Commercial Divisions of Public Entities and the Limits of EU Competition Law

Abstract

Competitive behaviour by public entities is generally approached in the literature as concerning the traditional State-owned enterprises pursuing public interest objectives. However, increasingly we see examples of commercial divisions of public entities aiming to generate revenue per-se. Because these commercial divisions can enjoy competitive advantages over their private competitors, their behaviour may distort competition. This phenomenon has become prevalent throughout the EU, and member states tend to approach its anticompetitive effects through various 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, competition authorities may face procedural and institutional challenges when enforcing against commercial divisions of public entities.

With an ill-functioning and diverging legal framework across the EU, anticompetitive effects of commercial divisions of public entities lead to an uneven playing field between public and private firms with adverse effects on the internal market. Conduct that can be considered an infringement of competition law by a private firm may escape competition law scrutiny when perpetrated by a commercial subsidiary of a public entity. 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