Commercial divisions of public entities and the limits of EU competition law

Abstract

Competitive behavior of 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 enjoy various 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. Whereas anticompetitive behavior by commercial divisions is generally approached by means of competition law principles across EU Member States, this article demonstrates that competition law may not apply because these commercial divisions may not qualify as ‘undertakings’ under competition law. For the commercial divisions that would be considered undertakings, abuse of dominance might be established on a substantive level. However, competition authorities face numerous procedural and institutional challenges when enforcing against commercial divisions of public entities. The article then establishes two problematic consequences of the current approach to commercial divisions of public entities in the EU. First, an unequal playing field follows from the different treatment of private and public competitors in the application and enforcement of competition law. Second, the various competition law-inspired approaches towards commercial divisions of public entities hamper the internal market. The article concludes by suggesting possible remedies to these consequences: harmonization of competition law relating to anticompetitive behavior by commercial divisions, or enacting a standalone regulatory framework beyond competition law. Before resorting to these 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 rule of law.