COMMISSION OF THE EUROPEAN COMMUNITIES The effects of national price controls in the European Economic Community COMPETITION - APPROXIMATION OF LEGISLATION SERIES - 1970 - 9 I The effects of national price controls in the European Economic Community Research Report by Mr. Horst Westphal, Dipl. Rer. Pol. Director of Research: Professor Dr. Harald JOrgensen Director, Institute of European Economic Policy, University of Hamburg Hamburg 1968 STUDIES Competition-Approximation of legislation series No. 9 Brussels 1970 INTRODUCTION BY THE COMMISSION According to the concept underlying the European Treaties, the prices of goods and services are usually formed by market economy principles, independent of State intervention. This statement only has to be qualified for certain fields where the market economy "laws" either cannot provide a yardstick of scarcity at all or cannot do so to the best economic and social effect. The EEC Treaty contains no specific price rules. As against this., the Member States take numerous price formation and price control measures whose methods and intensity are hard to determine. These measures pursuant to price laws and regulations are generally considered to include all direct price control measures taken by the State-in particular those described as "close to the market". Such measures have many legal forms-maximum prices, minimum prices, fixed prices, price margin and price publicity arrangements, in particular. The economic impact of State price arrangements-especially on competition policy-is complex. The present study has been rendered necessary by the varied nature of the subject matter and the extreme difficulty of ascertaining with sufficient accuracy the economic effects on the common market of varying national price laws and regulations. Professor Jurgensen, for many years head of the Institut fur europiiische Wirt­ schaftspolitik of Hamburg University, deserves praise for the attempt he has made to study exhaustively the impact of national price provisions in the European Economic Community. His study is based on a list of current price provisions (situation 1968) drawn up in co-operation with Member State experts. It works out the effects of the national price provisions, first in a closed economy and secondly in an open economy; a distinction being made between provisions to influence and control price formation and provisions to regulate price levels directly. The special, novel feature of the study would appear to be that it constitutes the first analysis ever of the conformity of the fairly numerous price provisions still effective in the individual Member States to the system postulated by not only the national but also the Community concepts of the way in which the economy should be ordered. This forms the theoretical basis from which action can be taken. With the help of tables and diagrams a clear summary is given of all national price pro­ visions which Professor Jurgensen considers inconsistent with the conception de­ veloped of the way in which the economic union should be organized, and therefore to require practical measures on the part of the Community. The compiler makes the final pragmatic point that national price provisions are only one of the many kinds of intervention likely to hamper the growth and affiuence expected from integration, so that the required, feasible measures to harmonize price legislation or co-ordinate price policy can only make a small contribution towards completing the economic community and union on economically sound lines. The Commission considers that the report-whose contents cannot, of course, prejudice in any way its own attitude to the many individual points examined­ affords and excellent basis for the continuation of present work on harmonizing the economic laws of the individual States. 3 FOREWORD The present study contains a description of the price controls currently in force in the Member States of the European Economic Community, a theoretical deduction of the effects of these controls and an assessment of these effects. The original plan was to aseertain the effects empirically. But, while it is easy to plan the broad outlines of a study of this kind, it very soon proved extremely difficult in practice to assemble the information needed to carry it out. Faced with the impossibility of compiling the necessary documentation on the markets subject to price control, and with the great difficulty of collecting the necessary details on the structure and application of these controls, a more modest way of analysing their effects had to be found. Starting from the principle that every economy based on the division of labour finds itself faced, whatever the ruling economic order, with problems of development, allocation and distribution, seven price regulation functions (Steuerungsaufgaben) have been formulated, which the State can either leave to the automatic operation of the market, or can ensure through the autonomous action of economic policy. The analysis assumes that, under the ruling conception of economic order, all these regulating functions are left to the operation of the market mechanism, and goes on to inquire into the effects of price controls on these functions. In order to assess these effects, consideration is then given to the way in which, under the ruling economic order, competence in respect of these regulating functions is divided between the EEC and its Member States and an opinion is expressed on the extent to which the controls discussed are consistent with the economic order. While it was originally intended that concrete recommendations should be made to the economic policy authorities on the basis of the empirical findings of the research, the change in the conception of the task has meant that this Report can only serve as a basis for further work in this field. It nevertheless constitutes a contribution towards a more systematic study of the operation of mixed economies, as well as providing concrete elements for wider empirical studies. The basic document for the description of price systems has been an Opinion addressed to the Commission of the EEC by the Institute of Comparative Law of the University of Paris, with the co-operation of Professor Champaud. In order to fill the gaps in this document, and partly to obviate the approximations resulting from repeated translations, other publications available in Germany have been used, and the national authorities of the EEC Member States have been invited to co-operate. With the exception of the Netherlands, all countries have provided valuable additions and corrections to the description of existing controls. In the case of France, the experts named above were able to provide further particulars. Since personal contacts were ruled out for reasons of cost, it has not been possible to clear up every question. In assessing the effects, it has therefore sometimes been necessary to make working assumptions, the validity of which cannot be tested here. In every case, it has been taken as a principle that the controls in force are applied by the State in question and observed by the economic transactors concerned. For example, the opinion cited above contains the warning that the practical effect of the French controls should not be overestimated, since the authorities in that country often prefer to make a parade of force, rather than actually using it, and the effects inferred in this Report may therefore seem greater than they really are in practice. It has been impossible in this study to take account of the fairly 5 widespread illegal practices, and it must be left to the economic policy authorities to assess the true extent of the effects discussed in this study. In spite of every effort to ensure completeness, it cannot be guaranteed that all controls have been included. To facilitate the application of the analysis to any control which may have been omitted, the general comments on individual types of control have been kept relatively broad. Our warmest thanks are due to all those who have co-operated in this research. fiARALD JURGENSEN 6 CONTENTS Part I: OBJECTS AND CRITERIA OF THE STUDY 10 Chapter 1: Objects and plan of the study 11 Chapter 2: Concept and types of price controls 14 Chapter 3: The criteria of the study 17 1. The starting point for an analysis of the effects in a closed economy 17 2. The starting point for an analysis of the effects in an open economy 20 Part II: THE EFFECTS OF PRICE CONTROLS 25 A. The effects of enactments governing price formation 27 Chapter 4: Enactments on price fixing 27 1. The prohibition of resale price maintenance 27 2. Stability contracts 35 3. Programme contracts 39 4. The prohibition of price discrimination 42 5. Control of rebates 50 Chapter 5: General price controls 53 1. Rules for costing 53 2. The normal price rule 64 3. Prohibition of overcharging 67 Chapter 6: Publicity and supervision 69 1. The duty to publish prices 69 2. The duty to report prices: price authorization 70 B. The effects of direct price controls 76 Chapter 7: The theory of price controls 76 Chapter 8: Price control by maximum prices 79 Chapter 9: Price control by minimum prices 87 Chapter 10: Combined controls: fixed prices and price brackets 89 Part III: ASSESSMENT OF EFFECTS 91 Chapter 11 : Introduction 93 Chapter 12: The consistency of national price controls with the economic system 96 1. Belgium 96 2. Federal Republic of Germany 98 3. France 100 4. Italy 104 5. Luxembourg 106 6. Netherlands 108 7 Chapter 13: Consistency with the economic