of 20 January on the control of concentration

between undertakings, in: Official Journal L 24, 29/01/2004, pp. 1 – 22.7 Bishop/Walker 2002; Hildebrand 2002.8 Moeschel 1991.9 See the critical evaluation of the Chicago School of Antitrust Analysis by

Schmidt/Rittaler (1989).

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elections, law-making of law-courts rests upon a different legitimisation concept: they are the supposed to be the ‘mouth of the legislature’. Ultimately their power is based on the constitution (i.e. the Treaties establishing the European Community and the European Union).

From an economic perspective ‘revisiting goals of competition law’ means that new developments in economic theory are taken to be relevant factors for re-defining the normative goals of competition law. From a legal perspective ‘revisiting goals of com-petition law’ means that law-making institutions see good reasons to re-define such goals. One factor – amongst others - may be new economic insights. Thus, the eco-nomic and the legal perspective are connected. But that is not to say, that the legal defi -nition of goals of competition law is being fully determined by economic reasoning. In order to study the process of revisiting goals of competition law neither a purely eco-nomic approach nor a purely legal approach would be appropriate. Whereas legal schol-ars tend to argue normatively and defend such goals which are purportedly legal ones,10

it might be helpful to have a look into the interrelationship between the economic and the legal approaches and to concentrate rather on a positive than a normative analysis. Such type of analysis could add to the understanding of how goals of competition law are being revisited and what are the relevant factors in such a process.

1.3 Methodological Issues: Means and Ends-Paradigm and New Institutional Eco-nomics

Because a discussion of competition law goals combines aspects of economics with those of law, it is necessary to clarify the methodological approach in a way that both aspects can be brought into play in one common methodological framework. There are two possible solutions of this problem: One may take recourse to the means and ends-paradigm and treat competition low goals as an instrument to pursue goals on a meta-level. Or one may treat legal norms as institutions in the sense of the New Institutional Economics and study the process of defining competition law goals by interaction be-tween different groups of actors (positive analysis).

The means and ends-paradigm11 plays a role in the study of economic policy and in judicial law-making. It thus could help to bridge the gap between the economic and the legal approach. The relationship between the ‘goals of competition law’ and general goals of economic policy in the means and ends-paradigm is the following one: Com-petition law is understood as an instrument to pursue goals of economics policy. Thus the goals of competition policy have to be defined in a manner that they serve the gen-eral goals of competition law best. This paradigm plays a similar role in the theory of legal interpretation, when the so-called teleological method of interpretation (method of

10 Immenga (2006).11 Kirchner (2006), p. 31. Streit (2005), p. 270; Mertens/Kirchner/Schanze (1982), pp. 46,

47; Kirchner (2006), p. 26, 31.

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finality)12 comes into play, which can be understood as a device of legitimising law-making of law courts, which try to find out how an objective legislature would have solved the underlying problem of the given case. This method proceeds in two steps: (1) Identify the goals of the legal norms to be interpreted! (2) Search for a solution which best fits these goals best! The search for the best fitting solution is nothing else than an optimisation process. This is true for the application of the means and ends-paradigm in economics and in law.

If the means and ends-paradigm does not meet serious methodological objections, it would be possible to derive ‘goals of competition law’ from a given set of meta-goals. The problem would thus be moved to a higher level. It would have to be found out whether or not economists and legal scholars could agree on common meta-goals in the field of economic policy and thus in economic law. This might be doubtful.13

But in case serious methodological objections against the means and ends-paradigm exist, the issue of shared meta-goals between economists and legal scholars could be set aside. A new approach, which could bridge the gap between the economic and the legal approach have to found. The means and ends-paradigm is under heavy methodological attack.14 The determination of the proper meta-goal cannot be derived from the means and ends-paradigm as such. Meta-goals may be derived from meta-goals on higher lev-els. But that leads to an infinite regress. In the end the determination of the definite meta-goal is axiomatic, or a method has to be found how to legitimise the definite meta-goal. But even if this first problem has been solved another shortcoming of the means and ends-paradigm poses even bigger problems: If instruments are being applied in order to achieve a certain goal, they may – and of do – produce unintended side-effects. If such side-effects are not taken into account the result cannot be an optimum. If they are taken into consideration this leads to necessary changes of the given goal. Thus the means and ends-paradigm is circular in itself. As a consequence it appears reasonable for this analysis not take recourse to the means and ends-paradigm but rather to engage in a positive analysis of the process of defining competition law goals.

‘Goals of competition law’ are legal rules on a meta-level. Legal rules may be viewed as ‘institutions’ in the sense of New Institutional Economics.15 This economic approach is studying the creation and change of institutions, as well as their impact. Traditional le-gal approaches – namely on the European continent - are not so much interested in the law-making process. The exception is judicial law-making, where the teleological method of interpretation allows the judge to determine how the objective legislature would have solved the problem of the given case. But even if legal scholars are inter-ested in a law-making process they do not define the assumptions of their analysis

12 Bydlinski (1991), pp. 435 – 453; Kirchner (2006), p. 26; Koch/Ruessmann (1982), pp. 222 – 227; Röhl (2001), pp. 600 – 603; Ruethers (2005), No. 717 – 730.

13 Immenga (2006).14 Kirchner (2006), pp. 31 – 48.15 Richter/Furubotn (2003), p. 7; Voigt (2002), pp. 33 – 41.

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precisely. But that is a necessary prerequisite if a positive analysis is to produce testable results, i.e. hypotheses which can be falsified. The new institutional economics-ap-proach may fill the existing gap thus enabling legal scholars to better analyse a law-making process.

The new institutional economics approach works with a modified set of assumptions, known as the economic paradigm: Scarcity of resources, self-interested rational behav-iour (but bounded rationality), systematic incomplete information, positive transaction costs and methodological individualism.16 What is important for the kind of analysis at stake here, is that these assumptions are being used for the analysis of the law-making process. The result is a kind of economic explanation of that process. If this is possible, ‘goals of competition law’ may be explained as a result from such process. Develop-ments in economic theory, i.e. industrial organisation, are then factors which have an impact on those actors who are active in the law-making process.

Such a positive analysis of the process in which goals of competition law are being de-fined has to proceed in three steps: First it has to clarify the relationship between com-petition, competition policy and competition law in detail in order to better understand the practical significance of ‘goals of competition law’ for the various actors. In a sec-ond step the various actors who interact in the process of defining goals of competition law have to be determined, in order to analyse their interaction. Here the impact of de-velopments of industrial organisation theory comes into play because it can be expected that such changes will have an impact on the interaction process. The third step will be the formulation of a hypothesis on whether and how goals of competition law will be revisited.

1.4 Organisation of the paper

The paper starts with a distinction between the following three levels: (1) competition as a game, (2) competition law as a set of rules of the game, and (3) law-making in the field of competition law as a game on the level of rule-making. Having made these dis-tinctions it has to be clarified who are the relevant actors on the third level: The Member States, the Council and the Parliament as legislature of the European Community,17 the European Commission as executive power and the European Courts as judiciary of the European Community. Having introduced these actors the ‘more economic approach’ as a relevant factor for changing the game is being brought into play. It will be analysed of how the various actors are supposed to the introduction of the ‘more economic approach’ and which will be the expected impact on ‘goals of competition law’. In the end a hypothesis on expected ‘revisited goals of competition law’ will be formulated

16 Richter/Furubotn (2003), pp. 4 – 6, 193 – 194, 552; Voigt (2002), pp. 29, 30.17 The European Community, one of the pillars of the European Union, is the law-making

entity, not the European Union. Its law is ‘European Community law’ or ‘Community law’.

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together with a plea better to study the process of revisiting goals of competition law than expected outcomes of that game.

2 Competition and Competition Law

2.1 Competition

‘Competition’ may be understood as a complex interaction between actors, who are ac-tive on markets (on the supply or demand side) in order to enhance their individual wel-fare. Competition is a sort of game, a rivalry between actors of one market side. 18 All players are bound by the rules of the game (i.e. the institutional framework), which may be understood as a set of incentives and constraints. Essential parts of the institutional framework are for instance property rights, freedom of contracts and its limits, civil liability, bankruptcy law, foreign trade law. Rivalry means that each player has to con-sider moves of other players which may affect his welfare situation. All moves are in-curring costs (transaction costs). In order to be able to participate in the game each player has to make predictions of how the interaction between the market players works (positive analysis). Such predictions are falsifiable hypotheses in the sense of Popper. Such hypotheses depend on certain assumptions like scarcity of resources, availability and cost of information, and behavioural assumptions like (bounded) rationality and self-interested behaviour. As has been explained in 1.3 (methodological issues) incom-plete information, bounded rationality and existence of transaction costs are part of the set of assumptions of New Institutional Economics.19 If these assumptions are being introduced competition has to be understood as an open learning process. It is the game itself which produces the information for the players for their next moves. This will be relevant when it comes to the rules of the game.

2.2 Competition Law

Competition law is one corner stone of competition policy, which may be understood as that part of economic policy which aims at promoting and protecting competition. Competition law is part of the institutional framework of competition policy. It is essential to note that competition law is only part of the institutional framework. The main pillars of that framework are property rights and freedom of contract. Furthermore competition policy is competing with other policies which may pursue conflicting ends, e.g. agricultural policy, industrial policy, environmental policy, waste disposal policy. 20

Competition law is shaping the institutional framework of markets to a considerable degree. It is defining the limits of freedom of contract in order to keep the interaction

18 Homann/Suchanek (2005), pp. 206 – 216.19 Richter/Furubotn (2003), p. 193, 194; Voigt (2002), pp. 29, 30.20 See Kirchner (2005b), pp. 80 – 82.

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process open and to keep the rivalry alive. But – as has been mentioned – competition law interacts with other fields of law.

The systematic imperfection and incompleteness of competition policy and competition law leads to the conclusion that solutions produced by enforcing competition law norms are not optimal solutions but rather second best or third best solutions.21.

3 The Relevant Actors

It has been mentioned that legislature, executive power and judiciary interact in the rule-making game which leads to a definition or re-definition of goals of European competition law.

3.1 Legislature: Member States, Council and European Parliament

Goals of competition law may be defined on the level of primary Community law or on the level of secondary Community law. The primary law level in our case is the Treaty establishing the European Community (EC-Treaty). On the secondary level are regulations and directives, e.g. the Merger Regulation. 22

The distinction is necessary because primary Community law is public international law. The Member States – as sovereign nation states – can change or amend the EC-Treaty – only – by unanimous vote. If they want to amend Art. 81 and Art. 82 EC, the main pillars of European competition law, they have to find consensus between 27 Member States. This means that Member States are relevant actors as part of the legis -lative process but that the rules of the game in public international law are very inflexi-ble. In the end this has the consequence that Member States are likely to prefer changes on the secondary level. Changes on the level of primary law are theoretically possible but not feasible in practice.

Legislative law-making on the level of secondary Community law is a rather complex matter. 23 The Council of Ministers has to interact with the European Parliament. The Council of Ministers traditionally is trying to re-conciliate competences of the European Union and those of Member States. Quite often the Council is defending competences of Member States. But in the field of European competition law there are no com-petences of Member States. National competition law is only applicable if a transaction has no effect on the trade between Member States or in the case of merger control, if a merger has no European dimension. Nevertheless, Member States are aware that revis-

21 See Schmidtchen (2005), pp. 19 – 22,22 Council Regulation No 139/2004 of 20 Jan. 2004 on the control of concentrations

between undertakings (EC Merger Regulation), Official Journal L 24, 29 Jan. 2004, pp. 1 – 22.23 Law-Making in European Community law: Kilian (2003), pp. 59 – 66.

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iting goals of European competition law will automatically put pressure on national competition law to move into the same direction. Thus Member States should be in-clined to reflect the indirect effects of changes in goals of European competition law.

The European Parliament should have a tendency to strengthen Community compe-tences vis-à-vis competences of Member States in order to become more influential. But – as has been mentioned – in case of European competition law, there are no national competences, to be taken into account. The position of the European Parliament vis-à-vis the European Commission is being affected by erosion of the law-making power of the Parliament, when the Commission engages more and more in the production of so-called guidelines which do not have the quality of law but which are relevant in de-cisions of European courts. Thus the European Parliament should have an interest in such changes of secondary Community law which restrict the indirect law-making power of the European Commission. When it comes to potential frictions between the European Union and the United States of America, the Parliament should be interested in reducing such frictions in order to give the European Union more weight in the inter-national power play.

3.2 Executive Power: European Commission

The European Commission has a double-function: As executive power it has to enforce Community law. In case of competition law this constitutes an important aspect of competition policy formulated and executed by the Commission. On the other hand the Commission is engaged in law-making, in so far it produces – the above-mentioned – guidelines.

The position of the Commission vis-à-vis the European Courts at first sight is relatively weak due to the right of judicial review of Commission decisions by the Courts. Thus the Commission should be interested in changing goals of competition law into the direction of an economic rather than a legal approach. And it should make use of guidelines, offering orientation to the addressees of competition law, in binding the Courts to accept this sort of soft-law. If the Commission succeeds in defining an economic approach to competition law, by changes of secondary Community law (in co-operation with the Council and the Parliament) and by guidelines, it may reduce the power of the Courts to more or less formal review of its decisions in the field of competition law. In its position vis-à-vis US antitrust authorities the Commission is expected to stress convergence of antitrust goals and competition law goals to avoid frictions of US law and Community law, thus strengthening its own position vis-à-vis other actors on the European level.

3.3 Judiciary: European Courts

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The European Courts , i.e. the Court of First Instance and the European Court of Justice, are traditionally in a very strong position vis-à-vis the others actors on the European level. If the legislature is not able to solve a problem, the Courts may step in as quasi-legislature. What they need is a method of legal interpretation which enables them to define what an objective legislature would have done in the case to be decided. It is the teleological method of interpretation which fits best into this picture (see 1.3). The European Courts are in a very strong position vis-à-vis the European Commission as a result of their right of judicial review. But that right could be eroded, if the legal method of interpretation would be substituted by an economic method.

4 The Expected Impact of the Factor ‘More Economic Approach’on Revisiting Goals of Competition Law

4.1 Historical Background

In the years after 1957 Art. 85 and 86 of the Treaty Establishing the European Eco-nomic Community24 – now Art. 81 und 82 of the Treaty Establishing the European Community25 - have served different objectives. They have been understood as a device to serve the integration goal and the competition goal simultaneously.26 The competition goal has been seen in the light of theories on workable competition. The approach was that of legal interpretation of given competition law provisions.

The democratic legitimacy of the competition authority, i.e. the European Com-mission and namely its Directorate General ‘Competition’ (DG Competition), was rather weak. In merger cases the supervision by law courts (European Court of Justice later on joined by the Court of First Instance) was rather strong. In international cases – especially in international merger control cases - a permanent conflict with US antitrust authorities over the application of US antitrust law and European competition law made the Commission realise the conceptual differences between US antitrust law and Com-munity competition law. The Merger Regulation of 1989 itself was ambiguous in regard of the criteria for merger control. Art. 2 (3) referred as well to the dominance concept and the concept of significantly impeding competition.27

These conceptual differences included divergent goals of both jurisdictions. Whereas in US antitrust law Sec. 7 Clayton Act has induced the Antitrust Division of the Depart-ment of Justice and the Federal Trade Commission (FTC) to apply economic doctrines for the solution of merger control cases28 and develop the so-called substantially lessen

24 Treaty Establishing the European Economic Community, 298 United Nations Treaty Series (UNTS) 11, as of 25/03/1957.

25 Treaty Establishing the European Community (consolidated version), OJ C 325, pp. 33 – 184 of 24/12/2002.

26 Kirchner (1998), p. 516.27 Krimphove (1992), pp. 277 – 288.

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competition-test (SLC-test), the Merger Regulation of 1989 29 was based on the concept of ‘dominant market position’, which was open to interpretation of the European Court of Justice.30 The two different concepts – and indirectly the two different definitions of goals of merger control – turned out to be impediments for the harmonious co-operation between US-American and European competition authorities.

A Revision of the Merger Regulation appeared to be suitable way not only to mitigate these tensions but to make merger control more effective as well. That revision took place in 2004 and produced a new concept – including now goals - for the Merger Regulation.31 The introduction of the significant impediment to effective competition-test (SIEC-test) in Art. 2 (3) Merger Regulation was not only a step into the direction of bringing European competition policy in line with US antitrust but could be interpreted as a change of paradigm in European competition policy from a legal to an economic approach.

Whereas in the case of the Merger Regulation the legislature brought about the concep-tual change this solution was not feasible in regard of Art. 81 and 82 EC. Politically it was evident that the necessary unanimity for amendments of the competition law provi-sions of the EC-Treaty could not be organised.32 In order to introduce the ‘more eco-nomic approach’ into the field of horizontal co-operations and vertical agreements (Art. 81 EC) and abuse of dominant positions (Art. 82 EC) amendments of secondary Com-munity law and the promulgation of legally not binding Guidelines of the European Commission had to be chosen. The major documents have been the Guidelines on hori-zontal cooperation agreements33, the Guidelines on Art. 81(3) EC34 and Guidelines of horizontal mergers.35 In 2005 the European Commission has started the discussion on

28 Sec. 7 Clayton Act reads: „That no corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital of another corporation engaged also in commerce, where the effect of such acquisition may be to substantially lessen competition between the corporation whose stock is so acquired and the corporation making the acquisition, or to restrain such commerce in any section or community, or tend to create a monopoly of any line of commerce.“ Source: 15 U.S.C. Section 18 (1988); on that ground the Federal Trade Commission has issued the 1993 Horizontal Merger Guidelines (with April 8, 1997, Revisions to Section 4 on Efficiencies): http://www.ftc.gov/bc/docs/horizmer.htm.

29 OJ L 395, p. 1 as of 30/12/1989; corrigendum OJ L 257, p. 1330 See Hildebrand (2002), pp. 43 – 48; the leading case is: Hoffmann-La Roche & Co. AG

v. Commisson (Vitamins), Case 85/76 (1979) European Court Records (ECR), nos. 38 – 41 and 48.

31 Council Regulation (EC) No. 139/2004 of 20 January 2004 on the control of concentration between undertakings, in: Official Journal L 24, 29/01/2004, pp. 1 – 22.

32 See the Conference “Objectives of Competition Policy” organised by Claus Dieter Ehlermann and Laraine L. Laudate in 1997 in Florence, which is documented in: Ehlermann/Laudati (1998).

33 Guidelines on the applicability of Art. 81 of the EC Treaty to horizontal cooperation agreements, in: Official Journal of the European Communities, C 3, 06/01/2001, pp. 2 – 30.

34 Communication from the Commission. Notice. Guidelines on the application of Article 81(3) of the Treaty, in: Official Journal C 101, 27/04/2004, pp. 97 - 118.

35 Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings, in: Official Journal of the European Communities, C 31, 05/02/2004, pp. 5 – 18.

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the application of Article 82 of the Treaty to exclusionary abuses,36 which is presumably leading to respective guidelines in this field as well. The revised Merger Regulation together with the existing and the expected new guidelines contain the concept of the ‘new economic approach’37

In order to understand better the discussion on goals of competition policy it is neces-sary to clearly separate this discussion from the general debate on a legal or an eco-nomic approach of European competition law. Increasing the relative weight of eco-nomic instruments and methods in the enforcement of European competition law may serve various purposes and may be beneficial for a better functioning of competition policy.38 But this does not automatically lead to the adoption of a new definition of goals of competition policy. The fact that a certain economic tool – e.g. the SIEC-test – may enhance general welfare by better distinguishing between harmful and non harmful mergers, does not mean, that competition policy should be governed exclusively by certain welfare objectives. This distinction is important in the light of reservations of legal experts who are anxious that a ‘more economic approach’ would undermine pri-vate autonomy (freedom of contract) and legal certainty.39 If a new economic approach can be used as one step in the process of enforcing competition law this does not mean that aspects of protecting freedom of contract and legal certainty should be excluded because of not being part of the welfare goal.

4.2 The Efficiency Goal in the Context of the ‘More Economic Approach’ in the 2004 Merger Regulation

Whether or not and how the ‘more economic approach’ will influence the goals of European competition law, depends on the role, the efficiency goal will play. With the strong position of European Courts in the law-making game, defining competition law goals it will be decisive, whether and how the efficiency goal will be accepted and inte-grated into the jurisdiction of the law courts. It is not the efficiency goal as such. But it will be important, which efficiency goal will characterise the ‘more economic ap-proach’.

The traditional approach in European competition policy is based on the enforcement of provisions of competition law, contained in the Treaty establishing the European Com-munity (EC-Treaty)40 and in the Merger Regulation.41 These legal norms have to be

36 European Commission (2005).37 Schmidtchen (2005), pp. 9 – 10.38 Schmidtchen (2005), pp. 26 – 30.39 Immenga (2006).40 Consolidated Version of the Treaty establishing the European Community: OJ C 325 of

24/12/2002.41 Pre-2004 Merger Regulation: Council Regulation (EEC) No 4064/89 of 21 December

1989 on the control of concentrations between undertakings, OJ L 395 of 40/12/2989; 2004 Merger Regulation: Council Regulation (EC) No. 139/2004 of 20 January on the control of concentration between undertakings, in: Official Journal L 24, 29/01/2004, pp. 1 – 22.

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interpreted as well by the competent competition authority (European Commission and its Directorate General Competition) and the European law courts (Court of First In-stance and European Court of Justice). As has been mentioned, law courts have the final say. Making use of the teleological method of interpretation they enjoy a considerable degree of discretionary power in interpreting the competition provisions of EC-Treaty and the Merger Regulation.

The approach of enforcing legal norms of competition law interpreted by administrative bodies and law courts may be characterised as a ‘legal approach’ or even a ‘legalistic approach’. This approach contains economic ingredients insofar as legal terms of competition law refer to economic phenomena and competition law is pursuing eco-nomic goals. To what extent economic elements and legal elements of such approach count, depends on the legislator and the law courts. They will ultimately decide which economic goals will be internalised within the legal system.

From an economic point of view a legal approach to competition policy appears to be sub-optimal. The application of competition law should not depend on legal interpretation of legal terms but on the effect of different problem solutions. Economics should favour an effects-based approach, which is consequentialist in nature.

Whereas actors on the level of legislative and judicial law-making tend to internalise economic factors into law-making the Commission as executive power should rather favour a pure economic approach, which is effect-based. This would certainly strengthen the position of the Commission vis-à-vis the legislative powers. But one should be careful not to confuse this type of ‘economic approach’ and the position of scholars of industrial organisation. Whereas mainstream economists would agree, that a effects-based approach, which is consequentialist, would be the optimal solution to guide application of competition law, neo-Austrian economists and evolutionary economists would be more cautious and stress the complexity of the competition proc-ess in a world of systematically incomplete information.42 It has not to decided which position is superior. But it is of utmost importance which approach is more appealing for the various actors who engage in the law-making game, defining goals of competi-tion law.

The hypothesis which states a clear priority of the European Commission for a conse-quentialist economic approach, can be supported by some facts which shed light on the position of the Commission. From the late 1990s to the present the Commission has

42 Kerber (2003).

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constantly pursued the ‘more economic approach’ in various guidelines,43 the revised Merger Regulation of 2004 and in a recent discussion paper on Art. 82 EC.44

It is interesting to note that the ‘more economic approach’ presented by the European Commission as part the endeavours to revise the Merger Regulation has been under-stood as a device to better defend the Commission decisions against repeal by European courts. The core of the ‘more economic approach’ in the revision of the Merger Regu-lation has been the introduction of the significant impediment to effective competition-test (SIEC-test) in Art. 2 (3). Thus the European merger control moved closer to US-American merger control, which is applying the substantially lessening of competition-test (SLC-test). In the eyes of the Commission this eventually may lead to decreasing frictions between US antitrust law and European competition law in applying two different sets of legal rules to identical merger cases.45 This more or less pragmatic move which was meant to better differentiate between detrimental and non-detrimental mergers has had a major methodological implication. Whereas the old approach had its focus on the existence of a dominant market position, which is a legal term, to be inter-preted by means of legal interpretation, the SIEC-test introduces instruments of eco-nomic theory into merger control. The consequence is, that the question on the merits of clearing a merger or not has to be answered in an economic context. Hence the issue of efficiency considerations comes into play. Thus the US-American debate on antitrust law as a device to bring about efficiency (Chicago approach)46 has arrived in Europe.47

This arrival has far-reaching consequences for goals of competition law.

When it comes to merger control an effects-based approach has to proceed in three steps: (1) to determine which effects are relevant, (2) to predict such relevant effects, comparing clearance or prohibition of the given merger and (3) to evaluate the merits of the merger (or its prohibition) in the light of the goals of the Merger Regulation. It is evident that all three steps are equally important. Focussing just on the goals of merger control would oversimplify the discussion. The role of determining the goals of competition policy is just one factor. If the relevant effects are not chosen correctly, the overall result will be deficient. To clarify this statement it shall first be assumed that the relevant effects are determined in a way that only such effects are included which are easy to predict, so that long-term effects are being neglected, the efficiency test in step three will be misleading. Whereas such a concept would simplify the task of the Com-mission it is hard to predict whether this concept would be accepted by the courts. Medium- or long-term effects may be omitted because of difficulties to predict such

43 Guidelines on the applicability of Art. 81 of the EC Treaty to horizontal cooperation agreements, in: Official Journal of the European Communities, C 3, 06/01/2001, pp. 2 – 30; Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings, in: Official Journal of the European Communities, C 31, 05/02/2004, pp. 5 – 18.

44 European Commission (2005).45 Jones (2006).46 See Voigt/Schmidt (2005), pp. 18 – 2247 Neven/Roeller (2005).

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effects. The approach would be static in nature. The courts could argue that it does not take into account dynamic factors correctly. The more the courts insist on taking into consideration effects of a merger on innovation, dynamic effects and long-term effects they can argue that it is necessary to weigh short-term detrimental effects and long-term beneficial effects. To balance pros and cons of a merger would be a task of the court which has to apply the Merger Regulation, which leaves wide discretion to interpreta-tion. Thus, even a clear legislative move, to introduce a consequentialist economic approach into European competition law, could not prevent courts from deciding how to weigh the various factors.

The same is true, when it comes to defining the goal of competition law as ‘efficiency’. There are various kinds of efficiency, static and dynamic efficiency, productive and allocative efficiency. 48 But even if static allocative efficiency should be chosen as the measuring stick the question has to be answered whether consumer surplus should be maximised or total welfare. There are good economic arguments for maximising total welfare. But law courts would not be impressed as long as the text of Art. 2 (1) Merger Regulation clearly adopts the consumer surplus position which is evident from the text. It does not matter if economists argue, that markets should work to the benefit of con-sumers, so that in the end it is consumer surplus which counts. The decisive argument for courts is the language of the relevant legal provision, not economic wisdom. It is true that the legislature could amend Art. 2 (1) Merger Regulation and rather turn to the total welfare goal. But given the weak democratic legitimacy of the legislature in the European Community one should rather not expect that the legislative bodies will skip the consumer welfare goal.

The potential arguments of law courts against the ‘more economic approach’ in merger control may be traced back to fundamental methodological problems, which go beyond the relatively simple objection that the economic approach is not including all relevant merger effects. The problem is one of how to deal with the fact that information is sys-tematically incomplete and thus competition is an open learning process.49 If this is true, an effects-based approach which does not take into account indirect effects, effects on incentives for innovations and which is static in nature may come to misleading find-ings. This line of arguments may be used by a law court in order not to reject the ‘more economic approach’ per se but rather to develop a differentiated strategy which pro-ceeds as follows: As a first step an effects-based economic approach, which looks into the effects of a merger – compared to a situation without merger – may be used in order to shed more light on the effects of a merger than the traditional approach. But thereaf-ter a court might find it necessary to take further considerations into account, like the effects of the merger on incentives to innovate. In terms of goal-oriented discussion one may start with a static efficiency analysis but has then to proceed to a dynamic effi-

48 Brodley (1987).49 Kerber (2003), pp. 314 – 316.

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ciency approach. That second step could allow to take other welfare aspects into ac-count which are neglected in a simple SIEC-test.

There is another tricky efficiency problem in merger cases for law courts: In merger control one of the potential relevant effects of the merger control decision is how pro-ductive efficiency is taken into account. The issue of the so-called efficiency defence has been a matter of debate in US antitrust law. 50 Given the de lege lata-approach this issue is not of much relevance for European Courts in the revised Merger Regulation. 51

They easily can put aside the efficiency test in the light of two factors: (1) The under-takings carry the burden of proof, not the Commission. (2) The proof of improvement of productive efficiency will not count unless the consumers will benefit.

4.3 Art. 81 and 82 EC and the efficiency goal4.3.1 Re-interpretation of Art. 81 (3) EC

The problem of Art. 81 EC has been its ambiguity. Art. 81 (1) seems to contain a solid per se-approach without a rule of reason, whereas Art. 81 (3) opens the door for rather soft criteria for exemption of anti-competitive agreements. These criteria may be inter-preted in the light of efficiency goals of European competition law. The ‘more eco-nomic approach’ contains the proposal to interpret the criteria of Art. 81 (3) EC in the light of efficiency goals. The Guidelines on horizontal agreements 52 are moving into that direction.

The discussion is different from that on the Merger Regulation. But there are some common issues concerning the effects-based approach and the goals to be pursued by competition law. Again it is necessary to determine (1) which effects are relevant, (2) to make predictions concerning such effects, and (3) to evaluate such effects in the light of the goals of European competition law.

The problem of the adequate welfare standard may be solved legally: Art. 81 (3) refers to consumer welfare. This is part of the binding institutional framework. In a de lege lata-discussion it does not make sense to question the potential economic deficiencies of such welfare standard. A de lege ferenda-discussion is not a realistic option, because it is highly unlikely that Art. 81 EC can be changed under the rule of unanimity for amending the founding contracts of the European Community (petrification effect).

4.3.2 Application of Art. 82 EC

50 Schmidtchen (2005a), p. 11; Schwalbe (2005); Williamson (1968).51 Efficiency test in the revised Merger Regulation: e.g. Schwalbe )(2005); Christiansen (2006).52 Source in fn. 43.

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In the case of Art. 82 EC the Commission is moving into the direction of the more economic approach by means of envisaged guidelines as it has done in the case of Art. 81 EC. It has started with its 2005 discussion paper on the application of Article 82 to exclusionary practices. 53

Parallel to the discussion of the Merger Regulation it can be demonstrated that a simple consequentialist economic approach, which concentrates on short-term effect and ne-glects long-term and dynamic effects will not easily be accepted by law courts. The dif-ferentiated approach proposed in 4.3 may solve the problems from a perspective of law courts.

5 The ‘more economic approach’ and the law-making game

The actors which define the goals of competition law may be interested in revisiting the goals of competition law in the light of the ‘more economic approach’. The ‘more economic approach’ may be considered a step forward in the development of economic theory which allows to better predicting the outcomes of a merger. It is possible that actors may change their traditional position in the law-making game in light of this new development. This question will be answered for the three groups of actors introduced in chapter 3.

5.1 Member States, Council and European Parliament

It has been demonstrated that due to the unanimity rule the Member States are to expect to amend the competition provisions in Art. 81 und 82 EC. New developments in industrial organisation theory thus do not play a role for this group of actors.

The Council and the European Parliament have been actively responding to the ‘more economic approach’ by amending the Merger Regulation in 2004. They have contributed to reducing the frictions between US antitrust law and European competition law without going beyond the introduction of the SIEC-test. They did not give clear guidance to the European Courts of how apply this test, exclusively or in a differentiated approach. In the light of the interest position of the Council and the Parliament it cannot be expected that they will change this position in the foreseeable future.

5.2 European Commission

53 European Commission (2005).

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The European Commission has in the past very active in promoting the ‘more economic approach’ and supporting this approach by a number of guidelines. It has become evi-dent that the Commission is pursuing three goals simultaneously: (1) reducing frictions with the US antitrust authorities, (2) to better defend its decisions in merger cases against repeal by the European Courts, and (3) to indirectly bind the courts by guide-lines. It is clearly in the interest of the Commission to proceed in its endeavour to com-bine the ‘more economic approach’ with a clear consumer welfare-oriented efficiency goal.

5.3 European Courts

If the strategy of the European Commission is successful European Courts will be los-ers. Their position will be threatened by the new indirect law-making power of the Commission via guidelines and by an effects-based economic approach which will limit discretionary power of courts. As has been demonstrated the European Courts can make use of their right of judicial review of decisions of the Commissions combined with the teleological method of interpretation. The legislature has not clearly defined goals of European competition law. Even the revised Merger Regulation has not done this. Thus the courts have not lost their discretionary power to define the ultimate goals of compe-tition law. But they are caught in a dilemma situation. If they defend legal certainty they will have to accept the new Commission guidelines at least to a certain degree. Thus they will not be able openly to reject the ‘more economic approach’. A more promising strategy will rather be to interpret that approach, to differentiate the approach, to intro-duce additional effects which have to be taken into account. Then they are free to weigh various – and may be contradictory – effects. They even can introduce the standard le-gal arguments – like importance of ‘legal certainty’ – into the ‘more economic ap-proach’ in order to modify that approach. A decrease of legal certainty is costly. Actors taking part in the competition game have to invest into increasing legal certainty indi-vidually or they have to carry the cost of loss of predictability. If this is true ‘legal cer -tainty’ may be brought into play by law courts. They would rather prefer a legal ap-proach which is sub-optimal in terms of a simple efficiency approach but which better produces predictable results.

6 Expected Goals of Competition Law

Concerning the expected goals of competition law in the European Union the following hypothesis can be formulated: Goals of European competition goals will be revisited in the light of the ‘more economic approach’. The way this is being done is the outcome of an interaction between the Commission and the European Courts. The courts have the final say. It is expected that they will be interested in modifying the efficiency goals of the ‘more economic approach’ in a way which will minimise the reduction of their dis-

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cretionary power. They will supposedly bring into play long-term and dynamic effects and ‘legal certainty’.

The hypothesis shows that ‘goals of competition law’ can be defined as the expected outcome of an interaction between various actors. But it might be more interesting to study the interaction as such and to make predictions on the next moves of the participants of the game. For the Commission it would make sense to try to change the rules on law-making. The law-making power of independent Commissions of the United States Congress – like the Federal Trade Commission (FTC) – might be an example the European Commission would like to copy. But this would clearly undermine the power of the Council and of the Parliament. Supposedly both actors would try to defend their existing position. The interaction is very complicated because the actors play on different level. They are engaged simultaneously on the level of the game and of that of the rules of the game and the game of rule-making. Progress in economic theories is but one factor which will influence the multi-level game.

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