Competition Policy Between
the United States and
European Union
By Chad Carta, Colin Mead, Eric Luoma, Pablo
Vives, Bob Grannatt and Kim Weeden
Legislation and Competition
Background



Goal of governments has
always focused on
competition
Europe originally believed
in an economicnationalist approach
(mercantilism)
In 19th century,
governments evolved to
endorse free trade
Important Competition Legislation

The Sherman Antitrust Act, 1890

The Clayton Act, 1914

The Federal Trade Commission Act, 1914
Goals of EU Competition Legislation
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Regulate natural monopolies
Suppress the emergence of new
monopolies by regulating mergers and
acquisitions
Dissuade collusive and anticompetitive
behavior
Promote integration within the market
Vertical and Horizontal Cooperation
Vertical Cooperation
 occurs when anti-competitive agreements
are made between manufactures and
distributors
Horizontal Cooperation

prevents economic integration within
industries
Merger Control within EU


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To prevent collective dominance
The prevention of state aid which is
rampant in the European Union
Emerging companies are occasionally
subsidized, which is anticompetitive and a
significant problem for competition control
policies
Microsoft Anti-trust Case
Case Against Microsoft


EU has taken action against Microsoft for
not allowing adequate competition within
the computer industry
Microsoft’s bundling technique has drawn
criticism from competitors like Nokia, IBM,
Oracle, Real Networks and Red Hat
Microsoft’s Defense

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
Microsoft claims to be producing a superior
product, which is able to incorporate a variety of
necessities for the consumer
It uses these bundling techniques to minimize
costs for consumers
The variety of Microsoft programs are
compatible with other systems and external
appliances like digital cameras or Firefox
explorer
EU Decision



The EU found that Microsoft was unfairly
influencing competition with the industry
First penalty, $600 million in fines to EU
and competitors
Second penalty, Microsoft is now required
to sell a stripped down version of its
Windows operating system that will not
contain Windows media player
Defense of the EU Decision



This decision is a precedent for the EU
and will have an impact on monopoly
activity in the future
Now competitors will have an equal
chance at winning over competitors
Microsoft is still likely to retain its 90%
market share, but this will allow customers
to have more choice in their products
BoeingvsAirbus
Subsidies
International Trade Policy
Anti-Trust Law
History…


1916: Company created by William Boeing
1992: Produces 60% of commercial aircrafts in world
History…
• 1966: Created by pooled resources of 4 European
countries
-Aerospatiale S.A. (France)
-Aerospace PLC (Britain)
-Messerschmitt, Boelkow, and Bloom (Germany)
-Construcciones Aeronauticas S.A. (Spain)
Background of Dispute
-Part 1
Early 1990s: American companies switch
to Airbus



Better technology
Lower prices
New designs vs. Boeing’s modified old designs
Background Behind Dispute
-Part 2-

Airbus Subsidies
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“Loans” from European government
No repayment timetable
Financial information not published
Leads to strategic trade policy

Targets domestic industry for subsidies

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Captures monopoly profits on foreign sales
Boeing Subsidies
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
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Contracts with US Government for military aircrafts
No official government subsidies
Held bidding war for location of new U.S. plant

Local subsidies from Washington State

Airbus claims this was illegal
Market Strategies
-European-

Frequent subsidies

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Focus on alliances and cooperative ventures
“Loans”

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R&D, declining industries, new industries, regional development,
and export promotion
Equity infusions, non-program-specific operating loans, R&D
funding, and production subsidies
Payback period
Interest
-American-
Free market economy
Government is mainly regulatory
The Solutions

1979: Civil Aircraft Code of the
General Agreement on Tariffs and
Trade (GATT)

Eliminates tariffs, prohibits
licensing requirements, and
bans discrimination

Parties ensure a “reasonable
expectation of recoupment of
all costs”
The Solution
-Part 2
1992: Variable 30-33%
cap on government
subsidies (“Airbus
Accord”)

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Also requires financial info
to be published
Boeing pulls out in 2004;
counteraccusation against
Boeing
Airbus subsidies are legal
under 1992 accord
The Implications

Subsidy Regulation
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Greater competition
Higher production costs
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Increased air travel costs
No Subsidy Regulation

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Unfair advantages between
companies
Lower market prices for
aircrafts
Greater chance of a
monopoly
Oracle and PeopleSoft Merger
In June of 2003, Oracle
launches a hostile bid
for software rival
PeopleSoft
Reaction of the European
Community


The European Commission challenged the
merger because of its potential threat to
competition
The EAS supplier market consists of three major
companies; SAP, Oracle, and Peoplesoft. The
Commission was concerned that the number of
competitors being reduced from 3 to 2 would
decrease competition and result in higher prices.
Merger Proceedings

-Oracle argued that the merger would not cause
a decrease in competition for 2 main reasons:
1. German company SAP is the largest player
in the sector
2. Smaller EAS vendors such as Microsoft,
Lawson, Intentia, and QAD have won bids
for enterprise software projects contributing
to competition in the market
The EU Decision


The European Commission analyzed hundreds of
bids launched by smaller vendors and overall
conditions in EAS market.
The Commission approved Oracle’s bid for
Peoplesoft on the grounds that the merger
would not create a dominant position for Oracle,
and competition in the common market would
not be impeded
General Electric Honeywell
Merger

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42 billion dollar deal
largest proposed
takeover in history
Both American based
firms
Reason behind
merger both firms are
leaders in the
aerospace industry
Governmental Regulation

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Proposed Merger was approved by U.S.
Justice Department
Needs approval by EU, if not
GE/Honeywell would be unable to do
business in Europe’s single market
July 3rd 2001 EU blocks proposed merger
between GE and Honeywell
What Killed the GE Honeywell
Merger

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Area of contention: The strength of GE’s
aerospace component after the merger.
Two Main Aerospace market

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Jet aircraft engines
Avionics and non-avionics
GE’s Vertical Integration
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GE’s size and enormous amount of
resources provide the firm with benefits its
competitors do not have
Important components to GE’s dominance
in the Aerospace industry

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GE Capital
GE Capital Aviation Services (GECAS)
Future Ramifications

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Set precedent for
future mergers
US and EU merger
regulations differ
significantly
EU not afraid to block
mergers between to
American firms
Ford/Volvo Merger


Ford Motor Co. offers
$6.45 billion for
Swedish based Volvo
Auto Sales (1997)
Ford- 6.9 million
Volvo- 400,000 million
Anticipated Result of Merger

Increase competition in luxury market by:
1) Ability to use Ford parts in Volvos
2) Distribution of Volvos through Ford’s
networks
EU and Market Share Concerns

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Merger would increase Ford’s market share
Passenger and large car sectors would go from approx.
15% to 20%
Ford’s national market share would end up below 25%
even after merger
EU Decision

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Merger is endorsed by
the EU
Ford’s market share is
marginal after merger
Dominance and lack
of competition is not
a factor in this case
The End