Raison d’être of the Defence of Competition

Article 2 of Law 6/2004 (12 July), regulating the organization for the defence of competition in Galicia, establishes that the fundamental aim of the Galician Competition Court is to safeguard the competitive operation of markets within the territory of the Autonomous Community of Galicia, guaranteeing effective competition therein.

Free competition, with no restrictions other than those that are strictly necessary, helps to improve the competitiveness of business, which ultimately favours economic growth. This positive effect on economic growth reinforces the need to establish mechanisms for stimulating and protecting free competition in order to improve welfare in general and, in our case, as is pointed out in the introduction to Law 6/2004, to further promote the development of the Galician economy.

In its first paragraph, Law 16/1989 (17 July) on The Defence of Competition, a fundamental legal instrument that safeguards competition in Spain, affirms the following:

Competition, as the guiding principle of market economies, is an element that is innate to the model of economic organization in our Society, and on the level of individual liberties, the primary and most important manner in which the exercise of freedom for companies is evident. Thus, in accordance with the requirements of the general economy, the defence of competition has to be conceived as a mandate for public authorities that is directly related with Article 38 of the Spanish Constitution.

This statement is a conclusive declaration regarding the central role that competition, and consequently, on the defence of competition, should play in our economy.

From an economic perspective, anti-trust law arises from an ex-post response to attempt to correct the market ‘fault’ whereby certain profit-motivated economic agents resort to conduct that is detrimental to competition, significantly distorting market operation and its role in the allocation of scarce resources.

If competition deteriorates due to collusive agreements, the abuse of a dominant position or unfair competition, there will be clear negative effects. The level of production will be below that required to satisfy consumer demand, prices will rise artificially, and there will be less innovation in products and production processes. On the other hand, greater competition makes for greater consumer welfare, better value for money and the rationalization of markets by favouring the substitution of inefficient businesses by others who manage to produce at a lower cost and with a more efficient use of resources.

Nevertheless, the aforementioned Law 16/1989 stipulates that, under certain circumstances, certain practices that restrict competition may be permissible if they contribute to increasing production or marketing, or favour technical or economic progress, as well as others, described in Point 2 of Article 3 therein, which are justified by the overall economic situation and public interest.