European Business Environment - Case Study Example

European Business Environment- Conduct a comparative analysis of two article 101 cases. Table of Contents Table of Contents 2 Introduction 3 Brief onCompetition Policy 3 Brief on Article 101 4 Case 1: European Commission fines car glass producers for Cartel 5 Case Facts 5 Decisions 6 Analysis of Decision 7 Case 2: European commission tests commitments of multiple international publishers 8 Case facts: 8 Decisions 10 Analysis of Decisions 10 Comparison of Both Cases 11 Conclusion 12 Reflective Journal 13 Reference 15 Introduction The world of the modern day era is pushed forward on the basis of rapid change and continuous development. The rise of various new markets from emerging economies located in mostly the BRIC nations coupled with the factor of rapid advancement of the technology and communication network has resulted in a massive transformation in the marketplaces around the globe. Talking on this note, it can be said that the massive transformation in the global markets has led to the upshot of a formation of a single and highly connected global market. The emergence of a global marketplace has led to the increase in competition in the markets around the world, while also opening up the possibility of entering in to new markets for the purpose of engaging in foreign trade. Since most companies around the world are trying to capitalize on their strong points and are focusing on leveraging the opportunities arising in various domestic and international markets, the markets have become highly integrated and interconnected with each other. It is important to say that the positive or negative impacts on the markets of a particular region can have significant consequences on the trade performance of other domestic and international markets. Hence, it is of supreme importance for businesses to respect a particular policy that has been designed by the local and international government to maintain stability and sanity in the commercial business markets. Brief on Competition Policy Discussing on the lines of business, it is relevant to highlight that competition in the marketplace is very necessary. Because of existence of competition in the marketplace, various new as well as existing businesses will try to compete with each other for the purpose of profit generation as well as wealth maximization. This will automatically lead to better value generation for the customers. However, companies in order to gain upper hand in regards to market competition as well as the power existing in the hands of the consumers, try to engage in unfair competition. Needless to say, that these activities result in creating an imbalance in the marketplace. It has to be mentioned that the distribution as a business activity forms a critical component in the European Union. The distribution factor of various businesses has gained vital importance as it has deep rooted relationship with various business sectors (Monti, 2002, p. 4). In order to prevent companies and business organization to engage in unfair market competition in the European markets, the European Commission which was formed as an initiative by the European Union has developed a series of policies. Talking in regards to the policies formed, the European Commission keeps a watchful eye on the business markets of the European region to prevent agreements between companies that hamper normal competition in the marketplace. The competition policy of the European commission also monitors and tracks potential mergers, efforts to liberalize markets and even the cooperation efforts between firms and regional national authorities located in the European region (European Commission-1, 2012). Talking about the latest developments in the line of distribution in Europe, it has to be said that the European business policy makers has developed and enforced a new set of rules, distribution and supply agreements which are commonly referred to as vertical agreements. Brief on Article 101 The Article 101 of the Treaty on the Functioning of the European Union (TFEU) has been adopted by the European Council on the date of 16 December 2002. It is important to mention that the Article 101 of the TFEU is a modification on the previously existing Article 81 which was inserted into enforcement in the year 2000 (Europa, 2011). Talking in an elaborate manner, it can be said that the Article 101 prohibits any and all kinds of business dealing and agreements, which lead to the restriction of competition that is existing in the marketplace. It also has to be stated that this particular business law also restricts group based actions and decisions that hampers the possibility of open and fair competitive environment in the marketplace (Bullesbach, 2010, p. 607). It is to be mentioned that the Article 101 is bounded by certain drawbacks. The Article 101 of the TFEU focuses more on controlling the behaviour of various business organization rather than actually pinpointing on the issues of the formation of a merger between various organizations and business entities. Discussing elaborately, it can be said that the formation of a merger in any business markets in any region or nation is bound to make a permanent or long term change in the pattern and structure that currently exists in the market. In the case of oligopolistic markets, various firms may realize the factors and benefits associated with possible interdependence with each other. This may lead to a possible collusive behaviour of the firms without actually engaging in formal collusion based agreements. The Article 101 being unable to tackle such a condition may present the market with the possibility of existence of uneven competition. Needless to say, this will be hampering the well being of the associated markets as well as the consumers at large (Kokkoris, 2010, p. 17). Case 1: European Commission fines car glass producers for Cartel Case Facts The European Commission, which is a business watchdog formed under various business based initiatives taken by the European Union has charged various glass makers in the European region for the purpose of forming cartel and restricting the existence of a fair market based competition. The government based agency has charged some of the leading glass manufacturers like Asahi, Pilkington, Saint –Gobain and Soliver with fines amounting to around 1,383,896,000 pounds for violation of trade rules and regulations existing in the European Economic Area (EEA). Highlighting the issues in a clearer manner, it can be said that the European Commission fined the glass making giants for violations of EEA Agreement as well as EC Treaty in regards to formation of cartel for the purpose of controlling business markets (WSG, 2009). The Article 101, which was previously referred to as Article 81 of The EC Treaty of the Functioning of the European Union (TFEU) as well as Article 53 of the European Economic Area (EEA) Agreement strictly prohibits cartel based business behaviour among various organizations, in order to maintain fair competition as well as stability of product prices in the European business markets. The cartel based behaviour of the European glass making giants was initiated in the year 1998 and was carried on for a period of around 5 years. Multiple senior level executives of the glass making giants of Europe engaged in discussing possible future market share, target pricing for products as well as allocation and distribution of customer base in a number of meetings that happened in highly diverse venues at locations all over the Europe (Europa -2, 2008). It has been found that the rule breaking glass manufacturing companies because of their formation of a cartel was successful in controlling around 90% of the glass market in the European region. It has been found that as of the year 2003, the glass markets of the European region which comprised of industrial large scale car manufacturers as well as individual buyers of branded replacement glass was estimated at around 2 billion pounds (Ennis, 2008). Decisions It can be said that the multiple glass manufacturing companies, that are found responsible for participating in the process of defaulting on rules of doing business that was set by the European Commission was charged with high rate of fines. The total amount of the fines was estimated to be around 1,383,896,000 pounds. The France based glass manufacturer Saint Gobain was imposed with a 60% hike on its fine rate because of its repetitive engagements in breaking of the business laws existing in the European business markets. However, it needs to be mentioned that because of the cooperation of the Japan based company Asahi in regards to providing vital information to the European Commission during the course of investigation of the cartel, the company was awarded with a 50% reduction on its total estimated fines. Analysis of Decision While analyzing the decision of the European Commission in regards to charging the cartel participating companies with huge amounts of fines, the economic, business, financial as well as political perspectives has to be taken in to account. Viewing the decision of the commission from the economic point of view, it can be said that the high amount of fines levied on the companies sends a clear message to businesses of the European Union that they are in no way allowed to indulge in illegal economic practices for the purpose of wealth generation as well as profit maximization. The decision reinforces the fact that the firms should positively refrain themselves from generating benefits from unbalanced and improper economic advantages. From the business point of view, the decision highlights and strongly brings in to focus the fact that the companies indulging in trading and business activities in the Euro Zone, are in no way allowed to engage in unethical business activities. From the financial point of view, the high amounts of fines that are imposed on the rule breaking organizations substantiates the fact that wealth maximization as well as generation of profit while engaging in unethical practices by business organizations are not at all tolerated in the Euro Zone. The high level of fines also signifies the fact that companies who are responsible for engaging in unfair business activities will have to bear the risk of undertaking huge financial losses on the company’s accounts, if proved guilty by the authorities of the European Commission. While analyzing the commission’s decision in the political point of view, it has to be said that the strict decision that has been rendered on the leading glass manufacturing companies of Europe in regards to their cartel based behaviour brings in to light that the political powers governing the multiple member states of the European Union do not tolerate unethical behaviour by business organizations. Case 2: European commission tests commitments of multiple international publishers Case facts: The European Commission, which has been formed as a result of policy development by various participating nations under the European Union and is tasked with the responsibility of watching that a fair business environment exists in the European region has opened proceeding against Apple as well as five publishers of international presence and repute (Europa -3,2012). The European commission initiated an investigation in the year 2011, to address concerns that Apple along with five other companies namely Simon & Schuster (CBS Corp.), Harper Collins, Hachette Livre, Holtzbrinck and Penguin has indulged in group negotiation activity for the purpose of limiting retail price competition in the case of sale of e-books in the European Economic Area. It is highly important to mention that the process of predetermination of future prices of products and services by a group of companies servicing the same sector for the purpose of generation of maximum revenue from the market can be classified as an enhanced form of cartel based behaviour. Market reports from various confidential sources revealed some highly interesting facts. Before January 2010, the format of selling e-books in the European markets was a streamlined one. It can be said that the e-books were sold by the publishing companies to the retailers while following a traditional wholesale model. The retailers are supposed to buy the e-books from the publishers at a fixed price and then had the right to exercise their own influence in determining the selling price of the e-books from their stores. It can be said that this kind of a business model, helped in the existence of a clear and transparent competition which provided maximum amount of value to the retailers in the market. However, in the period of January 2010, in order to develop a significant amount of competitive edge in the market, Apple and four others publishers of international presence focused on designing an agency based contract. As per the agency based contract, all the participating publishers are bounded by the same kinds of terms and conditions. This resulted in the scenario where the retailers became sales agents for the large publishing companies who focused on directly catering to the consumers. It is important to mention that in regards to the new agency based contract model, the publishers had the power to determine and fix the prices of the e-books while following the rules existing in the agency contracts. Talking in a more elaborate manner about the contract model, there are some highly unique characteristics. The agency contract has clauses like Most Favoured Nation clause, MPR price grids. The contract also discusses about a flat 30% commission that has to be provided to Apple. It is very important to mention that as a result of this contract based model, there was an increase in retail prices as compared to the prices offered by some prominent retailers. This model also hampered the pricing of the e-books in some countries to such an extent, that there was no way of offering the products at a lower retail price to the customers. Needless to say, that this resulted in the process of disruption of competition in the market place and thereby resulted in the development of an improper and unbalanced competition in the European region (Europawire, 2012). Decisions With regards to the findings of price anomalies of e-books in the market place of European Economic Area (EEA) by the European Commission, the issue has been resolved on the basis of mutual agreements. It has to be said that the mutual agreements are on the basis of the commitments provided by Apple as well as the other international publishing companies. The commitments comprises of cancellation of all existing agency contracts between Apple and the other publishing houses including Penguin. The commitments also ensured that the four retailers, except Penguin will not try to manipulate the pricing power of the retailers for a period of minimum two years. The commitments of Apple and the four publishing houses also had the factor of abstaining from dealing in any agreements related to e-books which will have a most favoured nation (MFN) clause. Analysis of Decisions While analyzing the decision, it can be said that the European Commission has taken the right step in the entire scenario. Taking in to account the very nascent stage of the entire market for e-books that exists in the European Economic Area (EEA), the commission has taken a preventive step to address the issues that might emerge from existence of uneven price competition and unfair economic environment. The Commission’s willingness to accept on the agreements is dependent on a couple of key issues, which can be judged and analyzed from the economic as well as point of view. From the economic perspective, it has to be said that the European Commission was keen to promote growth in the e-books market in the European region, though not at the cost of fair competition and transparency. The cancellation clause of the agency contract inserted within the commitment offered by the companies highlighted that the focus is more on restoring stability and fair competition in the nascent e-books market, while acknowledging the pricing anomaly that existed previously in the market because of the agreement. The enforcement and application of the two year period where the four publishing houses as well as Apple cannot enter into the process of fixing of prices of the e-books was done to restore the normalcy of competition in the market. It can be increasingly assumed that the application of the two year cooling off period as well as the five year ban on MFN clause will help to pass on the pricing power to the retailers, who can provide competitive pricing that will help them to generate profits as well as provide maximum amount of value to the consumers located in the European markets Judging the decision from the political point of view, it can be said that the sole focus of the policy makers was to promote growth while maintaining a clear and transparent market for e-books in the European area. It also has to be said that the policy makers wanted to restore the practice of fair competition in the European e-books market while at the same time trying to develop the prospects in regards to value proposition for the end customers (Europa -4, 2012). Comparison of Both Cases Talking in regards to comparison of the cases, it has to be said that the first case discussed the consequences faced by the multiple leading and global glass manufacturers for the purpose of violation of trade rules while doing business in the European Economic Area (EEA). The second case discusses about the possible collusion of Apple with five publishing companies for the setting of prices of e-books and their mutual acceptance of the solution to the crisis. It has to be said that both the cases are highly similar on the grounds that the responsible companies indulged in collusive and cartel based activities for the purpose of predetermination of fixed product and service prices along with mutual discussion and agreement of various business based activities. As a result of the companies’ indulgence in cartel based activities, there was a significant amount of interference and influence in the nature and level of competition that existed in the markets of the European region However, there is a significant difference that exists in regards to the results that are directly associated with the behaviour of the companies. Because of the fact that the glass market was a traditional market, where a normal competition existed for a long time, the offenders were charged with heavy fines for indulging in cartel based activities which resulted in distorting the profitability as well as competition in that particular market sector. In the second case, just because the e-books market in Europe is in a stage of infancy, the offenders are made to agree on compatible terms with each other for the discontinuation of their activities and refraining from such activities in the immediate future. The focus here was to promote fair competition while not cutting down on growth prospects of the market. Conclusion Talking about the Article 101 which is present in the Treaty on the Functioning of the European Union (TFEU), it can be said that the treaty is more concerned in protecting the nature of competition existing in the market of Europe. It is of considerable importance to state that the European Union based market regulatory watches dog, European Commission plays a significant role in looking into the fact that the market is governed by fair competition and provides maximum amount of benefits to the customers as well as the sellers in the European marketplace. However, in terms of cartelization and possible collusion based activities by various firms, which simply denotes violation of the Article 101, the commission takes various stringent measures to make sure that the companies amend for their inappropriate business dealings. The European Commission, while enforcing the rules and regulations of doing business in the European markets also takes into account the growth prospects as well as the multiple factors that can have a significant influence in the business prospects of the entire business region of Europe. Reflective Journal While doing this particular project, it is of high importance to mention that I became more familiar with following a particular format during the course of in-depth analysis of the cause and related effects of a business. I learnt to divide my time between engaging in research work for finding the relevant supporting data as well as writing the assignment. Talking about the problems, I encountered while doing this project, it has to be brought into attention that a limited amount of data was available on the internet as well as the company archives. The capped availability of new and information limited me from conducting a broader analysis. I would like to mention that I would try to reduce the amount of time taken by me while researching the data for the topic as well as completing of the project. I would try to follow the motivation of doing smart work, rather than plain and simple hard work. Towards the completion of the assignment, I realized that the mentioning of the case facts and results was easier to perform. However, the analysis of the decisions rendered to the companies by the European commission was a little difficult task. The reason behind it was simply that it needed real time application of various academic theories that are learnt during the undertaking of the course. Finally, I would like to bring into focus that for successful execution of the project, i have performed to the best of my availability. Reference Monti, M., 2002. Competition Policy in Europe. [Pdf] Luxembourg: Office for Official Publication of the European Communities. Available at: [Accessed: 6 Mar. 2013]. European Commission -1, 2012. What is competition policy? [Online] Available at: [Accessed: 6 Mar. 2013]. Europa, 2011. Application of Articles 101 and 102 TFEU (formerly Articles 81 and 82 of the EC Treaty) [Online] Available at: [Accessed: 6 Mar. 2013]. Bullesbach, A., 2010. Concise European IT Law. United Kingdom: Kluwer Law International. Kokkoris, I., 2010. Merger Control in Europe: The Gap in the ECMR and National Merger Legislations. USA: Routledge WSG, 2009. Record Fines for Car Glass Cartel. [Online] Available at: [Accessed: 6 Mar. 2013]. Europa -2, 2008. Antitrust: Commission fines car glass producers over €1.3 billion for market sharing cartel. [Online] Available at: [Accessed: 6 Mar. 2013]. Ennis, D., 2008. EU Commission fines car glass cartel 1.3 bln euros. [Online] Available at: [Accessed: 6 Mar. 2013]. Europa-3, 2012. Antitrust: Commission market tests commitments proposed by Simon & Schuster, Harper Collins, Hachette, Holtzbrinck and Apple for the sale of e-books [Online] Available at: [Accessed: 6 Mar. 2013]. Europawire, 2012. Antitrust: Commission accepts legally binding commitments from Simon & Schuster, Harper Collins, Hachette, Holtzbrinck and Apple for sale of e-books. [Online] Available at: [Accessed: 6 Mar. 2013]. Europa -4, 2012 Antitrust: Commission accepts legally binding commitments from Simon & Schuster, Harper Collins, Hachette, Holtzbrinck and Apple for sale of e-books. [Online] Available at: [Accessed: 6 Mar. 2013]. Read More