Glossary of competition terms

This Glossary is based on definitions from DG COMP’s Glossary of terms used in EU competition policy (© European Union, 2002) and the OECD’s Glossary of industrial organisation economics and competition law (© OECD, 1993). Each term is enriched with references of national case laws from the e-Competitions Bulletin and Concurrences Review.

Economic efficiency

The sources of efficiency examined in economic welfare analysis are static (allocative, productive) or dynamic. The underlying rationale for mergers can be the possibility of achieving efficiency gains. Thus, most merger assessments will discuss productive and/or dynamic efficiency. Practices examined as abuse of a dominant position, while potentially exclusionary, may also have such efficiency benefits (for example, tying or bundling practices).

The tension underlying competition policy is effectively between allocative vs. productive efficiency and static vs. dynamic efficiency. The welfare standard in use in a specific competition regime also affects whether certain types of efficiency gains are more easily accepted in practice. Rivalry and competitive markets result in pricing closely linked to underlying costs (allocative efficiency), to the benefit of consumer welfare. Thus, the intervention by competition authorities is to ensure that allocative efficiency is achieved and that firms do not earn excessive returns through exclusionary practices or mergers that hamper rivalry. Still, some mergers may yield lower-cost or higher-quality outputs (productive or dynamic efficiency), to the benefit of total welfare. One of the difficulties in competition assessment is to weigh consumer and producer welfare in a balanced way, so that efficiency benefits can be accepted when they increase producer welfare.

A situation where there is a single (or few) buyer(s) and seller(s) of a given product in a market. The level of concentration in the sale of purchase of the product results in a mutual inter-dependence between the seller(s) and buyer(s). Under certain circumstances the buyer(s) can exercise countervailing power to constrain the market power of a single or few large sellers in the market and result in greater output and lower prices than would prevail under monopoly or oligopoly.

This would particularly be the case when: the "upstream" supply of the product is elastic, i.e. fairly responsive to price changes and not subject to production bottlenecks; the buyers can substantially influence downwards the prices of monopolistic sellers because of the size of their purchases; and the buyers themselves are faced with price competition in the "downstream" markets (see vertical integration for discussion of terms upstream-downstream). Such a situation is particularly likely in the case of purchase of an intermediate product. However, if the supply of the product upstream is restricted and there is no effective competition downstream, the bilateral monopoly/oligopoly may result in joint profit maximization between sellers-buyers to the detriment of consumers.

© OECD

Glossary