dissertation on competition policy

UC Berkeley

Essays on Competition, Public Policy, and Innovation

• Kang, Hyoseok
• Advisor(s): Tadelis, Steven ;
• Walker, William Reed

This dissertation comprises three studies that examine competition, public policy, and innovation. The first study investigates how product market competition affects the intensity and breadth of innovation activities of firms, using the formation and breakup of price fixing cartels to proxy for competition or lack thereof. The second and third studies investigate how public policy on restrictive covenants, namely non-compete agreement, affects business dynamism/concentration and strategic knowledge management of firms, respectively.

For the first study, I assembled a unique dataset comprising 461 prosecuted cartel cases in the U.S. from 1975-2016, where I match 1,818 collusive firms to firm-level data on patenting, R&D investment, and other measures of innovation. I then use a difference-in-difference methodology, matching colluding firms to various counterfactual firms. Empirical results show a negative causal relationship between competition and innovation in the cartel context. When collusion suppressed market competition, colluding firms increased R&D investment by 12%, patenting by 51%, and top-quality patents by 20%. Furthermore, firms also broadened their areas of innovation when competition was suppressed by collusion, with the number of patented technology fields increasing by 33%. The increased and broadened innovation activities reverted back, close to previous levels, when competition was restored by collusion breakup. Further tests suggest that financial constraint (“ability to innovate”) and the industry’s growth rate (“incentive to innovate”) are important economic mechanisms behind the trade-off between price competition in the product market and innovation growth.

I then turn to labor market competition and study the effects of legal enforcement of non-competition agreements on business activities, including entrepreneurship and innovation. The second study, co-authored with Lee Fleming, isolates the impact of non-compete enforcement on regional business dynamism and concentration by focusing on Florida’s 1996 legislative change that eased restrictions on the enforcement of non-competes. We first establish the contrast between legal regimes and note that wage trends did not change when comparing wages before and after the passage of the legislation. Difference-in-differences models show that following the change, establishments of large firms were more likely to enter Florida; these firms also created a greater proportion of jobs and increased their share of employment in the state. Entrepreneurs or establishments of small firms, in contrast, were less likely to enter Florida following the law change; they also created a smaller proportion of new jobs and decreased their share of employment. Consistent with these location and job creation dynamics, a variety of business concentration measures increased significantly following the law change in Florida. Nationwide cross-sections demonstrate consistent correlations between state-level non-compete enforcement and business dynamism/concentration dynamics illustrated in Florida.

Expanding the questions on the impact of labor market competition and worker mobility, the third study examines how firms strategically manage innovation processes and outcomes against mobility of workers (this work is co-authored with Wyatt Lee). In 1998, a California Court of Appeal ruled that non-compete agreements (“non-competes”) signed by an employer and an employee outside of California are not enforceable in California. This court decision created a loophole for employees of non-California firms, as these firms could no longer enforce non-competes by which their employees were previously bound, and the employees could now move freely to California firms. We use a difference-in-difference methodology comparing firms in states that have been enforcing non-competes with firms in states that have not been enforcing non-competes. We find that this California-driven loophole significantly affected knowledge management and innovation processes of non-California firms that are affected. These firms decreased R&D investments (an important input for innovation) because such R&D activities became more costly and risky. On the other hand, these firms increased patent filings (without compromising their quality) despite the decrease in innovation input. In other words, firms increased their propensity to patent, suggesting that firms rely more on strategic patenting than on secrecy when facing higher mobility of and competition for workers.

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The Challenges and Trajectories of EU Competition Policy in the Twenty-first Century

• Cite this article
• https://doi.org/10.1080/07036337.2012.707359

The Evolution of EU Competition Policy

The objectives of competition policy, eu competition policy in the twenty-first century, overview of the papers, acknowledgements.

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Sixty years have now passed since the signing of the Treaty of Paris establishing the European Coal and Steel Community in 1951, and during that period competition policy has become firmly anchored as one of the key pillars of European integration. A regime of European competition governance has emerged that centers on the European Commission, specifically its Directorate-General for Competition (DG COMP), and has matured to tackle the four constituent parts of the EU competition policy brief, cartels, monopolies, mergers and state aid. The focus and enforcement of EU competition policy is constantly being reviewed in response to new challenges and opportunities as DG COMP seeks greater consistency in competition norms and greater policy convergence both within the EU and the wider global environment. The opening article of this volume introduces the context in which substantive changes to the EU competition regime has occurred in the twenty-first century. It identifies the major drivers for such change including economic interdependence, the proliferation of national competition laws, and the current financial and economic crisis, and describes how EU competition policy has evolved in response to these challenges.

• Competition policy
• European Commission
• interdependence
• financial crisis

The study of European Union competition policy has long provided one of the best examples of European regulation and supranational governance. Footnote 1 Students of European integration, however, often perceive this area as one of the most challenging to traverse given that it is a vast policy area that encompasses and has been shaped by numerous regulations and notifications, a voluminous case law and an abundant economic literature. European Union (EU) citizens for their part rarely encounter or appreciate the aims and functioning of this particular policy area. Yet, fewer policy areas are as central to the operations of the European integration project and the success of the single market as competition policy. Fewer have had as much positive impact on European consumers than the operation and objectives of competition policy.

Competition policy was given a central position in the Treaty of Rome, and it has played a crucial role since then in the creation and functioning of the single market (von der Groeben Citation 1987 ; Ehlermann Citation 1992 ). Its significance as an EU policy area finds reflection in its identification as one of only five exclusive Union competences under the Lisbon Treaty. At its core, competition policy is designed to encourage firms to produce high quality goods and to invest in technological developments, but it is also about enhancing consumer welfare by providing lower prices and greater choice. Today’s EU competition policy is also very much tied into wider EU objectives of promoting strong sustainable growth, competitiveness and job creation. It is regarded as a key component of the Europe 2020 Strategy for smart, sustainable and inclusive growth. In short, the creation and enforcement of a competition policy regime is not an end in itself; in the EU competition policy has also become an integral part of the single European market.

The significance of this policy to readers outside the disciplines of economics and law has slowly been realized. The last 20 years have seen the emergence of a political science community that is increasingly concerned with issues of institutional design, accountability and discretion in EU competition policy, as well as issues of ideational change, power and policy diffusion across the globe (Buch-Hansen and Wigger Citation 2011 ; Büthe Citation 2007 ; Cini and McGowan Citation 2009 ; Damro Citation 2006 , Doleys Citation 2009 ; Kassim and Wright Citation 2009 ; McGowan Citation 2010 ; Wilks 2007). Footnote 2 A recent survey of EU studies journals finds that both the quantity and the quality of the articles focusing on European competition policy have risen in the period 1999–2009 compared to a decade earlier (Franchino Citation 2005 ; Karagiannis Citation 2010 ). Positively, this interest now coincides with a growing interest among historians about the early years of European integration and especially the workings of the Commission (Leucht Citation 2009 ; Seidel Citation 2009 , Warlouzet Citation 2010 ). Methodologically, too, the literature on European competition policy ‘is converging towards mainstream social sciences to a very appreciable extent’ (Karagiannis Citation 2010 , 607).

The existing literature has pointed out how a combination of the discretion left to the Commission by the Treaty provisions, entrepreneurial commissioners of competition, the broad interpretation of the treaties by the European Court of Justice, as well as the deepening of European integration itself has shaped the evolution of the EU competition regime internally (Cini and McGowan Citation 2009 ; Wilks and McGowan Citation 1996 ; Smith Citation 1996 , Citation 1998 ). In the last decades, an increasingly integrated world economy has added to these intra-EU dynamics distinct pressures for change and reform, and in fact, it has become a major factor shaping the evolution of the EU competition regime. But the EU has not passively received influences from the world economy. Instead, it has actively responded by reforming its competition regime and seeking to influence global trends in competition policy.

The current volume is aimed at explaining the changing face of EU’s competition policy in the twenty-first century. Focusing on substantive areas of the EU competition regime including state aid, cartels, merger control, and international cooperation, the contributors to this collection describe how EU competition policy has evolved in the last decade. We argue that three developments in the global economy have strongly influenced the evolution of the EU competition regime in the twenty-first century: increased economic interdependence, the proliferation of national competition regimes, and the financial and economic crisis.

First, national economies have become increasingly interdependent with the international integration of markets in goods, services and capital (Keohane and Nye Citation 1989 ; Garrett Citation 2000 ). Economic interdependence has intensified the competition to attract investment among governments within the EU and with third countries, and has raised concerns about competition in subsidies and corporate tax rates. Interdependence has also increased the possibilities for cross-border anticompetitive activities such as international cartels and cross-border mergers, which has left competition authorities including DG COMP ill-equipped to investigate and tackle them, and has propelled them to cooperate on a global scale. Second, the proliferation of national competition regimes has created a complex global web of competition laws, and has necessitated DG COMP to intensify its efforts to cooperate and coordinate with other competition authorities and to attempt to harmonize competition laws at the international level. Finally, the financial and economic crisis that started in 2008 has generated pressures on the governments in the EU and around the world to adopt protectionist measures, which has kept DG COMP officials busy.

These developments in the global economy have challenged the European Commission to become more effective, more responsive and more far-reaching in its efforts. They have also given the EU a unique and historic chance to influence international developments in competition policy, and more broadly to manage globalization of the world economy (Jacoby and Meunier Citation 2010 ). The contributors to this volume collectively describe and assess how the European Commission has responded to these challenges, how the EU competition regime evolved in the process, and where the policy is headed.

This introduction is organized as follows. In the next two sections, we discuss the fundamentals of the EU competition regime, its evolution since the Treaty of Rome and its objectives. The fourth section identifies the developments in the global economy in the last decade that have influenced the EU’s competition regime. In the fifth section, we discuss the EU’s responses to these challenges by summarizing the findings of the individual contributions. The conclusion identifies potential new avenues for research in EU competition policy.

In Europe, the development of competition policy at the national level has been a gradual process that commenced after 1945. The first steps towards coherent national competition regimes occurred first in the United Kingdom (1948) and then West Germany (1957). The adoption of these national competition policies reflected new thoughts on industrial structures and competitiveness, and was influenced directly and indirectly by the well-established US competition model (Cini and McGowan Citation 2009 , 12–5), which was initiated under the Sherman and Clayton Acts in 1890 and 1914 respectively, and which sought to ensure that economic power was not concentrated in the hands of a few powerful trusts (Amato Citation 1997 ; Stigler Citation 1985 ).

Competition arose as one of the first policy themes in the European integration process. The competition provisions of the European Coal and Steel Community in 1952 were part of an effort to break up the West German coal and iron cartels (Warlouzet Citation 2010 , 7). Competition policy also became an integral aspect, and one of the very few common policy areas identified under the 1957 European Economic Community (EEC) Treaty. The immediate drive for a customs union and common market among West European governments was to maintain peace, but the initiative owed arguably equally to the desire to facilitate economic prosperity through the pursuit of greater competitiveness. The removal of tariff barriers and other quantitative restrictions were a step in the right direction, but such moves were limited without a competition policy.

Neo-classical economic theory postulates that competition between firms unleashes a range of dynamic and positive benefits for the economy and for consumers, as it forces firms to innovate and to constantly develop new and better products as well as lowering prices. Such benefits, however, could not readily be guaranteed without some form of regulatory control. With a long European tradition of companies engaging in anti-competitive strategies such as price fixing and artificially dividing markets, it became evident that if the objectives of the European Economic Community were going to be realized, it would be necessary to establish a regulatory system to police the common market (von der Groeben Citation 1987 , 59–60). Put another way, within the context and ambitions of a customs union it would have been simply counter-productive to dismantle trade barriers between the member states if private industry had been allowed to remain free to engage in cartel-like restrictions on competition and to undermine the advantages of opening up the markets in the first place.

The idea of a competition policy was not without controversy among member state governments and particularly in Paris where concerns were expressed about the risks for French businesses of greater competition (von der Groeben Citation 1987 , 59). Competition policy had come to form a central tenet of the West German social market economy and Bonn was largely instrumental in pushing this competition agenda within the EEC Treaty itself (Seidel Citation 2009 , 131–2; Warlouzet Citation 2010 , 8). In a quid pro quo , the West German government accepted the French pursuit of a European policy on agriculture. Article 3(f) of the EEC Treaty explicitly declared that competition should not be distorted in the common market while Articles 85 to 94 outlined the aims and objectives of the competition rules and focused on restrictive practices (including cartels), abusive monopolies and state aids.

In retrospect, we can describe the evolution of the EU competition regime in three phases of generational renewal. The initial phase, which occurred in the late 1950s and early 1960s, is marked by the agreement of the six member state governments to delegate powers in the competition arena to the supranational level through Regulation 17 (von der Groeben Citation 1987 , 108–11). This regulation put in place a fairly centralized enforcement system with the Commission at its heart wielding wide powers in the enforcement of competition provisions (Akman and Kassim Citation 2010 , 115–6).

The second phase saw the metamorphosis of DG COMP in the mid 1980s from a sleepy backwater to being at the forefront of Commission activity (Wilks and McGowan Citation 1996 , 225). The single market program created an ‘overriding need for competition policy’ to ensure that the barriers to economic exchange that have been removed to create the single market were not replaced by private or public conduct that had similar effects (Ehlermann Citation 1992 , 259–61). The single market project resulted in the stricter application of the existing competition rules, particularly in state aid. It was in this context that the Council passed the Merger Regulation (4064/1989), giving DG COMP the power to investigate mergers. This period also heralded the gradual and voluntary policy convergence of national competition rules with the EU rules and led to the exporting of the same EU rules to third (for example, potential accession) countries as part of the acquis communautaire (Ehlermann Citation 1992 , 258). By the end of the 1990s a puissant and prestigious supranational competition regime was exerting its force and power on both business undertakings and member state governments.

The supranational competition order was not however problem free by any means. It has always had its critics who have pointed to the so-called weaknesses within this system, such as the length of time taken to settle cases, a lack of transparency, weak analyses of the facts that have settled cases, and too much room for politicization (Neven, Papandropoulos and Seabright Citation 1998 ). At times, DG COMP officials were criticized for being too dogmatic in promoting the competition principle over other factors (Greenhouse Citation 1991 ). While DG COMP’s efforts may be laudable there is little doubt that its limited resources were severely stretched. Positively, DG COMP has repeatedly displayed its determination to confront the challenges and even displayed degrees of ingenuity as it has regularly reviewed its operating practices and procedures, to learn from ‘best practices’ elsewhere and to refine its core priorities. In a concerted effort to ‘modernise’ its procedures and practices, and in a new and third generational change, DG COMP initiated the first major review of the EU competition machinery in 1999. Ensuing discussions with its stakeholders (the national competition authorities, legal firms, businesses, consumer groups and academics) led to two new Council approved regulations that came into force in May 2004 (Clarke and Morgan Citation 2006 , 11–4).

The Modernization Regulation of 2004 eliminated the requirement to notify the Commission of agreements among companies, and thus reduced the workload of the Commission. It also gave the national competition agencies and national courts increased responsibilities in enforcing EU competition provisions, and therefore significantly decentralized the EU’s competition regime. Footnote 3 In order to coordinate national and EU competition policies, the European Competition Network was set up. Furthermore, DG COMP was restructured in 2003–2004 along sectoral lines, integrating merger units into antitrust teams in a number of key sectors such as energy, telecoms, transport, and financial services (Lowe Citation 2009 , 34). In 2007, the state aid teams were also integrated into these sectoral directorates. In response to criticisms about the weakness in its economic analysis, DG COMP also created a chief economist position in 2003. The chief economist heads a team of 20 PhD economists, reports directly to the director general, and provides guidance on economic methodology in competition investigations and contributes to general policy development (Lowe Citation 2009 , 35). The Merger Regulation of 2004 also brought important substantive and procedural changes in the merger control regime. Finally, modernizing efforts in state aid sought to increase the degree and quality of economic analysis in state aid decisions and in the general policy direction.

The recent changes to competition policy not only have empowered DG COMP within the EU context, but also transformed it into a global actor. DG COMP has long had a presence as an actor on the global stage. Its key priority here has been to foster cooperation with other competition authorities and if possible, to pursue policy convergence or at least growing acceptance of competition norms. Any such challenge is not to be underestimated given the realities of more than 110 national competition policy regimes across the globe. DG COMP has signed a number of bilateral agreements with third states, commencing with Canada and the US in the mid 1990s, which have led to further engagement and cooperation such as greater EU–US cooperation in merger investigations. In March 2011 the Commission entered into a Memorandum of Understanding with the Russian competition authority and recent initiatives have also been introduced to boost the emerging relationship and co-operation with the competition agencies in China and India. On the multilateral front, DG COMP pro-actively engages in a number of international institutions and networks such as the International Competition Network (ICN), the Organisation for Economic Cooperation and Development (OECD), the United Nations Conference on Trade and Development (UNCTAD) and the World Trade Organisation.

These different institutions all reflect the salience of competition policy in the early twenty-first century. DG COMP’s involvement with the ICN is the prime example of competition authorities’ search for policy convergence. This agency has expanded dramatically from an initial membership of 15 competition authorities at its creation in 2001 to some 117 in 103 jurisdictions a decade later (Coppola Citation 2011 , 222). As a virtual network, the ICN allows competition officials and other interested parties to keep abreast of the latest developments, to identify and disseminate best practice and to push the convergence agenda. It now holds annual conferences and hosts a number of highly specialised working groups in areas such as anti-cartel policy and merger control. DG COMP has been actively involved in the ICN and its various working groups as a means to try to shape the global competition policy developments.

Competition policy in the EU has four main components. First concerns the prohibition of cartels, or secret agreements ‘between competitors who in coordination fix or increase their prices, restrict supply by limiting their sales or their production capacities, and/or divide up their markets or consumers’ (Commission 2004, 2). Article 101 of the Treaty on the Functioning of the European Union (TFEU) prohibits such agreements with some limited exceptions. Article 102 of the TFEU is aimed at preventing abuses of dominant positions by firms in a particular market, such as predatory pricing to drive out competitors. Footnote 4 While the competition provisions of the Treaty of Rome did not include merger control, the Merger Regulation adopted in 1989 and replaced by the Merger Regulation of 2004 allows the European Commission to review proposed mergers to determine their potential to impede competition in the single market. Finally, state aid policy, based on Articles 107–109 of the TFEU, Footnote 5 regulates and monitors national subsidies to ensure that they do not distort competition by giving an unfair advantage to their recipients.

Objectives of competition laws differ across countries and over time based on the particular economic, social and political objectives of a country (Rodger Citation 2000 , 304). A variety of objectives are often associated with competition policies, such as promoting consumer welfare, efficiency, innovation, defense of smaller firms, and total welfare (referring to the sum of consumer and producer welfare) in the economy (Budzinski Citation 2008 ; Hoekman and Mavroidis Citation 2002 ; Motta Citation 2004 , 17–30; Vanberg Citation 2009 , 16). Among the early adopters, for example, US antitrust policy has a strong efficiency and consumer welfare orientation, while the Canadian competition policy has an explicit total welfare approach (Weinrauch Citation 2004 , 27–8). Developing countries have also used competition policies to serve a variety of ends. South African and Indonesian competition laws include provisions to help bring discriminated-against or left-out majorities into the economic mainstream (Fox Citation 2000 , 580), and both developed and developing countries also frequently make room for industrial policy concerns in their competition policies. It is no surprise therefore that the European Community’s competition policy has reflected particularly European challenges and economic ideas.

The central objective of competition policy in the European Economic Community until the 1990s was market integration. As discussed above, the founding treaties included competition provisions due to the belief that within a common market, competition policy was ‘even more necessary than in national markets’ (von der Groeben Citation 1987 , 60). A major role for competition policy in the context of the EEC was to ‘break down privately constructed barriers to trade between the EU member states’ (Cini and McGowan Citation 2009 , 5). According to Gerber ( Citation 1998 , 347) ‘this “unification imperative” has shaped institutional structures and competences within the system, supplied much of its legitimacy, and generated the conceptual framework for the development and application of its substantive norms’. Thus, for most of the history of the European Community, market unification was the priority of the Commission and the Court of Justice when interpreting and enforcing competition provisions of the Treaty.

The market unification imperative also explains the emergence of a uniquely European aspect of competition policy, state aid control (Fox Citation 2002 ). Bringing down tariff and non-tariff barriers to trade, and tackling private barriers that could replace them would not ensure a competitive single market if the member states of the European Community were able to continue subsidizing industries without limits. The founders of the European Community acknowledged that state aids could give companies an unfair advantage and undermine the functioning of the common market, and sought to limit and regulate their use.

With the completion of the single market in the early 1990s, EU competition policy has become more concerned with ‘“normal” or generic goals of competition law — that is, the prevention of harm to competition — rather than with market integration’ (Gerber Citation 1998 , 384). This involved some revision and reorientation in the Union’s competition policy priorities, and went hand in hand with a ‘public’ turn, in the sense that DG COMP started to more forcefully tackle anticompetitive behavior of member state governments in the form of state aids and public monopolies (Gerber Citation 1998 , 382; Smith Citation 1996 , Citation 1998 ).

DG COMP’s search for a new mission in the 1990s and its efforts at reform and modernization led to a ‘paradigmatic transformation’ in the European competition regime, and transformed it into a supply side economic policy that favors ‘free competition, minimal government regulation, short term economic efficiency, consumer welfare, and a faith in market outcomes’ (Wilks Citation 2009 , 271–2). This increased emphasis on efficiency and total welfare, which Wigger ( Citation 2007 ) describes as microeconomization, has not been limited to DG COMP, but has also been fostered and reinforced through the common competition culture shared by an international and European community of competition officials, experts, and academics (Kassim and Wright Citation 2009 , 750–1; Pera Citation 2008 ; Wilks Citation 2009 , 275). This approach has also redefined competition policy as the basis for national and European competitiveness in the global economy (Wilks Citation 2009 , 272). The normative basis for EU competition policy has come increasingly under pressure since the financial and economic crisis hit Europe in 2008 (Wilks Citation 2009 ), and it remains to be seen whether the impact of the crisis will usher in a new competition policy paradigm.

We focus, in particular, on three developments in the international economy in the twenty-first century that have played a crucial role in the recent evolution of EU competition regime.

Economic Interdependence

First, economic interdependence, defined here as ‘reciprocal effects among countries or among actors in different countries’ (Keohane and Nye Citation 1989 , 8) resulting from increased international economic transactions, has intensified and reached unprecedented degrees. Heightened economic interdependence has exposed EU member states’ economies to competition from countries with lower corporate taxes and labor costs and greater use of subsidies and tax breaks. Central and Eastern European countries’ transition to market economies and their accession to the EU have created alternative locations for investment on the European continent. The member states have also faced intense competitive pressures from emerging economies, particularly from the BRIC (Brazil, Russia, India and China) countries, which are marked by strong state interference in the form of subsidies, tax breaks and privileged bank loans (Commission 2010a, 6–7; Li Citation 2006 ; Oman Citation 2000 ; Thomas Citation 2011 ).

With increased competition globally and within the EU, firms facing pressures on their profits aggressively vie for state aid and discriminatory tax provisions. This has raised concerns about tax competition in the EU, not least because of the potential consequences it could have on nations’ ability to fund their welfare states. While curtailing such competition within the Union by enforcing the state aid provisions of the Treaty, DG COMP is now also increasingly expected to take into account global competition for investment (Blauberger and Krämer Citation 2010 ).

Intensifying economic interdependence has also given companies greater opportunities and reasons to engage in anticompetitive activities across borders. This has meant that national competition authorities and the DG COMP can no longer rely on enforcement of competition laws within their jurisdictions alone in order to ensure competitive markets. For instance, cross-border mergers — the annual value of which peaked at $1000 billion in 2007 — even when both companies are located outside of the EU may have as much impact on competition in the EU market as in their home market. Similarly, international cartels have become widespread. In the early 2000s, 35 international cartels were discovered each year, with a typical cartel causing more than $2 billion in economic harm (Connor and Helmers 2007, 1, 21). The increase in cross-border anticompetitive practices such as cross-border mergers and international cartels has necessitated greater international involvement on the part of the DG COMP.

The Diffusion of Competition Laws

As part of a wider trend of the diffusion of ‘regulatory capitalism’ (Levi-Faur Citation 2005 ), competition laws have spread to all parts of the world in the last 30 years. While there were 22 national competition laws in 1985, there were a total of 116 national competition laws by 2011. A typical merger between large companies now ordinarily requires approval not just in the companies’ countries of origin, but also in the United States, the EU, Canada, Brazil, South Africa, Russia, Korea and many other jurisdictions that have merger review procedures in place (Geradin Citation 2009 , 191). Similarly, international cartel cases have involved competition authorities of multiple jurisdictions, even requiring simultaneous raids on company headquarters. The number of bilateral agreements on competition, and regional trade agreements with competition policy provisions has also multiplied. There is no doubt that the diffusion of competition policy across the world generates many benefits, however, ‘the adoption of national rules often varying in scope, objectives, methods, and the manner in which they are enforced’, also create significant challenges for transnational corporations, as well as competition authorities around the world including DG COMP (Geradin Citation 2009 , 193).

In response to the proliferation of national competition regimes, DG COMP increasingly finds that it needs to work with competition authorities in third countries to cooperate and coordinate enforcement efforts in individual cases, to share information, and in the long run, to seek the harmonization of rules. It also has more opportunities to do so, given the emergence of a global network of competition policy officials, lawyers and academics that meet regularly in the conferences and meetings of the various international and transnational organizations that work on competition policy.

The Financial and Economic Crisis

The recent financial and economic crisis has led governments and companies in the EU and around the world to resort to protectionist measures, keeping officials of DG COMP busy. The crisis resulted in a severe economic downturn in the EU, with economic activity contracting, and GDP falling approximately by 1.4 per cent in 2008, further by almost 4 per cent in 2009 (Commission 2010b, 5). During economic downturns, private firms engage in anticompetitive activities such as crisis cartels to maintain their profit margins, and expect more forgiving treatment from competition agencies and governments in the enforcement of competition laws. Governments may also resort to subsidies to aid firms in difficulty and prevent unemployment. Both sorts of anticompetitive behavior breach the competition provisions of the TFEU as well as threaten the enforcement record that DG COMP has painstakingly built over the years (Blauberger Citation 2009 ; Cini Citation 2001 ; Smith Citation 1996 , 8).

In fact, since the crisis began, the member states have granted significant amounts of crisis aid particularly for banks, totaling €279 billion in 2008 and €354 billion in 2009, amounting to 2.7 and 3 per cent of the EU’s GDP respectively (Commission 2009, 7; Commission 2010b, 9). As a result, overall aid levels in the EU rose to 3.6 per cent of the EU’s GDP in 2009, up from 0.5 per cent in 2007 (Commission 2010b, 9). Member state governments communicated to the Commission early on in the crisis their expectation that it would apply the state aid rules of the Treaty ‘in a way that meets the need for speedy and flexible action’ (European Council Citation 2008 , 2).

Similarly, there has been a call for the less stringent enforcement of the Treaty provisions in the case of crisis cartels and defensive mergers (Wilks Citation 2009 , 272–3). Overall, the economic and legal consensus, or the ‘common competition culture’ that emerged and has formed the basis of European competition regime might be under attack (Wilks Citation 2009 , 271). DG COMP has thus had to rise to the challenge of balancing the shorter-term interests of firms and governments in the EU with the longer-term effectiveness and coherence of the EU competition regime and its normative foundations.

In response to the challenges identified above, DG COMP has introduced innovative rules to deal with specific problems of state aid and tax competition, streamlined its own work and expanded cooperation with other competition authorities, and reacted quickly to prevent the financial crisis from undermining the normative underpinnings of EU by steering national responses to the crisis.

The state aid papers presented here show a generally positive evaluation of the functioning of DG Competition’s ability to control subsidies, with some caveats. Thomas Doleys examines aid to the financial sector in the wake of the crisis after the collapse of Lehman Brothers in September 2008. As private credit dried up, member states employed a series of crisis measures, totaling billions of euros, to prop up their national banking sectors. Doleys argues that while the Commission was accommodating initially, it gradually was able to maintain transparency and channel aid into its preferred forms. If we examine aid excluding crisis measures, we see that the Commission maintained total state aid to industry and services at a level very close to the pre-crisis amount of 0.5 per cent of gross domestic product (Commission 2009, 2010b). This supports the contention that state aid generally remained under control, despite the economic crisis.

Kenneth Thomas’ paper focuses on state aid to mobile inward investment, a motivation present from the origins of regional aid policy in the 1970s but made most explicit with the adoption of the Multisectoral Framework (MSF) in December 1997. Examining state aid through the lens of locational tournaments, bidding wars for specific investment projects, he compares the outcomes in the European Union with those of the United States. There was a sharp dropoff in the aid intensity awarded to projects under the MSF 2002 compared to the MSF 1998, due to the introduction of what Fiona Wishlade ( Citation 2008 ) calls a ‘reduction matrix’ that lowered the maximum allowable aid for projects over €50 million. This reduction was maintained with the incorporation of the MSF rules into the Regional Aid Guidelines effective in 2007. At the same time, Thomas’ paper shows that similar projects (often by the same company) received consistently higher levels of support in the United States than in the European Union, even as the regional aid rules restricted the highest subsidies to the least prosperous parts of the EU, areas with lower income per capita than US states attracting comparable projects. Moreover, the sheer number of investments receiving incentives of over $100 million/€74 million has been far higher in the United States than in the European Union over the last two years. Thus, in Thomas’ view, this is one area in which state aid control has been highly successful.

Fiona Wishlade sounds a note of caution, based on the fact that not all methods of competing for investment are subject to the state aid rules (compare Thomas Citation 2000 , 253). In particular, member states can set the level of the corporate income tax to attract inward investors, and under the treaty there is no way to sanction this because treaty changes on direct taxation require unanimity, not a qualified majority vote. Wishlade’s paper shows that this has worked to the detriment of some of the outermost regions (OMRs). By virtue of their distance and small size (precluding economies of scale), these regions have permanent cost disadvantages, which previous Commission decisions said could, in principle, be compensated with permanent operating aid. However, in practice the Commission has been hesitant to allow permanent operating aid in the OMRs, giving rise to inequities between member states which can set a low tax rate for the entire country and non-autonomous regions which cannot have a different tax rate than the national one under the Azores decision of the ECJ. Thus, Ireland can have a 12.5 per cent corporate income tax that is not considered a state aid, whereas Madeira cannot have a 5 per cent income tax because its fiscal dependence on Portugal makes this tax reduction specific and hence a state aid.

On the antitrust front, the contributions of Lee McGowan and Eleanor Morgan, and Angela Wigger explore the evolution of cartel policy and merger control respectively. McGowan and Morgan investigate whether the Commission has adopted a softer approach towards cartels since the beginning of the financial and economic crisis in 2008. Firms are more likely to resort to crisis cartels to maintain their profit margins in times of economic crisis, as was the case during the Great Depression. Governments also tend to adopt a more tolerant attitude towards cartels during economic downturns. McGowan and Morgan explore in a comparative study of the European Commission and the Bundeskartellamt (German Cartel Office) whether there has been any softening of cartel policy as a response to the crisis. Since the 1990s, the Commission’s approach to cartels has become more rigorous over time, as can be observed by an increasing number of cartel decisions and rising levels of fines imposed on cartels found to be in breach of Treaty rules. The modernization reforms of 2003–2004 have also helped streamline cartel policy in the EU. McGowan and Morgan find no slowdown of the Commission’s cartel enforcement during the crisis. While there are more applications for reductions on fines due to firms’ ‘inability to pay’, the Commission has not granted many reductions during the crisis. Overall, the evidence shows that neither the Commission nor the Bundeskartellamt have softened their policy on cartels during the crisis.

Wigger’s contribution to this collection analyzes the relationship between the EU’s merger control and the recent financial and economic crisis from a critical political economy perspective. She identifies a gradual change in the nature of economic activity in general and merger activity in particular with the rise of neoliberalism in the 1980s. One of the manifestations of the changing nature of economic activity is that mergers have become much more common, including in the financial sector, have increasingly been hostile takeovers rather than based on mutual consent, and have involved very large firms. Wigger argues that these developments have had the effect of increasing economic concentration, strengthening the position of financial capital vis-à-vis productive capital, and aiding the emergence of a market for corporate control, and in turn contributing to the financial crisis of 2008. According to Wigger, the Commission’s permissive stance towards mergers, buoyed with the 2004 merger regulation that replaced the 1989 regulation, facilitated these trends, rather than counter them. Wigger’s account of EU merger control thus suggests that in some areas, rather than protecting the member states and their citizens against the excesses of markets, the EU may have facilitated the free play of market forces and destructive trends in globalization.

Chad Damro and Terrence Guay as well as Umut Aydin focus on the external dimensions of EU’s competition policy in their contributions. Both papers note the growing need for the EU to respond to an increasingly internationalized market, where competition policy no longer is only about domestic regulation of business activity. Both also identify the reasons why competition authorities worldwide seek to cooperate with one another: to increase information acquisition as international anti-competitive activity becomes ever more complex, to avoid contradictory decisions that could introduce tensions in the world trading system, and to reduce costs and increase efficiency for the agencies. While Damro and Guay focus on the EU’s cooperation with the United States on merger policy in the last two decades, Aydin more broadly evaluates the EU’s choice of strategies in internationalizing competition policy.

Damro and Guay explore cooperation between the EU and the US in merger policy, especially in the wake of substantial conflict between DG COMP and the Department of Justice over the 1997 Boeing–McDonnell Douglas merger. In particular, they argue that cooperation between the agencies is driven by the need for information exchange and the desire to avoid divergent decisions, and has been undertaken through negotiated agreements and ad hoc working groups, along with increasing cooperation on practical stages of the merger review process. Cooperation has increased certainty for companies and minimized political intervention and tensions between the authorities; however, convergence in merger rules and review procedures between the EU and the US has remained partial. Work by the EU/US Mergers Working Group may narrow some of the differences between the two competition authorities over time.

Aydin investigates the motivations that drive the Commission’s efforts to internationalize EU’s competition policy and the effectiveness of its strategies in doing so. She identifies three functional goals that the Commission’s DG Competition pursues on the international front of competition policy: preventing anti-competitive practices from outside the EU to harm competition within, ensuring market access in third countries for EU firms, and ensuring fair antitrust treatment of EU firms in third countries. DG Competition has tried various strategies to achieve these objectives: extraterritoriality, bilateral agreements, the transfer of its competition policy model to other countries, binding multilateralism at the World Trade Organization, and non-binding multilateralism in venues such as the OECD and the International Competition Network. Aydin’s evaluation shows that DG Competition has been most successful in furthering the EU’s competition policy goals through its strategy of policy transfer to third countries, particularly its membership applicants. With the slowdown in enlargement, however, this strategy may have reached its natural limits, and thus may need to be combined with cooperation in non-binding multilateral forums such as the ICN.

The contributors to this volume collectively demonstrate that the EU’s competition policy has proven itself in responding to a series of challenges in the world economy in the last few decades, with some caveats. The Commission’s efforts have been effective in averting spiraling subsidy races among the EU’s regions, and have brought order into the member states’ efforts to help financial institutions and industries with state aid during the recent financial and economic crisis. The Commission has also managed to maintain and even improve its firm stance on hard-core cartels during the crisis. On the international front of competition policy, despite some high-profile cases to the contrary, the Commission has maintained significant cooperation with the US on individual merger cases, and has achieved some limited policy convergence. It has also been at the forefront of global developments on competition policy, through bilateral cooperation agreements, the transfer of its competition provisions to third countries, and cooperation in non-binding multilateral forums. The EU’s competition policy regime seems to have responded to challenges ranging from economic interdependence and the proliferation of new competition regimes to the effects of the recent financial and economic crisis.

The contributors also draw attention to areas where the Commission has been less successful in confronting these challenges. For instance, the Commission has not succeeded in making state aid policy more coherent with the regional policies objectives of the Community. This has led to an ironic outcome whereby member states are frequently able to reduce corporate taxes in richer regions of the Community to attract companies, while not being able to do so in the poorer outermost regions. It has also created a perverse outcome in that the aids that are approved by the Commission in the poorer OMRs are not appropriately designed to spur development there. The Commission has also been open to criticism with regard to the influence of large transnational businesses and of financial capital on its policy direction. The influence of these actors on the EU’s merger control regime has meant that the Commission has maintained a lenient stance on mergers, and thus contributed to economic concentration and the strengthening of financial capital vis-à-vis industrial capital, and in turn to the depth of the current economic crisis.

In taking stock of the recent developments in the EU’s competition policy, the collection does not claim to address all relevant issues and challenges confronting the regime. Many important questions lie ahead. For instance, this collection has touched on only a few areas of the modernization reforms in EU competition policy. Future research could focus more directly on the consequences of the modernization reforms of the last decade. Additionally and most crucially, we have not speculated at length on the future of the EU’s competition regime. It is too early to tell whether there will be a broader paradigm shift in EU competition policy as a result of the recent financial and economic crisis. The debate started even before the crisis, when in June 2007 French President Sarkozy criticized competition as an ideology or a dogma, and asked what it had done for Europe (Euractiv Citation 2007 ). He therefore triggered a debate that resulted in the removal of competition as one of the objectives of the Union as stated in the TFEU, and that implied a downgrading of competition as one of the formal purposes of the Union (Wilks Citation 2009 , 274). With the crisis, many more have begun to question the economic ideas underlying EU’s current competition policy. While contributors to this volume show that individual aspects of the EU’s competition policy have weathered the storm of the crisis, the jury is out on whether there will be a broader paradigm shift in the near future.

We would like to thank Lee McGowan and an anonymous reviewer for their valuable comments.

1. Competition policy in the EU refers to what is commonly called antitrust in the United States; however, it is a broader term as it also includes state aid policy.

2. The publication of this current volume, which brings together scholars from different disciplines and from both sides of the Atlantic, is a testament to the flourishing interdisciplinary network of scholars working on EU competition policy.

3. See Wilks (2005) for an argument that suggests that rather than decentralizing, the impact of the reform was to increase the centralized power of the Commission.

4. Articles 101 and 102 of TFEU correspond to Articles 85 and 86 of the Treaty of Rome. While the content of the provisions have not changed the numbering has changed with the Treaty of Amsterdam and the TfEU.

5. These correspond to Articles 87–89 of the Treaty of Rome.

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32 Competition Policy

Stephen Wilks is Professor of Politics at the University of Exeter. He is a Member of the UK Competition Commission. None of the views expressed in his chapter should be attributed to the Competition Commission.

• Published: 02 May 2010
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Competition policy is a complex policy field which requires knowledge of competition law and economics as well as familiarity with the framework of policy and the agencies of enforcement. There is a large amount of literature dealing with the law and economics but surprisingly little work which provides an overall assessment of policy. Unfortunately, discussion of competition policy is therefore segregated into rather insular sub-specialisms. This article presents an outline of the main elements of policy but also seeks to cover new ground by presenting a distinctively “political economy” analysis of competition policy. It argues that competition policy is simultaneously a growing area of legal regulation, a core component of economic policy, and a mode of balancing public and private power in contemporary liberal democracy.

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Resume: The thesis “Innovation and competition law” was defended by Marie Cartapanis, in 2017, and published by LGDJ. Marie obtained the Institut Universitaire Varenne Prize in Economic Law and the First Prize of Law and Political Science Faculty of Aix-Marseille University. The study offers a substantive analysis of the relationship between competition law and innovation. On the one hand, innovation is a unique process for competition law. The classical view that competition is a contest involving market shares and prices has been turned on its head. In innovative sectors, competition also concerns the new technologies used, the characteristics of new products and therefore innovation, its fruits and the processes that ensue. Yet competition law lacks the tools to understand these phenomena. Assessing the market power of a firm or characterising a restriction to competition then become challenging exercises. The insufficient treatment of innovation in competition law may even lead to it being considered a factor restricting competition, whereas it is a new form of dynamic competition in innovative markets. Competition laws may therefore constitute a barrier to innovation. On the other hand, however, innovation, while unique, is no less fundamental and European competition law must evolve accordingly by adopting a proactive and dynamic approach. First, a proactive approach is required to establish the objective of promoting innovation in addition to the role of “market watchdog”. This poses a challenge to the contradiction between competition law and industrial policy. Second, a dynamic approach can be adopted by re-examining its implementing criteria, for example that of consumer welfare, in favour of the scope of consumer choice or even total welfare. A better balance should also be ensured between incentives for innovation and the flow of innovation.  Hence the two key points of this study: the singularity of innovation in the eyes of competition law, and the possibility of conceiving competition law as a tool to promote innovation .

Thesis for the Doctorate in Private Law, Center for Economic Law, Aix-Marseille University (France). Under the direction of Professor David BOSCO (full Professor at Aix-Marseille University). Defended on December 8, 2017, before a jury composed of full Professors Valérie-Laure BENABOU (Professor at Aix-Marseille University), Nicolas BINCTIN (full Professor at the University of Poitiers), Emmanuelle CLAUDEL (full Professor at the University of Paris II – Panthéon-Assas) and Catherine PRIETO (full Professor at the University Paris I – Panthéon-Sorbonne). Thesis deemed « Very Honorable with the congratulations of the jury » and proposed for a thesis prize and publication.

The thesis obtained :

• Institut Universitaire Varenne Prize in Economic Law, 2018.
• First Prize of Law and Political Science Faculty of Aix-Marseille University, all fields, 2017-2018.

The thesis edited :

Innovation et droit de la concurrence , Préface de D. BOSCO, Institut Universitaire Varenne, Collection des thèses, Paris, LGDJ, 2018, 510 pages

To quote this paper:   Marie CARTAPANIS, “PhD thesis summary: Innovation and competition law”, Competition Forum – Resources, 2021, n° 0003, https://competition-forum.com . 

INTRODUCTION

The paradox of innovation . Petronius recounted the story of a craftsman who one day was granted an audience with the Roman Emperor Tiberius. The man dropped onto the paving below his feet a vase made of a material unknown to the emperor. The object did not shatter but lost its shape slightly. The craftsman picked up the vase and, with the use of a hammer, knocked it back into shape. The emperor then asked him:“Is there another man who knows your material? Think about it.” “Nobody!” replied the craftsman, proudly. [1] The emperor then had him decapitated, as “Once this thing becomes known, gold and sand will have the same price for us”. [2] Two lessons can be drawn from this legend.

On the one hand, humankind is averse to innovation. Tiberius seemed to fear losing what he had gained. If a new material could be substituted for gold, and if it spread throughout the city, then gold would lose all its value. Moreover, this new material would make traditional vases more resilient. This aversion to innovationexpressed by Tiberius can still be observed today. The role of innovation is a source of concern, for example, where its effects relate to the environment or bioethical issues.

On the other hand, however, our society is characterised by an imperative to innovate. In the economic sphere, this innovation society is reinforced by globalisation, which makes it necessary for humankind to “always do better”. [3] This innovation imperative has spread to almost all fields of activity, and the share of innovation-related activities within firms continues to rise. [4]

Competition law is not immune to this contradictory relationship with innovation. The intersection between innovation and competition law has spawned widespread debate. There are three main elements to the discussion. First, innovation is seen both as a determinant and the result of a competitive market. Second, innovation is a source of disruption for competition law. Third, the European Union has made innovation one of its key objectives.

Purpose of the study . This article, and the thesis from which it derives, aims to address the legal tools of competition law – understood as European law on cartels, abuses of dominant position, market concentration and state aid – in the light of this objective of the authorities, with a view to offering a legal, reasoned and nuanced examination of this subject.

The definition of innovation . Innovation is a systemic phenomenon that takes place within an economic environment in which the law has a full role to play. However, it does not yet have a generally accepted legal definition. We therefore adopt the OECD’s definition, as laid out in the Oslo Manual: “An innovation is the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organisational method in business practices, workplace organisation or external relations”. This suggests that there are two key elements that characterise an innovation: a market outcome and a market process.

A market outcome . First, innovation materialises to varying degrees in a product, a process, or a marketing or organisational method. In this sense, innovation is a market outcome. It is polymorphous, determined by the purpose of the result of the innovation. The distinction between product, process, marketing and organisational innovations is based on the purpose of the result of the innovation. A product innovation consists in “the introduction of a good or service that is new or significantly improved with respect to its characteristics or intended uses”. [5] Smartphones and tablets, for example, are product innovations. Process innovations, meanwhile, are “the implementation of a new or significantly improved production or delivery method”. Intermediation platforms, which involve the use of a new method to provide a pre-existing service, constitute a process innovation. Marketing innovations introduce a new feature relating to product pricing. [6] Zero- or low-cost pricing is one example of a marketing innovation. Organisational innovations, finally, result from “the implementation of a new organisational method in the firm’s business practices, workplace organisation or external relations.” This type of innovation mainly concerns staff and workplace organisation. Examples include open-plan office spaces and teleworking.

The distinction between radical innovations and incremental innovations is defined bythe intensity of the novelty they provide. While the improvement must be at least significant, the degree of its significance may vary. An innovation is radical when it concerns the emergence of a product or process that did not previously exist and has a significant impact on the market. It is completely novel. This is the case, for example, of the internet (process) or the computer (product). Incremental innovation, meanwhile, consists in an improvement to something pre-existing. It is partially novel. This is the case, for example, of successive improvements to a software program that is already on the market.

A market process . Second, innovation results from the implementation of multiple actions by various actors before it is introduced to the market. In this sense, innovation is a market process. Seen in this light, innovation is an ephemeral, elusive object for a jurist. Digitalisation and the development of networks have considerably amplified these difficulties. Innovation now results from multiple actions and reactions between different stages of production and between different actors. However, the question of what determines this process remains to be answered. Considered initially as a force exogenous to the market, for Joseph Schumpeter innovation was the fruit of the “heroic entrepreneur”. Evolutionary theory then gave rise to the concept of a “national innovation system”. Economists have subsequently looked at the flow, assimilation and combination of knowledge as the building blocks of innovation. Innovation is therefore analysed as a systemic phenomenon that takes place within an economic environment in which the law has a full role to play. In this respect, the law serves several functions: it enables innovation, protects innovation, controls innovation and promotes – or promises – innovation.

The promotion of innovation and European competition law . The study is concerned with the question of the latter function – the promotion of innovation. Such an approach is possible because competition law positions itself for a project. Since the Treaty of Rome, competition rules have been seen as a means to serve the purposes of the European Community. Competition law fits within a broader policy of market integration, with a view to creating a single European market. This instrumental role of competition law is modern. Hence European law can be viewed as constructivist: its purpose is not only to sanction restrictions to competition but also to improve the functioning of markets. It must therefore be viewed as an active tool in the pursuit of political and economic objectives.

To this end, the methodology is to pursue a “substantive analysis” of economic law, defined by Gerard Farjat as an analysis, description or critique of institutions, legal concepts or facts based on the assumptions made by the law. [7] In practical terms, the objective is to “compare the formal legal categories alongside the facts to test their compatibility and coherence”. [8] This substantive analysis encourages the jurist to re-examine the law and confront it with innovation, incorporating both economic and legal concepts on their own terms and merits.

An in-depth study of the relationship between competition law and the promotion of innovation poses numerous challenges. A first challenge is the singularity of innovation for competition law. Because it is a dynamic process, the result of which is unpredictable, innovation can break the preconceptions of competition law. Innovation is therefore a singularity for competition law (part one). But while it is unique, innovation is no less fundamental for European competition law. However, it will belong within the paradigm of competition only if competition law itself innovates and evolves by adopting a proactive and dynamic approach to promote it (part two).

I. THE SINGULARITY OF INNOVATION FOR COMPETITION LAW 

Title 1. THE SINGULARITY OF INNOVATION IN THE ASSESSMENT OF MARKET POWER

The characterisation of the relevant market is first step in any analysis of competition . It is in reference to this relevant market that a firm’s market shares will be attributed and calculated, determining the extent of its market power. Yet innovation is alien to the notion of market, which presupposes the existence of a product and an intersection between supply and demand for this product.

The notion of substitutability thus fails to provide a satisfactory lens through which to consider and understand innovation. Its definition fails to capture the specificities associated with new products and the diversity of situations. Static analysis, which is based on a point-in-time snapshot of the market, offers no place for innovation, which is a process and not a stationary state. This shortcoming is all the more significant as the methods for assessing this substitutability are subject to caution. While a use-based analysis may seem the most appropriate, it avoids a number of issues that are related more to the functioning of the market than the characteristics of the products or services sold in it.

The particularities of multi-sided markets . These limitations are particularly acute when the definition of the relevant market involves multi-sided markets. Their characteristics wreak havoc with the use of a relevant market, as they require a redefinition of its delineation. Broadly speaking, applying the SSNIP test (“small but significant and non-transitory increase in price”)to multi-sided markets would lead to major errors by overestimating or underestimating the size of the market. [9] Developments proposed in the study make it possible to draw an outline of the general principles that should be applied to the platform economy: for example, the analysis should examine how feedback effects play out between demand on one side of the market that affects competition on the other side. Overlooking these effects would constitute a fundamental mistake.

The myth of the innovation market . But beyond the specific case of the platform economy, part of the North American doctrine suggests reference to an “innovation market”. But because innovation is a non-linear and evolving process, it would be illusory to want to delineate a market for it. In our opinion, this is an overly artificial notion based on an excessively hypothetical analysis. Moreover, the European Commission has not validated the American approach. It has adopted a cautious approach, carefully avoiding the use of the term “innovation market”. Given the importance of the relevant market in positive law, such an assessment is justified but will not be sufficient. Indeed, the impossibility of grasping the characteristics of innovation at the relevant market definition stage may seriously limit the ability of competition law to address concerns related to innovation.

Typology of innovative markets . It therefore makes sense to opt for a typology of “innovative” markets, which, to varying degrees, share common characteristics. This proposed typology, which draws on positive law, depends not only on the nature of the product in question, but also on the nature of the activity of the firm in question. The law must then delineate several relevant markets. The first is the market for existing products. The second is the market for technologies. The third is the market for research and development, which will make it possible to identify – where the data allows – the market for future innovative products.

First, this will make it possible to assess a firm’s market power by taking into account not only the products and services that it sells, but also its imminent entry to a market. Ultimately, potential competition from other innovative firms will be better integrated into the analysis. Second, market power will be measured with an eye to the technologies being developed. This analysis could be performed in the pharmaceutical sector, for example. Given the time required for research and regulation, it would be possible to identify upstream the drugs that will be marketed in the near future.

The difficulty in assessing market power . Assessing market power poses new challenges. The first challenge lies in the lack of consensus in the economic literature regarding the actual harm produced by market power. The two historical theories, represented on either side by Schumpeter and Kenneth Arrow, contradict each other in many respects. The broad-brush economic conclusions are as follows: for Schumpeter, the links between market power and innovation are positive, due to access to finance and the presence of a creative destruction process. Here, market power is seen as a reward that stimulates innovation and should be subject to relatively lax oversight by the authorities. For Arrow, meanwhile, replacement effect theory suggests that competition “disciplines” firms in the innovation process by exerting a competitive pressure that incentivises innovation. But these two theories can lead an overly rigid application of competition law, either too lax or too harsh. The same criticism does not apply to new industrial economics, which adopts a very measured approach to the bonds between competition and innovation through the inverted-U hypothesis.

But it is not exempt from criticism. Instead, the ideological opposition of economists has been superseded by an extreme complexity for the jurists tasked with applying competition law. To be sure, this merely reflects the complex reality to which the jurist must be able to adapt. But the assessment of market power in innovative markets must not be made impossible.

And here there are many questions, because the cross-cutting criteria that enable market power to be measured – market shares and turnover thresholds – are beset by several limitations where innovation is concerned.

The insufficient criterion of market shares and market contestability . First, market shares can be highly volatile, so any fixed analysis can quickly become obsolete. Second, the market power enjoyed by a firm can become non-contestable in innovative markets. In light of this, we suggest distinguishing two types of market power: super-dominance and hyper-dominance.

Under a first scenario, a firm enjoys high market power in a market. It is then in a situation of super -dominance. Here, the addition of the prefix super refers to a quantitative superiority.For example, Microsoft, which holds a 90% share of the market for operating systems, is in a situation of super -dominance. Regarding the Post Denmark ruling in the context of incumbent monopolies, it was this variable degree of a firm’s market power to which the judge referred. [10] The Court considered that the correlation between the degree of dominance and the classification of abuse should be “taken into account”. [11]

Under a second scenario, a firm’s dominant position is not in one market alone but results from its integration – vertical or horizontal – which classifies the firm as “hegemonic”. Here one can speak of hyper- dominance, the prefix hyper describing a superiority that is both quantitative and across several markets or industries. For example, Google, which is super -dominant in the online search market, also enjoys market power in online advertising and is expanding its economic influence to other sectors such as operating systems, web applications and robotics. In this case, it is also hyper -dominant. This specific scenario concerns in particular markets dominated by the GAFAM tech giants (Google, Amazon, Facebook, Apple, Microsoft).This proposal would allow analyses to factor in the contestability or non-contestability of a dominant position. In doing so, it refers to the general theoretical framework of contestable markets.

The study proposes awarding a greater role to “contestable market theory”, which introduces whether a market can be entered and exited into the assessment of market power. Market shares are then no longer the sole parameter of market power. The difficulties faced by current or potential competitors in penetrating the market must be added to the discussion. Such difficulties can be a sign of market power. Conversely, market power may be less problematic, despite a high market share, in the case of low entry costs for a potential competitor. The assessment of market contestability must therefore take into account firms that are not yet present in the market in question, but which could enter this market in the medium term.

The insufficient criterion of turnover thresholds and transaction values . Turnover thresholds prove to be problematic when it comes the control of mergers. A merger is subject to approval in particular when the individual firms in question exceed a certain turnover threshold. This turnover threshold places the acquisition of small innovative firms by firms with substantial market power outside the scope of competition law. However, such an acquisition may de facto exclude a potential competitor or prevent the deployment of innovations in the market. For example, Facebook’s acquisition of WhatsApp did not breach the thresholds in force, although at €17.5 billion, the value of the transaction did attract attention. This study therefore proposes supplementing the analysis of turnover thresholds with thresholds based on transaction value. This possibility, already permitted under North American law and German law, would make it possible to control mergers that could result in the exclusion of an innovative competitor.

Title 2. THE SINGULARITY OF INNOVATION IN THE ASSESSMENT OF RESTRICTION TO COMPETITION

The distinction between standards and rules . Beyond the conditions determining market power, in order to be sanctioned it must give rise to anticompetitive effects. On this point, the singularity of innovation is once again evident. To understand restriction in the context of competition law, it has been proposed to go beyond the strict delineation according to types of practice. The distinction between standards and rules is based more on the content of the rule and its normative specification. It makes it possible to address competition law with a relative unity. It is mainly according to their formulation that these standards are distinguished, and not according to the practice they target. First, there are broad standards of application, or what is referred to as the standard-based approach . This subjective formulation of rules of conduct coexists with a more precise set of standards that form the economic approach to competition law (or rule-based approach ). For example, the concept of competition on the merits constitutes a standard. The as-efficient competitor test, meanwhile, is a rule. In some cases, the standard also serves to support the formulation of a rule which may be deployed in an economic test.

The choice between rule and standard can have consequences for the understanding of innovation. Standards, which are soft and malleable, also have a broad and subjective substance that can lead to uncertainty.Faced with these difficulties, these standards of application have gradually creeped towards a formal approach that is not suitable if the aim is to fully understand the behaviour of operators in innovative markets.

The example of competition on the merits, an ambiguous standard . In addition to the different standards for analysing the relationship between intellectual property rights and competition law, that of competition on the merits is ambiguous. First, the very wording of the notion can refer directly to innovation. Competing on the merits also amounts to competing via innovation and intellectual property rights. The acquisition of an intellectual property right is the deserved reward for an innovative activity. Second, the lack of a precise definition of this legal concept gives it a certain malleability, making it quite capable of receiving the issues related to innovative markets. For example, competition on the merits implies, first, recognition of the legality of powers of exclusion. Article 102 TFEU does not prohibit a firm from acquiring market power on its own merits, and the recognition of the existence of such power does not in itself constitute a reproach of the firm in question. [12] The Commission itself has reiterated this case law by reminding in the guidelines on exclusionary practices that it is not illegal in itself for a firm to occupy a dominant position and that this dominant firm is able to compete on its merits.Competition on the merits therefore corresponds to neither pure and perfect competition nor the protection of competitors, and it allows competition law to fully comprehend the Schumpeterian dimension of innovation: creative destruction.

In some cases, however, this legal notion is more ambiguous than it seems. While it makes it possible to go beyond a structural analysis of competition, its subjectivity may have led the European Commission to sanction practices according to overly formal criteria that do not allow all the specificities of innovative markets to be taken into account. For example, practices that tend to raise barriers in a market can be difficult to identify and are hard to distinguish from competitive behaviour that, while vigorous, does not fall within the scope of anticompetitive practice. Thus, the “object-based” approach of intellectual property rights agreements is, in our view, excessive. It is not certain that this classification is relevant for pay-for-delay agreements. Rather than a case of market sharing, is this not a “negotiated impediment to market entry” by enforcing an intellectual property right that, in essence, excludes competitors? It is not appropriate, however, to assume that they are, in themselves, pro-competition, but it does appear to us to be questionable, or even contradictory with the conclusions of the Commission’s report, to assimilate an intellectual property right agreement to a restriction by object.Regardless of the “apparent” anticompetitive potential of such an agreement, an in-depth analysis is called for.

The economic test approach and the complexity of innovation . On the other hand, however, when the effects-based approach is applied, economic tests prove to have shortcomings. Here, competition law is confronted not with its own rigidity, but with the complexity of the analysis of innovative markets. Thus, anticompetitive conduct may be conditional on the demonstration of a profit-seeking strategy based on the exclusion of competitors.This would amount to sanctioning behaviours that result in a short-term loss of profit for the firm that implements them. A priori , there would therefore be no reason for a firm not to maximise its profits. However, it may be in a firm’s interest to bear losses temporarily with a view to future profits, regardless of the exclusion of a competitor.

This is the case, for example, of investments in research and development for innovations that are likely to eventually be protected by an intellectual property right.

The example of data-driven price discrimination . This is also the case of economic models that are based not on short-term profit but on users’ data. This “zero price” economy may entail a monetary price equal to zero, but it does not entail the absence of a counterparty. The price of the service offered to customers present on one side of the market is in fact charged to customers present on the other side of the market. One such notable example is online advertising. The firm provides a free service to an end-user but generates income in the advertising market that targets that user. Here, the business models of multi-sided markets and so-called “freemium” models have been the subject of in-depth analysis based on a case study.These cases have brought to light new forms of discrimination. For example, regarding price discrimination, the price adjustment variable may be based on users’ data. This is, for example, Google’s business model for online advertising. Google’s algorithm enables it to anticipate in advance the probability that a particular advertisement will generate a click. The aim of Google – whose remuneration is based on the number of clicks – is to make sure that the most relevant advertisements (those with higher click rates) earn a higher placement in search results. Google has set up a specific system for this purpose in the AdWords platform. It allows companies to place an advertisement that links to their own website when a user performs the corresponding search. The price of this place in the search results is determined by the combination of two factors: first, an auction system and, second, the quality score of the firm in question. But the amount that Google charges for ad links is calculated on the basis of an auction, in addition to whichGoogle carries out an adjustment to the placement based on the quality score that results directly from the relevance search algorithm (PageRank). Advertisers with lower quality scores are required to pay a higher price per click to gain higher positions than advertisers with higher quality scores. Because advertisers pay Google only if a user clicks on the advertisement displayed, Google always wins.

The ambiguous effects of price discrimination . Data has therefore become a medium for price discrimination. [13] However, as the French and German competition authorities have reported, the effects of this discrimination can be ambiguous. On the one hand, it can lead some consumers to pay a higher price for a given good or service than they would have paid in the absence of discrimination.Also, some observers consider that any situation in which a group of consumers unknowingly pays a different price for the same product is a clear sign of market failure that calls for intervention. On the other hand, however, other consumers enjoy more attractive prices. Digital data-based price discrimination can therefore improve total welfare– the sum of producer and consumer surpluses – by increasing the number of transactions. For example, the OECD reports that where price discrimination increases profits, it can also create an incentive for firms to engage in activities that will help them retain the ability to make those profits.This may improve dynamic efficiency by encouraging competition in investment in innovation and by reducing costs. This possibility inevitably points to the need to take dynamic competition into account.

In addition to price discrimination, the thesis also examines non-price discrimination, drawing on the case of Google Shopping, which, at the time of writing, had not yet been made public. It was, however, able to highlight the exclusionary effect of the contentious behaviour and offered an analysis of it.

The impossible defence based on innovation . But competition law remains, in some respects, too confined to a static approach to competition. The primary example of this is the impossibility of mounting a legal defence on the basis of dynamic efficiency gains. From a theoretical viewpoint, it is certainly possible to invoke them. But their reception in legal disputes remains marginal. The degree to which they materialise in markets is subject to too much uncertainty, and the standard of proof is still too demanding to take into account gains whose very nature makes their existence probable but never certain. However, there are potential avenues for action. The first is to offer firms the possibility of providing arguments (and not proof), which would make it possible to insert dynamic efficiency gains more effectively within competition law. The second avenue, longer term, would reinforce the Commission’s scientific arsenal in this area thanks to ex post audits.

Conclusion of part one . Competition rules do not allow for the positive effects of certain innovative business models to be taken into account. Also, innovation is an undeniably unique phenomenon for competition law. But the demonstration of such imperfections should not cast doubt on whether competition law should intervene in such innovate markets. For competition law to fully comprehend innovation, it must evolve. And because competition law is teleological, its objectives must also evolve.

II. THE PROMOTION OF INNOVATION THROUGH COMPETITION LAW?

Title 1. THE NECESSARY RECOGNITION OF DYNAMIC COMPETITION

The objective to promote innovation is insufficiently integrated into European law . It was necessary to assess the possibility of lifting innovation to the status of an objective of European competition law and to propose avenues for discussion to enable the law to operate in the context of innovative markets. The reconciliation of competition law and innovation seems possible. Competition law can become a proactive tool by becoming part of innovation policy. But first, it was necessary to clearly distinguish the notions of competition policy, industrial policy and regulation. Here, economic analysis has long viewed competition law as a tool to neutralise public intervention in the economy. And, at the European level, innovation policy, just like other industrial policies, is described as a “free rider”, [14] because it is not a European Union objective in its own right. [15] However, in the context of the Europe 2020 Strategy, the EU has set clear objectives in terms of innovation. It wants “smart, sustainable and inclusive growth”. [16] While innovation has become a priority and long-range objective within the EU, it appears only indirectly in the provisions of the Treaties, and in particular in the context of the competitiveness of industry (Article 173 TFEU).As for the implementation of competition law, the study shows that from the perspective of industrial policy, it is not taken into consideration by the European Commission.

Article 101 TFEU and the strict interpretation of paragraph 3 . Initially,the Commission’s decision-making practice showed that it could incorporate into its decisions exemptions from considerations beyond the strict control of the competitive process. As such, agreements meeting the conditions of Article 101(1) could be exempted on the basis of environmental effects, [17] safeguarding employment, [18] or preserving media pluralism. [19] But after the elimination of the notification procedure, the influence of the Commission’s decision-making practice declined. It is therefore mainly in the guidelines on the assessment of Article 101(3) that elements of industrial policy are found. And here the European Commission adopts a “conservative” interpretation. Indeed, the guidelines state that paragraph 3 applies to all agreements that meet the four conditions set out in paragraph 1. The same guidelines also require a quantification of the economic benefits – proof which seems very difficult to provide when the agreement is justified on industrial policy grounds. It then seems impossible to exempt an anticompetitive agreement on the grounds that it would meet the objectives of an industrial policy. This is especially the case as we know that exceptions are interpreted strictly. [20] Thus, industrial policy, which includes innovation policy, is not in itself sufficient to exempt an agreement.

Article 102 TFEU, or the lack of flexibility regarding large European firms . At first sight, Article 102 TFEU is not a tool for industrial policy either. Some believe that it is the “particular responsibility” imposed on firms in a dominant position, whether they are foreign or European, that may appear to run counter to industrial policies. Dominant firms may be regarded as national or European champions. In this sense, the Commission could display flexibility towards European firms in a dominant position on the basis of efficiency gains. In practice, however, the European Commission does not seem to be more flexible regarding “European” champions. Since 2004, the main operators sanctioned have been the major operators in network industries, which are not far from corresponding to the notion of incumbent operators and therefore the notion of national or European champions.

The control of mergers and the dismissal of industrial policy concerns . The 1989 regulation on mergers contained no reference to industrial policy. However, its preamble did state that the Commission should place its appraisal within the general framework of achieving the fundamental objectives referred to in Article 2 of the Treaty, including the strengthening of the economic and social cohesion of the community, referred to in Article 130A of the Treaty. [21] Mergers are therefore to be welcomed “to the extent that they are in line with the requirements of dynamic competition and capable of increasing the competitiveness of European industry”. But the Court refused to place a normative value on the recitals in the preamble, [22] which confirmed the impossibility of marrying industrial policy with the application of merger control. Furthermore, the Council has refused to include the notion of public interest in the regulations. The 2004 guidelines may have given the impression of progress in this area with the introduction of the “efficiency defence”. But the effects in terms of industrial policy have been scaled down. The only possibility for an anticompetitive merger to be permitted relies on gains that produce pro-competitive effects, provided they are passed on to consumers, even though consumers are seldom targeted directly within the framework of innovation policy objectives. The emphasis is, moreover, very clear on the need for there to be no barrier to competition, since the efficiency gains generated by the merger must be able to increase “the ability and incentive of the merged entity to act pro-competitively for the benefit of consumers, thereby counteracting the adverse effects on competition which the merger might otherwise have”. [23]

A desirable reconciliation . Yet the evolution of both competition law and industrial policies shows that a convergence of the two paradigms is both possible and necessary. The general theoretical framework of this study no longer assumes the existence of a blatant contradiction between these two forms of public intervention. The renewal of innovation policies – the new avatar of industrial policy – has led to horizontal competitiveness policies, far from the image of a French-style Colbertist industrial policy. Indeed, the two paradigms are converging, mainly thanks to economic research on market failure. It can now be considered that competition policy and innovation policy are complementary in the effects that each produces. The solution therefore lies in reconciling the two approaches, which contain numerous similarities, ultimately with a view to a “dynamic reconfiguration of the different policies”. [24]

A more dynamic and less static notion of competition . Assigning an active innovation promotion role to European competition law would require the competition authorities to adopt in their analyses a longer-term and more dynamic view of competition. This is necessary, because the simultaneous search for static and dynamic efficiencies can be conflicting. It is not always possible to achieve all types of efficiency gains at the same time and, faced with this “dilemma”, competition law may be forced to arbitrate. The reason is relatively intuitive: to support their costly innovation efforts – and therefore dynamic efficiency – firms need the prospect of significant profits and hope to achieve prices that are higher than the equilibrium price. There is therefore a period of “incumbency” [25] during which consumers will have to pay a higher price. Supporting innovation efforts may therefore amount to supporting supra -competitive pricing. [26] Similarly, if a merger creates market power in innovation-driven sectors, it may allow firms involved in the merger to gather complementary skills and assets and avoid overlapping R&D investments, which, in the long term, will give rise to innovative products.

Ex ante  and ex post  competition . Dynamic competition must factor in the entire innovation process, including ex ante and ex post competition. The feedback loops of the innovation process lead to a constant back-and-forth between pre-innovation competition and post-innovation competition. Herein lies a paradox: increased competition ex post may reduce incentives ex ante . Schematically, increased competition after the commercialisation of an innovation – made possible by its diffusion – can prevent firms from commencing their own innovative activities. For example, one of the functions of intellectual property rights is to reduce competition ex post in order to create ex ante incentives for firms to invest in innovative projects. In order to incorporate these two timeframes into the analysis, competition law must adopt a dynamic approach to competition. On this topic, a study of state aid rules has been undertaken. The promotion of innovation is indeed stated as an objective, and the exemption allows for a subtle incentive game centred on innovation-specific market failure.

A limitation has nevertheless been identified. State aid exemptions for R&D and innovation adhere to the principle that the more “integrated” and closer to the market the research, the less state aid will be permitted. The legislation defines three categories of aid: fundamental research, industrial research and experimental research. The different stages of research are complementary and interdependent. Because in order for innovations to enter the market and be disseminated via the economic channel, investment in experimental and industrial research must be equivalent. Thus, the legislation on state aid for R&D must treat the different stages of research equally without favouring precompetitive fundamental research. This may constitute a “real limit to the development of European innovation” [27] and contribute to prolonging the “European innovation paradox”.

Discussion on the notion of “consumer welfare” . Consumer welfare must also be redefined. The European Commission analyses the effects of a practice on a market in the light of this criterion. A practice is anticompetitive when it drives up prices and therefore prejudices the consumer. However, such a criterion is imperfect because it is based on an overly static notion of competition.

On this issue, the North American doctrine acknowledges that competition law should be reoriented towards an “overall welfare” objective that takes into account the interests of consumers and producers. But this criterion is vague and overly controversial. The Court of Justice having explicitly ruled it out, a more conciliatory criterion had to be found. The “consumer choice” criterion, which takes into account the diversity of products offered, seems more appropriate in this respect. It is more in keeping with stimulating innovation, because it incorporates factors other than mere price competition. It factors into the analysis the degree of freedom available to consumers to approach one or more suppliers or partners other than the firm in question. For example, refusal to contract with a firm may lead to a competitor being excluded from the market, which may prevent the emergence of innovative products and therefore reduce consumers’ freedom of choice. It offers a way around static competition. In this sense, it should be acknowledged that while the consumer choice criterion is not perfectly dynamic, it is “less static”.

Examples of dynamic implementation: interoperability and the “innovation commons” . The fact remains that competition law must still be able to implement this new objective of stimulating innovation. This approach arises, sparsely, when it is confronted with very specific issues. For example, competition law seems to offer a balanced response to interoperability requirements in innovative markets and to standard-setting agreements and technology pooling agreements, which lead to the shared use of technologies.

Regarding interoperability, competition law has taken stock of this imperative. The notorious Microsoft case is one example among others. The circumstantial application of the doctrine of essential facilities for interoperability seems appropriate. In this case, competition law adapts to certain imperatives of the innovation economy, such as the network economy and cumulative innovation. We believe this possibility is consistent if competition law intends to play an active role within the framework of dynamic competition. In such a case, the violation of intellectual property rights and of the incentive to innovate – which raises the majority of objections – is measured.

Regarding cooperation agreements, the study discusses the phenomenon of “innovation commons” and “anti-commons”. Innovative markets, for instance, face the phenomenon of technology fragmentation. For example, a smartphone consists of a mobile system, comprising the materials (case, screen), operating hardware (card, semiconductors), operating software, application software (slide-to-unlock technology, the ability to view emails without submitting a server request, autocomplete typing when drafting text messages and the gamut of features not directly visible to the user), a network and standards.These system goods require the combination of a very broad range of technologies, protected by intellectual property rights whose owners are often different – and possibly competing – firms and may even belong to several different industries. To meet this challenge, economic operators have set up innovation commons, sometimes at the behest of the authorities, the most traditional of which – standard-setting agreements and technology pooling agreements – are subject to specific treatment under competition law. Competition law has been able to welcome this type of agreement and a detailed analysis of the existing rules shows that the balance between the incentive to innovate and the diffusion of innovation, in the context of standard-setting, is ensured.

The example of standard-setting and FRAND licences . But limitations reappear when economic operators take advantage of the standard-setting process. First, patent holders assert their intellectual property rights by asking judges to grant injunctions to prevent the sale of competing products even though they had agreed to a FRAND commitment. Second, competitors defend themselves with counterclaims (as in the case of Apple in response to Samsung’s lawsuit) or file claims of abuse of dominant position with the competition authorities. Against this backdrop, it was imperative that competition law grasp the notion of FRAND commitments. After the Motorola and Samsung cases, the Huawei case clarified the conditions for such abuse of a dominant position. In this case, the Court of Justice achieved a good balance between the incentive to innovate and the diffusion of innovation by granting innovative companies a sphere of competitive immunity. 

Exploitation of standard-setting and patent ambush . But the treatment by competition law of this type of commitment is not without limits. For example, there are ambiguities in the legal grounds for this practice. Can Article 101 TFEU be invoked when the heart of the dispute resides in the lack of mutual agreement? As for Article 102 TFEU, its application requires the upstream classification of a dominant position. Yet it is well known that ownership of a standard-essential patent, even if it is part of a standard, does not in itself presuppose market power. Moreover, if the rights-holder hides its intellectual property rights during standard-setting so that its technologies are inserted in the standard, it is precisely because it is not in a dominant position. It is not in a position to “behave to an appreciable extent independently of its competitors, of its customers and ultimately of its consumers”, according to the classic formula, at least at the time when it intends to conceal its rights. This is the contradiction that the Commission failed to avoid in the Rambus [28] case, acknowledging the dominant position of the firm Rambus in the first instance and then basing its argument on the existence of numerous alternative technologies and concluding that users would probably have rejected Rambus ’ technology had they been aware of the firm’s rights. There were therefore, necessarily, alternative technologies of the same quality, eliminating the possibility of a dominant position. So is it not the acquisition of the dominant position that is abusive and not its mere exploitation ?

However, the scenario of sanctioning an abusive acquisition of a dominant position,applicable to standard-essential patents and standard-setting and more generally to the innovation commons paradigm, would not be able to be applied without a precise delineation of its scope. It should not distort “competition for the standard”, which is also an incentive for innovation. Further, this scenario could also rest on the combination of several criteria and on the negative effects of acquiring such a dominant position, thanks to the addition of a more subjective criterion, namely bad faith, as was observed in the Huawei case. [29] We could, for example, propose the following three cumulative criteria: 1) the acquisition of a dominant position in the market for the standard; 2) making it possible to influence the royalty negotiation process or to impose a price; 3) in the presence of bad faith on the part of the potential licensee.

Title 2. THE RENEWAL OF COMPETITION LAW

A substantive and methodological renewal . Despite these limitations, this dynamic approach to standard-setting agreements and interoperability is welcome. But some problems are stubborn, and promoting innovation through competition law requires a renewal of competition rules. Two types of renewal can be considered: substantive renewal and methodological renewal.

Substantive renewal: the proposed use of baseball arbitration . By forcing access to innovation or by imposing so-called FRAND licences, the licence royalty negotiation process can be prevented. However, the amount of such royalties is vital to the incentive to innovate, since it constitutes the reward sought in return for the risk and investment made by a firm. In this respect, in the study we proposed not to set prices – as this is not the role of the competition authorities – but to use, where strictly necessary, a price-setting methodology . As stated above, dynamic competition involves seeking a balance between two factors that stimulate innovation: access to innovation and the incentive to innovate. By confining itself to the sharing of innovation, the intervention of competition law can be unbalanced because it then ignores the remuneration of innovation. This may reduce the incentive to innovate. The thesis justifies, for example, the use of“baseball arbitration”(“final offer arbitration”, also known as “pendulum arbitration” ). This termrefers to an arbitration between two final and non-revocable offers submitted to an arbitrator, which has to choose the most appropriate offer without being able to modify its content. According to game theory, both prices should tend towards the most reasonable price. This method may avoid an excessive number of disputes as well as the difficult task of determining the amount of a reasonable royalty. But this proposal is not intended to replace private negotiation between firms. Rather, it is a subsidiary methodology in the event of failure to negotiate royalties.

Substantive renewal: the restriction to innovate . The creation of specific tests to assess restrictions to innovation would allow competition law to grasp its objective of promoting innovation. The first test proposed is attractive due to its malleability. It could constitute a general test applicable to all competition law. It would open the door to sharing the burden of proof between the Commission and the firms. The second test is more complex, but also more comprehensive. It offers more information on the different factors stimulating innovation and permits a highly detailed approach. To be sure, collecting the data needed to implement it may prove costly, but it is a necessary condition to broaden the scope of competition law to this area.

From this viewpoint, the competitive analysis of a practice in an innovative market will have to include three elements: the different types of innovation; the greater or lesser importance of cumulative innovation; and, last, the competitive characteristics of the market. Each element of this analysis will shed more light on the determinants of innovation in the market in question and facilitate a detailed analysis of the barriers to market entry. This test will make it possible to sanction behaviours that harm not competition but rather innovation and, ultimately, consumer choice.

A double methodological renewal . However, the implementation costs and complexity of the analysis of restriction to innovation are unavoidable. Also, to alleviate the challenges related to a substantive renewal of competition law, it has been shown that competition law has succeeded in renewing its methods of application. The law now intervenes increasingly a priori , not to sanction restrictions to innovation but to prevent them, either indirectly, through exemption regulations or, more directly, through the commitment procedure set out in Article 9 of Regulation 1/2003.  

Methodological renewal: commitments . The first solution consists in adopting a negotiated approach with firms. The commitments procedure, by which firms offer commitments to the Commission to ensure the compatibility of the proposed merger or the legality of a practice, is revealing. The balance between the incentive to innovate and the flow of innovation is then reached in agreement with firms. The commitment procedure allows competition law to negotiate behavioural or structural commitments with firms that enable balanced solutions to be reached, from the viewpoint of both the European Commission and the undersigning firms. These commitments offer the advantage of malleability and lend themselves to competitive situations related to innovative markets, such as the presence of short innovation cycles and barriers to entry, exit or expansion in the market (intellectual property rights, standard-essential patents, investments in R&D, etc.). This makes it possible to circumvent a number of difficulties specific to this type of market.

Methodological renewal: soft law and the publication of external acts . On methods, the study also initiated discussion on the renewal of the sources of competition law. The increased presence of informal publications by the Commission and soft law reflect this willingness to intervene upstream to prevent restrictions to innovation. Competition law promotes innovation when the law exercises a role that is more incentivising than punitive. In this light, the European Commission exerts an undeniable influence when it publishes non-binding acts, in which case it “regulates by publication”.

The European Commission faces two main constraints in innovative sectors: first, it has limited administrative resources to deal with the complexity of the analyses it must undertake to detect (and sanction) practices that are harmful to innovation. Second, it is required to remedy competition restrictions within a limited timeframe. This need is increased by the fact that innovative markets are constantly evolving. Soft law instruments and external acts offer firms general indications in a short timeframe. They encourage firms to voluntarily comply with the competition rules, ultimately reducing the number of disputes while ensuring compliance with the rules. Indeed, such acts are designed to accurately reflect the Commission’s practice and legal interpretations, providing an overview of the decision-making process and the content of its appraisals.

However, this application of competition law should also be kept in perspective, as it may also be harmful to competition. This is because competition law is exposed to the risk of going beyond its role as market watchdog, which could amount to regulating firms. In this respect, the danger of overfixing remains, since the European Court does not subject this procedure to the principle of effective proportionality.

Also, the Court’s guidelines following the principles of proportionality and legal certainty must be effective.

CONCLUSIONS AND LESSONS

As early as the introduction, we emphasised the need for European competition law to promote innovation. But its ability to meet this objective and the terms of its implementation were not established. Several lessons can be gleaned from the final analysis.  

The first lesson concerns the diversity of the innovation phenomenon that competition law must incorporate, which requires an economic and circumstantial approach. The characteristics of innovative markets, the plurality of the sectors concerned and the lack of consensus in the economic literature on the intersections between competition and innovation bear witness to this. They shake the very foundations on which competition law is built. This is why a very circumstantial approach is necessary.

The second lesson is that this circumstantial approach is not yet enshrined among the fundamental tools of competition law, which sometimes takes a rigid approach when it comes to both delineating the market in question and assessing market power. However, this approach has its limitations. Market power cannot be based on an evaluation of market shares based on an uncertain delineation of a relevant market. These factors undoubtedly constitute obstacles to the reception of innovation by competition law.

The third lesson is that while it is in a difficult position, competition law is not powerless. First, the treatment of recent cases shows that competition law is open to the flexibility required by the specificities of innovative markets. The competition authorities appear to have become aware of the complexity of the analysis and of the role that they have to play. The possibility of delineating markets specific to innovation and supplementing the methods for assessing market power are positive signs in the direction of the dynamic approach that the innovation economy requires.

While the singularity of innovation is an insurmountable barrier preventing competition law from fully promoting innovation, some renewal is required. In essence, the difficulties lie in overly static analyses of competitive behaviour in innovative markets. The promotion of innovation entails a trade-off between static competition and dynamic competition. This requires recognition of the innovation promotion objective in order to connect competition law with European innovation policy. In this regard, there has been some, albeit limited, convergence between these two policies: competition policy has moved towards the promotion of innovation, and innovation policy now factors in competition concerns. Competition law can therefore play an active role in promoting innovation. This is particularly the case when it intervenes in reference to the flow of innovation. But the desired harmony is particularly difficult to achieve, and competition law does not yet have the tools to enable it to fully pursue the objectives assigned to it.

A final lesson is that the role of competition law with regard to innovation should not be overestimated. For example, it is not up to the competition authorities to address the imperfections of intellectual property rights or to rule on their validity. Such concerns also apply to innovation policies, which did not fall within the scope of the thesis. This reveals that the areas concerned are vast. Competition law can be only one element – among others – of innovation policy.

Marie CARTAPANIS

[1] Pétrone, Satyricon , chap. LI., tr. L. De Langles, Libretto, 2017, p. 223.

[2] A. Duboin, “Les Romains ont-ils connu l’aluminium ?”, La Revue Scientifique , no 24, 13 Dec. 1902, p. 752.

[3] J. Mestre and L. Merland, Preface, J. Mestre and L. Merland, (eds.), Droit et innovation, PUAM, 2013, p. 7.

[4] D. Guellec, Économie de l’innovation , La Découverte,Repères, 2009, p. 9.

[5] OECD, Oslo Manual, 3rd. ed. op. cit .,p. 56.

[6] Ibid ., p. 58.

[7] G. Farjat, “L’importance d’une analyse substantielle en droit économique”, RIDE , 1986, no 0, p. 9.

[8] J.-B. Racine and F. Siiriainen, “Retour sur l’analyse substantielle en droit économique”, RIDE , 2007/3, t. XXI, no 3, p. 263.

[9] For example D.S. Evans and M.D. Noel, “The Analysis of Mergers that Involve Multi-Sided Platform Businesses”, J. of Competition Law & Economics, 2008 vol. 4, iss. 3, p. 670. The same observations are confirmed by D.S. Evans and R. Schmalensee, “The Antitrust Analysis of Multi-Sided Platform Businesses”, Coase-Sandor Institute for Law & Economics, Working Paper no 623, University of Chicago , 2012.

[10] CJEU, 27 March 2012, C-209/10, Post Danmark .

[11] Ibid. pt 23.

[12] CJEC, 17 Feb. 2011, case C-52/09, TeliaSonera Sverige AB, pt 24; CJEU, 16 Mar. 2000, C-395/96 P and C-396/96, Compagnie maritime belge transports, pt 37; CJEU, 9 Nov. 1983, Nederlandsche Banden-Industrie-Michelin c/ Comm, case 322/81.

[13] Autorité de la concurrence and Bundeskartellamt , Droit de la concurrence et données, 10 May 2016, p. 23. See also N. Newman, “The Costs of Lost Privacy: Consumer Harm and Rising Economic Inequality in the Age of Google”, William Mitchell L. Rev., vol. 40. iss. 2, 2014, pp. 850-889.

[14] See in particular G. Decocq, “Free rider ou le passager clandestin”, RLC, 2011, no 66, pp. 56-57; B. Coriat, “Entre politique de la concurrence et politique commerciale :
Quelle politique industrielle pour l’Union européenne ?” in J-H Lorenzi and E. Cohen , Politiques industrielles pour l’Europe , CAE report, La Documentation française, Paris, 2000 , p. 309.

[15] N. Rubio, “Innovation et Union européenne, les prémisses d’une politique intelligente”, in J. Mestre and L. Merland, (eds.), Droit et innovation, PUAM, 2013, p. 31.

[16] C. Prieto, “L’Union européenne de l’innovation”, RTD eur. 2011, p. 513.

[17] Comm. CE, 8 Dec. 1983, IV/29.955, Carbon Gas technologie .

[18] CJEC, 11 Jul. 1985, C – 42/84, Remia v Commission.

[19] CJEC, 17 Jan. 1984 , C- 43/82 and 63/82, VBBB/VBVB .

[20] Notably TPICE, 1 Jul. 2008, Compagnie maritime belge SA v Commission , T276-04, pt 48.

[21] Reg. EC of 21 December 1989 on the control of concentrations between undertakings, OJ L 257/90 P 13, pt 13.

[22] CJEC, 31 March 1998, C-68/94 and C-30/95, French Republic and Société Commerciale des Potasses et de l’Azote and Entreprise Minière et Chimique versus the Commission , pts 176 and 177.

[23] Comm. EC, Guidelines on the application of Article 81(3) of the Treaty, OJ C 101, 27 Apr. 2004, pt 77.

[24] B. Coriat, “Entre politique de la concurrence et politique commerciale : quelle politique industrielle pour l’Union européenne ?” in J-H Lorenzi and E. Cohen, op. cit., p. 318.

[25] A. Tepperman and M. Sanderson, “Innovation and Dynamic Efficiencies in Merger Review”, Canada Competition Bureau , 2007, p. 6; Dr I. Lianos and R.C. Dreyfuss, “New Challenges in the Intersection of Intellectual Property Rights with Competition Law”, Centre for Law, Economics and Society CLES , UCL, Working Paper Series 4/2013, Apr. 2013, p. 34.

[26] J.D. Wright,“Antitrust, Multi-Dimensional Competition, and Innovation: Do We Have an Antitrust-Relevant Theory of Competition Now ?”,in Regulating Innovation: Competition Policy and Patent Law under Uncertainty , 2009, Geoffrey A. Manne and Joshua D. Wright, eds., George Mason University Law and Economics, pp. 9-44.

[27] J.-H. Lorenzi and E. Cohen , Politiques industrielles pour l’Europe , CAE report, La Documentation française, Paris, 2000, pp. 137-138.

[28] Comm. EU,9 Dec. 2009, COMP/38.636, Rambus.

[29] CJEU, 16 Jul. 2015, C-170/13, Huawei Technologies Co. Ltd / ZTE Corp., ZTE Deutschland GmbH.

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Open Access Dissertations

Essays on university competition.

Zachary George Davis , Purdue University

Date of Award

January 2016

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

First Advisor

Kevin J Mumford

Second Advisor

John M Barron

Committee Member 1

Justin L Tobias

Committee Member 2

Brian Roberson

The dissertation is comprised of two independent chapters on competition between universities and how government policy changes the nature of the competition. The first chapter looks at how in-state tuition effects competition between public and private four year universities. The second chapter looks at how federal aid effects the behavior of individual for-profit universities, and estimates the effect of a rule change on the amount of federal aid revenue collected by for-profit universities.

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Davis, Zachary George, "Essays on University Competition" (2016). Open Access Dissertations . 1382. https://docs.lib.purdue.edu/open_access_dissertations/1382

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Graduate students can now register for annual Three Minute Thesis Competition

Registration open for all degree-seeking graduate students at penn state's campuses, and also potential community judges, through oct. 25.

Graduate students looking to highlight their scholarly achievements, compete for monetary awards and recognition, and hone their research communication skills are now able to register for the second annual University-wide Three Minute Thesis competition. The deadline for competitor and community judge registration is Oct. 25, 2024.   Credit: Penn State . Creative Commons

September 16, 2024

UNIVERSITY PARK, Pa. — Graduate students looking to highlight their scholarly achievements, compete for monetary awards and recognition, and hone their research communication skills are now able to register for second annual Penn State Three Minute Thesis competition , hosted by the J. Jeffrey and Ann Marie Fox Graduate School 

Registration to compete is open through Friday, Oct. 25, to all degree-seeking graduate students at any Penn State campus.  

Penn State community members, including graduate students, post-doctoral scholars, faculty and staff, are also invited to register as a judge by the Oct. 25 deadline for the event's first round.   

The Three Minute Thesis (3MT) is an academic research communication competition developed by the University of Queensland (UQ), Australia. Each competitor has three minutes to speak and can use only one presentation slide to effectively explain their research to a general audience.  

The competition will take place over two rounds. Judging for the opening round, which is a video format, will take place Nov. 4-8. The Fox Graduate School will be hosting the final round in partnership with the Graduate and Professional Student Association (GPSA) and the Fox Graduate School Alumni Society on Saturday, March 29, 2025, livestreamed from the Nittany Lion Inn on the University Park campus.

A small group of invited judges will evaluate the final round presentations and award first and second place. One competitor will also receive a People’s Choice award, sponsored by the GPSA, which will be decided based on in-person and online audience voting. 

The Fox Graduate School will also be hosting an upcoming two-part online workshop series in collaboration with two faculty members, Marcy Milhomme , associate teaching professor for continuing education in communication arts and sciences, and Andy Gustafson , associate clinical professor of accounting, that is designed to prepare students for the 3MT competition and set graduate students up for success with future presentations. Sessions will take place Sept. 25 and Oct. 2 , followed by Oct. 8 and 15 . 

Liam Jackson

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2024 Three Minute Thesis competition application now open

Interested doctoral students must register by Oct. 1 to participate in this signature event

The application for the  Three Minute Thesis competition  is now open for interested doctoral students. 

3MT is an academic competition that challenges students to summarize their thesis in three minutes for a general audience and a panel of judges, who rate their performance. The three winners of the competition, along with a people’s choice winner, receive prize money, with the first-place recipient receiving $1,500 and a chance to represent the university at the regional, national and international competitions.

To participate, you must be a CU Boulder doctoral student admitted to candidacy by December 1, 2024, and be enrolled for spring 2025 and expect to graduate in May 2025 or later. Graduates or alumni are not eligible. The deadline for registering is Tuesday, Oct. 1 at 11:59 p.m.

Application closes Oct. 1

“Amazing research happens every day by graduate students, but it often flies under the radar. The Three Minute Thesis competition is an opportunity to showcase that creative and innovative work and the talented students that make it happen,” Scott Adler, the dean of the Graduate School,  said previously . 

The 3MT event began in 2008 when the state of Queensland, Australia, suffered from a severe drought. To conserve water, residents were encouraged to time their showers, and many people had a three-minute egg timer fixed to the wall in their bathroom. The then-dean of the University of Queensland Graduate School, Emeritus Professor Alan Lawson, decided to apply the same approach with his students in a first of its kind competition. 

It has since spread across the globe, including to CU Boulder. 

Prior to CU Boulder’s competition, which takes place every February and is one of the Graduate School’s signature events, students participate in a series of workshops to improve their presentation and research communication skills, helping them to effectively (and succinctly) explain the significance of their research. These workshops also provide a chance for students to forge connections within a like-minded cohort from across the disciplines. 

One such workshop or presentation scheduled for this year, among others discussing things like storytelling framework and improvisation techniques, is an exclusive talk by international 3MT winner, and Marvin H. Caruthers Endowed Chair for Early-Career Faculty Assistant Professor  Samuel Ramsey  on science communication. Watch Dr. Sammy’s  winning 3MT presentation here . 

For more information, including seeing the past winners, refer to the  3MT website . For all other questions, contact Hailey Herman at  [email protected] . 

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DOD Delegation Concludes Military Talks With China

A Defense Department delegation concluded the latest round of military-to-military talks with Chinese counterparts over the weekend, as U.S. officials continue to emphasize the importance of maintaining open lines of communication for responsibly managing competition. 

Michael S. Chase, deputy assistant secretary of defense for China, Taiwan and Mongolia, led the U.S. delegation to Beijing for the 18th iteration of the Defense Policy Coordination Talks between the U.S. and China. 

The two sides discussed a range of regional and global security issues as part of the exchange, including U.S. concerns over China's support for Russia's defense industrial base and the impact that support is having on European and transatlantic security.  

"DOD also reaffirmed the U.S. commitment to defending its Indo-Pacific allies, and the department emphasized the importance of respect for freedom of navigation as guaranteed under international law in light of ongoing aggressive PRC [People's Republic of China] harassment against lawfully operating Philippine vessels in the South China Sea," a senior official said Sunday at the conclusion of the talks.  

The U.S. delegation also underscored the importance of maintaining peace and stability across the Taiwan Strait, raised concerns about ongoing provocations from North Korea, and urged China to encourage stability and de-escalation in the Middle East.  

The talks mark a continuation of U.S. efforts to maintain the recently reestablished open lines of communication with China. 

President Joe Biden secured China's agreement to return to military-to-military talks last November after meeting with Chinese President Xi Jinping during the Asia-Pacific Economic Cooperation forum in Woodside, California. 

In January, senior U.S. and Chinese military officials resumed the U.S.-China Defense Policy Coordination Talks at the Pentagon. Prior to that, the high-level talks were last held in September 2021. 

Secretary of Defense Lloyd J. Austin III emphasized the importance of maintaining open lines of military-to-military communication at multiple levels during his first meeting with Chinese Defense Minister Dong Jun on the margins of the Shangri-La Dialogue in Singapore in May. 

Last week, the commander of U.S. Indo-Pacific Command, Navy Adm. Samuel Paparo held a video teleconference with China's Gen. Wu Yanan, commander of the military's southern theater. During the call, Paparo noted the necessity of continued military-to-military dialogue. 

Following the latest talks in Beijing, officials emphasized that the military-to-military dialogue does not signal a change in the U.S. approach to China.  

"The department continues to view [China] as our pacing challenge as described in the National Defense Strategy," the senior official said. "[China] continues to be the only U.S. competitor with the intent and, increasingly, the capability to overturn the rules-based infrastructure that has kept peace in the Indo-Pacific since the end of the Second World War." 

The official added that the U.S. "remains clear-eyed about [China's] intentions and their actions in the region and around the world." 

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