Commercial Divisions of Public Entities and the Limits of EU Competition Law
18 Pages Posted: 25 Apr 2019 Last revised: 6 Aug 2019
Date Written: July 29, 2019
Competitive behavior by public entities is generally approached in the literature as concerning the traditional State-owned enterprises pursuing public interest or political economy objectives. However, increasingly we see examples of commercial divisions of public entities aiming to generate revenue—think of a commercial branch of a forestry service selling timber to construction firms to supplement its tax-based revenues. Because these commercial divisions can enjoy competitive advantages over their private competitors, their behavior may distort competition and market entry. A survey of Member States demonstrates that commercial divisions of public entities have become prevalent throughout the EU, and member states tend to approach these potential anticompetitive effects through competition law(-related) frameworks.
This article points out, however, that a competition law framework may be ill-suited to address anticompetitive effects of commercial divisions of public entities. First, commercial divisions may not qualify as ‘undertakings’ under competition law to begin with. Second, the substantive application of arts. 102 and 106 TFEU to commercial divisions cannot be strongly established. Third, competition authorities may face procedural and institutional challenges when enforcing against commercial divisions of public entities.
While the designated competition law framework seems unable to address potential anticompetitive effects of commercial divisions of public entities, also an unequal playing field follows from the different treatment of private and public competitors in the application and enforcement of competition law. Moreover, the various competition law-inspired approaches towards commercial divisions of public entities throughout the EU can hamper the internal market. Because a modified and harmonized application of EU competition law to commercial divisions may not be practically feasible, regulation outside competition law could be more fitting. Before resorting to remedies, however, more research is necessary to appreciate and quantify the possible distortion of competition by commercial divisions of public entities, compile best-practice regulatory responses and further study effects on matters related to the rule of law.
Keywords: competition law, antitrust, state-owned enterprises, public sector competition
JEL Classification: D43, H44, K21, K42, L32, L33, L44
Suggested Citation: Suggested Citation