EPRG 0919

Adrien de Hauteclocque and Jean-Michel Glachant

Longterm Energy Supply Contracts in European Competition Policy:  Fuzzy not Crazy

EPRG 0919 Non-Technical Summary | PDF

Abstract: Long-term supply contracts often have ambiguous effects on the competitive structure, investment and consumer welfare in the long term. In a liberalized market context, these effects are likely to be even harder to assess. Since liberalization and especially since the release of the Energy Sector Enquiry in early 2007, the long-term supply contracts of the former incumbents have become a priority for review by the European Commission and the national competition authorities. It is widely believed that European Competition authorities take a dogmatic view on these contracts and systemically emphasize the risk of foreclosure over their positive effects on investment and operation. This paper depicts the methodology that has emerged in the recent line of cases and argues that this interpretation is largely misguided. It shows that a multiple-step approach is used to reduce regulatory costs and balance anti-competitive effects with potential efficiency gains. However, if an economic approach is now clearly implemented, competition policy is constrained by the procedural aspect of the legal process and the remedies imposed remain open for discussion.

Keywords: Long-term Contract, Competition Policy, European Union

JEL Classifiation: K21; L42; L44

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