Lecture 5

• Common Agriculture Policy (CAP)

  EU policy aiming to raise farm incomes with market stabilization, supply security, and fair consumer prices
• CAP Objectives


  Set by Treaty of Rome: increase productivity, ensure farmer livelihoods, stabilize markets, ensure supply security, and maintain consumer prices
• CAP Principles


  Implemented on market unity, community preference, and financial solidarity
• CAP Budget Allocation


  €387 billion (32% of EU budget 2021-2027) for income support and rural development
• Variable Levies


  Implemented price floor mechanism to prevent EU prices from dropping below set levels
• Price Support Issues


  Varies by product, affected by world prices, inefficient resource allocation, uneven benefit distribution
• Supply Problem


  CAP led to surplus food due to productivity gains, causing budget, storage, and export challenges
• CAP Budget Share


  Decreased from 65.5% in 1980 to under 25% in 2021, despite EU enlargements
• Distribution Problem


  Uneven benefits distribution favoring large farms over small ones in the EU
• CAP Reforms


  Implemented since the 90s to reduce market price support, introduce decoupled payments linked to environmental goals
• Competition Policy


  Addresses economic reasons for competition, cartels, abuse of dominant position, merger controls, state aid, and digital markets
• Productivity


  Measure of efficiency gains in firms
• Competitiveness


  Distinct from competition, drives product improvements
• Monopolist Rents


  Profits earned by a monopolist due to market power
• Consumer Surplus


  Difference between what consumers are willing to pay and what they actually pay
• Welfare Loss


  Reduction in societal well-being due to market inefficiencies
• Monopoly Profits


  Profits earned by a monopolist due to lack of competition
• Sherman Act


  1890 U.S. law to prevent monopolies and promote competition
• State Aid


  Financial assistance from government to businesses, subject to competition rules
• European Commission


  EU body regulating competition policy and imposing fines for violations
• Leniency Programme


  Incentive for cartel members to report violations in exchange for reduced fines
• Dominance


  Market power allowing a company to act without effective competition
• Abuse of Dominance


  Exploitative behavior by dominant firms to stifle competition
• Truck Cartel


  Major truck manufacturers colluding to fix prices and control the market
• Google Shopping Case


  EC fine on Google for favoring its own services over competitors
• Relevant Market


  Defined market for analyzing anti-competitive effects
• Merger Control


  Examining mergers to prevent harmful competition effects
• Digital Gatekeepers


  Large digital companies acting as dominant platforms
• Economies of Scale


  Cost decrease with increased production due to fixed costs
• Network Effects


  Product value increases with more users, creating positive externality
• Barriers to Entry


  Factors like scale, network effects hindering new competitors
• Herfindahl-Hirschman Index (HHI)


  Measures market concentration using firm market shares
• Market Concentration


  Higher concentration indicating less competition in a market
• Digital Market Act


  EU regulation for fair behavior of digital platforms
• Competition Measurement


  Using HHI to assess market competition levels