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15.1.2.  Negative reactions to intensified competition in the EU

    Some businesses might react negatively to the competitive pressure imposed by the common market. To counter intensified competition, they might try to strengthen existing national agreements or to establish new horizontal agreements (between producers) and vertical restraints (within distribution chains) at European level. Other companies, having a dominant position in a specific market, might attempt to establish a monopoly in it by buying-out their competitors. Monopolisation of a market can be achieved in two ways: by agreement or by concentration. An agreement is defined as an understanding between undertakings which remain autonomous, for the purpose of specific behaviour on the market, in particular the restriction of competitive practices. Concentrations eliminate the autonomy of participating undertakings by grouping them under a single economic administration, notably by integrating capital and management. It can be seen that agreements have the effect of imposing a specific behaviour, whilst concentrations entail changing the structure of undertakings.

    Some agreements are conservative in nature, as they are generally intended to protect established interests, including less competitive firms. By artificially limiting competition between participating companies, such agreements isolate them from the pressures, which would normally push them to conceive new products or more efficient production methods. On the other hand, concentrations mostly contribute to eliminating (through mergers) the least viable and least efficient undertakings. Agreements may be in the interest of the consumer and may be permitted if they are directed towards research, specialisation and cooperation to improve production and distribution methods. Concentrations are in principle acceptable, as the market, extended by economic integration, calls for larger undertakings and because, through the improvement of structures, rationalisation of production and the securing of internal economies, they reduce production costs to the advantage of the consumer. However, where concentrations exceed certain limits, they begin to present dangers, as the very large company can exploit its dominant market position to remove all competition. For that reason, European institutions must monitor not only agreements, but also concentrations.

    In order to ensure that undertakings operating in the internal market enjoy the same conditions of competition everywhere, efforts have to be made to combat not only unfair practices on the part of undertakings, but also discriminatory measures on the part of States. Economic integration and the increasing liberalisation of international trade greatly weaken the classical methods of commercial protection, viz. high customs duties and quantitative restrictions on imports as well as technical barriers to trade. For that reason, States have more frequent recourse to aids as an instrument of economic policy, especially given that increased competition and more rapid technological change reveal structural weaknesses in several sectors and regions. Some aids are doubtless justified on the grounds of social policy or regional policy, while others are necessary to direct businesses towards the requisite adjustments at an acceptable social cost. But the Member States' aid policies are often aimed at artificially ensuring the survival of sectors undergoing structural difficulties. Such aid measures run counter to the changes to the production structures inherent in technological progress and their social cost is often greater than the sums allocated to them, as they block production factors which could be better employed elsewhere. In addition, such uncoordinated measures at European level lead to spiralling aid, as each country finds itself obliged to follow in its neighbour's footsteps whenever the latter supports an economic activity. All these reasons necessitate European control of national aids.

    One of the most intricate problems in the field of competition is posed by public undertakings and undertakings controlled by the public authorities. Member States use them as instruments for attaining various economic, political and social objectives such as directing investment towards certain sectors or regions, administering certain unprofitable public services, handling certain economic activities regarded as strategic, acting as the nation's standard bearer in the arena of international competition and employ persons who do not find jobs in the private sector. In return for the manifold services they render to governments, the latter tend to discriminate in favour of public undertakings. The various privileges, which are granted to them, can distort conditions of competition vis-à-vis undertakings in the private sector of their own nationality and those of their partners in the common market. It is this latter aspect of relations between Member States and their public undertakings that is of particular concern for the European institutions.

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    Your roadmap in the maze of the European Union.

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