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Competition analysis of barriers to entry theory in relation to innovation and R&D in the EU legal order

Hedberg, Axel LU (2011) JURM01 20111
Department of Law
Abstract (Swedish)
Detta examensarbete behandlar ur ett konkurrensrättsligt perspektiv hur inträdesbarriärer tolkats i relation till innovationsmarknader inom EU-rätten. Vidare innehåller arbetet en de lege ferenda analys av hur inträdesbarriärer bör tolkas baserat på nationalekonomiska teorier.

Examensarbetet tar sin utgångspunkt i de båda konkurrensrättsliga artiklarna i Fördraget om Europeiska Unionens funktionssätt, artikel 101 och artikel 102. Den analytiska utgångspunkten är ett ex-ante och ett ex-post perspektiv. Ex-ante analysen behandlar horisontella samarbeten och horisontella företagskoncentrationer, medan ex-post perspektivet behandlar missbruk av en dominerande ställning. Genom att anlägga ett före-och-efter perspektiv, tydliggörs skillnader... (More)
Detta examensarbete behandlar ur ett konkurrensrättsligt perspektiv hur inträdesbarriärer tolkats i relation till innovationsmarknader inom EU-rätten. Vidare innehåller arbetet en de lege ferenda analys av hur inträdesbarriärer bör tolkas baserat på nationalekonomiska teorier.

Examensarbetet tar sin utgångspunkt i de båda konkurrensrättsliga artiklarna i Fördraget om Europeiska Unionens funktionssätt, artikel 101 och artikel 102. Den analytiska utgångspunkten är ett ex-ante och ett ex-post perspektiv. Ex-ante analysen behandlar horisontella samarbeten och horisontella företagskoncentrationer, medan ex-post perspektivet behandlar missbruk av en dominerande ställning. Genom att anlägga ett före-och-efter perspektiv, tydliggörs skillnader i tillämpningen av inträdesbarriärer i relation till innovation och FoU (Forskning och Utveckling).

Innovationsmarknadsbegreppet är en reaktion på när den konkurrensrättsliga analysen begränsar sig till att behandla existerande produktmarknader, men där oro finns att minskad konkurrens inom innovation och FoU riskerar att påverka framtida produktmarknader negativt. Analysen har främst rört innovationsdrivna marknader, till exempel läkemedelsindustrin. Tillvägagångssättet att analysera konkurrens inom innovation och FoU är omdebaterat bland jurister och nationalekonomer beroende på det svaga sambandet mellan storleken och takten på forskningen och den mängd innovationer som forskningen ger upphov till.

Metoden att analysera inträdesbarriärer i relation till konkurrens inom innovation och FoU är utbredd inom EU-rätten. Inträdesbarriärer används generellt som ett verktyg för att värdera de faktorer som utgör ett konkurrensbegränsande tryck på etablerade marknadsaktörer. Ett tryck som kommer från potentiella konkurrenter som vill in på en ny marknad. Inträdesbarriärer är ett ekonomiskt begrepp och beroende av vilken ekonomisk teori som ligger bakom definieras inträdesbarriärer på olika sätt. Två ekonomiska skolor har dominerat diskussionen kring målet och syftet med konkurrensrätten, Harvardskolan och Chicagoskolan. Vilken ekonomisk skola som bildar bakgrund till analysen av inträdesbarriärer får således konsekvenser för vilka faktorer som anses kunna begränsa etablerade marknadsaktörer från att missbruka sin ställning.

Genom Kommissionens rättspraxis beträffande kontroll av företags-koncentrationer, har en bred tillämpning av vilka faktorer som utgör inträdesbarriärer i relation till innovation och FoU tagits. Ett stort antal faktorer påstås avskräcka potentiella konkurrenter från marknadsinträde, ofta uttryckt som ej återvinningsbara kostnader, tid, kompetens och resurser. Ex-ante tillämpningen av inträdesbarriärer sätts i samband med faktorer kopplade till marknadsstrukturen med målet att upptäcka och undvika en möjlig marknadsdominans.

Ex-post tillämpningen av inträdesbarriärer sätts däremot i första hand i samband med faktorer som kopplas till ett företags missbruk av en dominerande ställning. Genom att koppla inträdesbarriärer till missbruket av dominerande ställning, blir tillämpningen av inträdesbarriärer smalare jämfört med ex-ante perspektivet eftersom det fokuserar på en etablerad marknadsaktörs beteende att hindra inträde.

Två slutsatser kan dras från ovanstående analys.

Först, den breda tillämpningen av inträdesbarriärer ex-ante, ger att det är Harvardskolans breda definition av inträdesbarriärer som har haft ett avgörande inflytande på uttolkningen av inträdesbarriärer. Få faktorer kommer undan att definieras som inträdesbarriärer. Konsekvensen blir att etablerade marknadsaktörer tillerkänns förmågan att minska storleken och takten på FoU när det kan ifrågasättas om de faktiskt har sådant inflytande. Tillämpningen av inträdesbarriärer ex-post medför att inträdesbarriärer kopplas till ett företags beteende, med följden att en smalare tillämpning mer baserad på ett förhållningssätt baserat på Chicagoskolans doktrin. Detta smalare förhållningssätt minskar de faktorer som anses kunna begränsa etablerade marknadsaktörer från att missbruka sin ställning.

För det andra, den dubbla måttstocken av tillämpningen av inträdesbarriärer som koncept ger ett analytiskt redskap som är svårt att använda. Detta skapar osäkerhet och har en negativ påverkan på rättssäkerheten för företag aktiva på marknader som drivs av innovation. Eftersom innovationsmarknadskonceptet är oklart och omdebaterat från första början, argumenterar författaren för en mindre interventionistisk hållning av tillämpningen av inträdesbarriärer. Detta för att skapa marginal när konkurrens inom innovation och FoU analyseras, speciellt i ett ex-ante perspektiv. EU-rätten har historiskt fokuserat på att skydda förutsättningarna för en sund konkurrens på marknaden. Med den osäkerhetsaspekt som nuvarande tillämpning av inträdesbarriärer medför, skulle en tillämpning av inträdesbarriärer som fokuserar mer på ekonomisk effektivitet medföra en mer rättssäker analys av konkurrens inom innovation och FoU. (Less)
Abstract
This thesis deals with how barriers to entry theory has been interpreted in an innovation markets context in the EU legal order. It further offers an analysis of how barriers to entry should be interpreted using an economics based approach.

The scope for this thesis is TFEU Art 101 and Art 102, from which an ex-ante and an ex-post approach on barriers to entry analysis has emanated. The ex-ante analysis regards horizontal co-operation agreements and horizontal mergers, while the ex-post analysis regards abuse of a dominant position. By investigating barriers to entry in innovation and R&D from two perspectives, differences in the employment of barriers to entry theory in relation to competition in innovation and R&D is found.

... (More)
This thesis deals with how barriers to entry theory has been interpreted in an innovation markets context in the EU legal order. It further offers an analysis of how barriers to entry should be interpreted using an economics based approach.

The scope for this thesis is TFEU Art 101 and Art 102, from which an ex-ante and an ex-post approach on barriers to entry analysis has emanated. The ex-ante analysis regards horizontal co-operation agreements and horizontal mergers, while the ex-post analysis regards abuse of a dominant position. By investigating barriers to entry in innovation and R&D from two perspectives, differences in the employment of barriers to entry theory in relation to competition in innovation and R&D is found.

Innovation markets is the concept where no existing product market has yet emerged but important R&D for the development of future markets can be found. The aim is to protect innovation and R&D and not allow for undertakings’ to reduce the pace of innovation below competitive levels as such a reduction would have a negative impact on future competition on product markets. This concern is particularly an issue in industries driven by innovation, for example the pharmaceutical industry. Assessing competition in innovation and R&D has been debated heavily amongst lawyers and economists due to the weak correlation between the rate of R&D and the quantum of innovation produced.

Barriers to entry theory has been applied extensively in competition analysis in the EU legal order with regard to competition in innovation and R&D. It is employed as a tool to assess the competitive constraints an incumbent is exposed to from potential entrants. Two economic schools of thought has dominated the aims of competition law, the Harvard school and the Chicago school. Depending on the economic theory applied, barriers to entry is defined differently, resulting in different outcomes of which factors are considered to act as constraints on incumbents.

Through the case law regarding merger control, a broad stance has been taken towards what constitutes barriers to entry in innovation and R&D. A wide variety of factors are alleged to deter entry, often relating to sunk costs, time, competence and resources. The ex-ante employment of entry barriers relates to factors conntected to market structure with the aim to discover and avoid possible future dominance.


The ex-post analysis entails a different outcome, where barriers to entry is connected to a dominant undertaking’s abusive conduct. In the ex-post analysis, such factors as competence or sunk costs are not per se regarded as entry barriers. By connecting entry barriers with abusive conduct, the ex-post employment of entry barriers becomes narrower compared to the ex-ante employment, as it centers around an incumbent’s behaviour to deter entry.

Two conclusions are made from the analysis.

First, the broad scope of ex-ante employment of barriers to entry entails that the Harvard school of thought has had a decisive influence on the interpretation of entry barriers. Few factors escape being defined as entry barriers, with the effect of conferring market power on an incumbent in situations where it might be questionable whether it actually has the ability to reduce the pace of innovation below competitive levels. The ex-post perspective entails an approach where barriers to entry is attached to the incumbents conduct, resulting in a narrower Chicago school definition of entry barriers. Such an approach reduces the amount of constraining factors conferred on incumbents.

Secondly, the twofoldness of barriers to entry employment entails an analytical tool that is difficult to master, with negative consequences regarding clarity and legal certainty for parties active on a market driven by innovation. With the innovation market approach already suffering from an unclear definition, a less interventionist approach is argued by the author, creating margins, in particular when assessing mergers and co-operation agreements. Even if the EU judicature historically has focused on the protection of the competitive process, the uncertainty regarding the outcome of the current employment of barriers to entry in innovation and R&D would benefit from an approach focused more on economic reasoning and the dynamic aspects of efficiency. (Less)
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author
Hedberg, Axel LU
supervisor
organization
course
JURM01 20111
year
type
H3 - Professional qualifications (4 Years - )
subject
keywords
EU law, competition law, barriers to entry, innovation markets, law and economics
language
English
id
1890171
date added to LUP
2011-04-27 09:55:41
date last changed
2011-04-27 09:55:41
@misc{1890171,
  abstract     = {This thesis deals with how barriers to entry theory has been interpreted in an innovation markets context in the EU legal order. It further offers an analysis of how barriers to entry should be interpreted using an economics based approach.

The scope for this thesis is TFEU Art 101 and Art 102, from which an ex-ante and an ex-post approach on barriers to entry analysis has emanated. The ex-ante analysis regards horizontal co-operation agreements and horizontal mergers, while the ex-post analysis regards abuse of a dominant position. By investigating barriers to entry in innovation and R&D from two perspectives, differences in the employment of barriers to entry theory in relation to competition in innovation and R&D is found. 

Innovation markets is the concept where no existing product market has yet emerged but important R&D for the development of future markets can be found. The aim is to protect innovation and R&D and not allow for undertakings’ to reduce the pace of innovation below competitive levels as such a reduction would have a negative impact on future competition on product markets. This concern is particularly an issue in industries driven by innovation, for example the pharmaceutical industry. Assessing competition in innovation and R&D has been debated heavily amongst lawyers and economists due to the weak correlation between the rate of R&D and the quantum of innovation produced.

Barriers to entry theory has been applied extensively in competition analysis in the EU legal order with regard to competition in innovation and R&D. It is employed as a tool to assess the competitive constraints an incumbent is exposed to from potential entrants. Two economic schools of thought has dominated the aims of competition law, the Harvard school and the Chicago school. Depending on the economic theory applied, barriers to entry is defined differently, resulting in different outcomes of which factors are considered to act as constraints on incumbents.

Through the case law regarding merger control, a broad stance has been taken towards what constitutes barriers to entry in innovation and R&D. A wide variety of factors are alleged to deter entry, often relating to sunk costs, time, competence and resources. The ex-ante employment of entry barriers relates to factors conntected to market structure with the aim to discover and avoid possible future dominance.

 
The ex-post analysis entails a different outcome, where barriers to entry is connected to a dominant undertaking’s abusive conduct. In the ex-post analysis, such factors as competence or sunk costs are not per se regarded as entry barriers. By connecting entry barriers with abusive conduct, the ex-post employment of entry barriers becomes narrower compared to the ex-ante employment, as it centers around an incumbent’s behaviour to deter entry. 

Two conclusions are made from the analysis. 

First, the broad scope of ex-ante employment of barriers to entry entails that the Harvard school of thought has had a decisive influence on the interpretation of entry barriers. Few factors escape being defined as entry barriers, with the effect of conferring market power on an incumbent in situations where it might be questionable whether it actually has the ability to reduce the pace of innovation below competitive levels. The ex-post perspective entails an approach where barriers to entry is attached to the incumbents conduct, resulting in a narrower Chicago school definition of entry barriers. Such an approach reduces the amount of constraining factors conferred on incumbents.

Secondly, the twofoldness of barriers to entry employment entails an analytical tool that is difficult to master, with negative consequences regarding clarity and legal certainty for parties active on a market driven by innovation. With the innovation market approach already suffering from an unclear definition, a less interventionist approach is argued by the author, creating margins, in particular when assessing mergers and co-operation agreements. Even if the EU judicature historically has focused on the protection of the competitive process, the uncertainty regarding the outcome of the current employment of barriers to entry in innovation and R&D would benefit from an approach focused more on economic reasoning and the dynamic aspects of efficiency.},
  author       = {Hedberg, Axel},
  keyword      = {EU law,competition law,barriers to entry,innovation markets,law and economics},
  language     = {eng},
  note         = {Student Paper},
  title        = {Competition analysis of barriers to entry theory in relation to innovation and R&D in the EU legal order},
  year         = {2011},
}