Competition Policy in Bulgaria

Table of Content

Table of Figures

Abbreviations

1. Introduction

2. Definitions
2.1. Restraints on competition
2.2. Objectives of competition policy
2.3. Competition Policy

3. Competition policy in Bulgaria
3.1 Historic and Economic Development
3.2 Development of Bulgarian Competition Policy
3.3 Functioning of the Commission for Protection of Competition

4. Summary and Conclusions

Bibliography

Textbooks / Handbooks / Encyclopaedias

Journal Articles

Websites

Speeches

Table of Figures

Figure 1: Consumer , producer and total surplus on a supply and demand chart

Figure 2: Fact Box “Republic of Bulgaria” – General Statistic Data

Figure 3: Fact Box “Republic of Bulgaria” – Selected Financial Indicators

Figure 4: Development of Competition Policy in Bulgaria

Figure 5: Organisational structure of the CPC (abridged version)

Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

1. Introduction

Already in the 18th century Adam Smith recognised that the free market system has at least one fault in its construction:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. (Adam Smith, 2007)

In order to overcome what Adam Smith called a “conspiracy against the public”, countries or groups of countries, such as the European Union, make use of the various instruments of competition policy. Through this, the state defines the “laws of the game” and how a breach of such rules will be sanctioned.

The present assignments will explore the measures in the area of competition policy taken by the Republic of Bulgaria. In order to do so, this assignment is divided into four parts. Follow- ing this introduction, restraints of competition, the objectives of competition policy and fi- nally the term competition policy are defined. The third and main part of this assignment will focus on competition policy in Bulgaria. It will start with a brief historical and economical review of Bulgaria, leading over to the development of the national competition policy, mainly after the fall of the “iron curtain” and explore the actual application of the correspond- ing legislations. Finally, the most important findings and interactions will be summarised and conclusions will be derived.

2. Definitions

2.1. Restraints on competition

With regard to Olten (1998, pp. 155-156), there are three major types of strategies developed or applied by the market participants in order to overcome or avoid competition.

- Collusion, or the creation of trusts

Anticompetitive co-operations occur when market participants are asked or commit to act on the market in a similar or comparable way. The same applies to the case when market participants implicitly follow the behaviour of the market leader, e.g. when competitor A increases the selling prices for gasoline, competitor B will follow immedi- ately. As trusts are formal and explicit agreements among firms on prices, terms of de- livery, selling areas, etc., they are easier to proof than collusions.

- Mergers and acquisitions

Probably the easiest way to gain market share is to unify (merge) with other market players or to purchase (acquire) smaller or weaker competitors. Following Bork (1993, p.67), mergers do more harm to an economy than cartels, as they are eliminating the ri- valry among competitors more effectively and because they are much more permanent.

- Abusive behaviour

In some cases, organisations are so large, that they don’t need to form a cartel or further acquisitions to get a dominating position. Such organisations can abusive use their mar- ket power for example by predatory pricing. In such case, customers have no other choice than to accept the conditions in order to get the product.

2.2. Objectives of competition policy

Basically, competition policy tries to avoid the disadvantages resulting from the restraints of competition as mentioned in the previous paragraph. The specific objectives and the practice of competition policy are different from country to country or from jurisdiction to jurisdiction. Following Motta (2007, pp.17-26), competition policies has been influenced and inspired by a number of objectives, economic ones, as well as those resulting from public policy which will briefly be explored in the following.

The main objective of competition policy is to avoid any practices that decrease the total eco- nomic welfare. As the welfare of an economy is lowest when the market price is on the same level as the monopoly price, competition policy seeks to prevent economies from monopolies or practices that could lead to a monopoly.

Figure 1 graphically illustrates the producer surplus, the consumer surplus and the total sur- plus of an economy (equilibrium point) in a simplified way:

illustration not visible in this excerpt

Figure 1: Consumer (red), producer (blue) and total surplus (equilibrium) on a supply and demand chart (illustration taken from: http://en.wikipedia.org/wiki/economic_surplus)

Even though economists prefer in general the total economic welfare argument as the main objective of competition policy, there are also some arguments to put the consumer welfare objective first. Among others, the main arguments supporting the consumer welfare argument is that a price increase by a dominating firm would result in a big loss for the total number of consumers, whereas the loss for the individual consumer might be low and negligible. In or- der to counterbalance this inequity, the authorities should take the consumer welfare argument first. But, as the consumer welfare argument doesn’t put the gains made by firms into account and - under consideration of the strict application of such rules - would remove profits from organisations. Due to the latter, firms would either exit the market or refuse to invest into in- novations which would in turn results in a loss of future consumer surplus.

In some countries the protection/defence of small and medium-sized enterprises (SMEs) is or has been one of the objectives of competition policy. Even the European Commission is of the opinion that SMEs have to be defended from large multinational enterprises, as they are more dynamic, better innovators and are creating more employment than larger firms.

In contrast to “total welfare” as the main (economic) objective of competition policy, the promotion of market integration is the key (political) objective of competition policy in the European Union (EU). That’s why any price discrimination across national borders in the EU is forbidden, notwithstanding that a per se rule is not justified on economic welfare grounds and could even work against the integration objective. Other economic objectives assigned to competition policy are to guarantee economic freedom or the fighting against inflation. Both previously mentioned arguments had been reasons for the implementation of competition laws in Germany. Furthermore, competition laws might include the call for fairness and eq- uity, such as fairness towards customers.

In addition to the before mentioned economic reasons for competition policy, public policy considerations have also always affected competition jurisdiction. Public policy considera- tions include social reasons (e.g. agreements between firms in declining sectors), political reasons (e.g. reduction of inequality in income distribution), environmental reasons (e.g. envi- ronmental safety) or strategic reasons resulting from national industrial and trade policies (e.g. protection of coal industry in Germany).

2.3. Competition Policy

For the assignment in present, the definition of competition policy according to Motta (2007, p.30) shall prevail:

Competition Policy is the set of policies and laws which ensure that competition in the mar- ketplace is not restricted in such a way as to reduce economic welfare.

3. Competition policy in Bulgaria

Bulgaria is, together with Romania, the youngest member state of the European Union enter- ing into the Union on January 1st, 2007. As a prerequisite for the accession, Bulgaria had to follow and apply numerousness norms, guidelines and new legislations, which also contained the EU regulations on competition policy. Hence, this part of the assignment will describe the development and application of competition policy in Bulgaria following the fall of the iron curtain.

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