The Necessity of Consumer Law for Effective Competition and a More Robust Enforcement of Competition Law a Comparative Analysis of the EU and Georgian Legal Systems
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The Necessity of Consumer Law for Effective Competition and a More Robust Enforcement of Competition Law A Comparative Analysis of the EU and Georgian Legal Systems by Zurab Gvelesiani Submitted to Central European University Department of Legal Studies In partial fulfillment of the requirements for the degree of SDJ in International Business Law Supervisors: Professor Caterina Sganga Professor Csongor István Nagy CEU eTD Collection Budapest, Hungary Oct. 2017 Abstract In 2012, in the midst of negotiations to sign the free trade agreement with the EU, the Georgian Parliament adopted a new competition law. The new statute was based on the EU competition law model, in accordance with the recommendations of the EU Commission. The law reform was rather unusual, not only because it reintroduced competition law seven years after abolishing the existing antimonopoly law and closing down the Antimonopoly Service, but also because it was immediately followed by the abolishment of the law on consumers rights protection, effectively eliminating consumer law and its enforcement system in Georgia. This dissertation uses the case of Georgia and conducts a comparative analysis of the EU and Georgian legal systems, to demonstrate the impossibility to foster market competition, maintain its high level and enforce competition law and antitrust policies fruitfully, in the absence of consumer law. According to a widely shared opinion, a high level of market competition is in the interests of consumers, as it delivers to them low prices, good quality and a wide selection of goods and services. Contrary to this belief, this work argues that while market competition has immense potential, the mere liberalisation of markets and introduction of competition do not guarantee any benefits for consumers, unless the process is accompanied by effective consumer protection policies. CEU eTD Collection Consumers fail to take advantages of competitive market structure. Moreover, neither market competition can be successfully maintained, nor competition law enforced without actively engaging consumers. The latter hold a critical role in daily market operations and in 1 competition law enforcement. However, consumers are not naturally prepared and equipped with suitable skills for this role. The average consumer is a weak, irrational thinker, can be easily manipulated, and lacks knowledge and confidence to protect her interests. It is the goal of consumer law to turn her into a market actor who can contribute to competition with their rational behaviour and actively participate in the law enforcement process as well. In order to verify this assumption, the research analyses substantive, procedural and institutional aspects of competition and consumer laws. It identifies consumer welfare as one of the primary objectives of competition law, and employs comparative-historic analysis to explore the rationale of consumer law, criticising the narrowness of the legal notion of consumers, for leaving all the non-human actors out of the regulations. The research relies on the finding of behavioural law and economics and challenges the mainstream consumer image for being unrealistic. It examines procedures through which consumers can participate and contribute to competition law enforcement process, and seeks to define the optimal institutional design for the enforcement authority in Georgia, after advocating for and predicting the inevitable reintroduction of consumer law. CEU eTD Collection 2 Table of Contents Introduction Chapter I. Goals of Competition Law 1. The need for clarity of objectives 2. Historical overview 2.1 The birth of antitrust law 2.2 Transformation of the European approach throughout the twentieth century 3. Influential schools of thought of competition law and antitrust theory 3.1 The Harvard School 3.2 The Chicago School 3.3 Ordoliberalism 4. Objectives of EU competition law 4.1 Introduction 4.2 Market integration 4.3 Competition process 4.4 Consumer welfare 5. The notion and statutory basis of consumer welfare 6. The birth, evolution and current state of competition law in Georgia 6.1 The total absence of market competition in Georgia, until restoring independence in 1991 6.2 The rise and fall of the first antimonopoly legislation of Georgia 6.3 The contribution of Europeanization process to the development of Georgian competition law 6.4 Objectives of Georgian competition law 6.5 Seeking for consumer welfare in Georgian competition law CEU eTD Collection 7. Conclusion Chapter II. The Notion of Consumer and the Rationale of Consumer Law 1. Introduction 2. The notion of consumer in competition law 3 2.1 Defining consumer in EU competition law 2.2 Defining consumer in Georgian competition law 3. The notion of consumer in EU consumer law 4. The birth and evolution of consumer protection law 5. The history of consumer protection law in the EU 6. The rationale of consumer protection and contradictory aspects of the notion of consumer 6.1 Market failures and a critical role of consumer law in addressing them 6.2 The economic nature of consumer law and other secondary features 6.3 Market evolution and the emergence of active and confident consumers 6.4 Challenging the narrow notion of consumer 6.5 Vulnerability of legal entities and a crucial role of consumer law in addressing the problem 6.5.1 The rise of SMEs and challenging traditional views regarding business decision-making 6.5.2 Behavioural biases in a decision-making process of SMEs 6.5.3 Outdated stereotypes of the powerful business and the weak consumer 6.5.4 Redefining consumer in EU law 6.5.5 Classifying SME-involved market transactions 7. History of consumer rights protection law in Georgia 7.1 1918 Constitution of the Democratic Republic of Georgia 7.2 Georgia in the period of the Soviet Union 7.3 Development of Georgian consumer law after 1991 8. Consumer-related legal provisions in Georgian legislation 9. Defining consumer in Georgian consumer law CEU eTD Collection 10. Conclusion Chapter III. The Image of the Consumer 1. Introduction 4 2. Consumer images 2.1 The average consumer benchmark 2.2 The average consumer standard discussed in EU case law 3. Challenging the average consumer benchmark 3.1 Behavioral analysis of the image of the consumer 3.1.1 Relevance of behavioral analysis for the subject matter of this dissertation 3.1.2 The origins of behavioral economics 3.1.3 Consumer behaviour 3.2 Lessons from behavioral studies 3.2.1 “Calimero” Consumers 3.2.2 “Calimero” legal entities 4. Vulnerable Georgian Consumer 5. Primary directions of EU consumer law 6. Informational remedies 6.1 Information as for the primary tool in the hands of consumers 6.2 The costs of informational remedies 6.3 Motivating the private sector to provide information and educate consumers 6.4 The limitations of informational remedies and how to avoid them 6.5 Nudges, when informational remedies are not effective 7. The inevitable failure of competition law in the absence of consumer law 8. The contribution of consumer law to competition law enforcement 9. Conclusion Chapter IV. Consumers’ Access and Participation in Competition Law Enforcement 1. Introduction 2. Primary objectives and forms of competition law enforcement CEU eTD Collection 3. Public enforcement of competition law in the EU 3.1 The need for engaging consumers in the process of public enforcement 3.2 Lodging a complaint to the enforcement authority 3.3 Limited resources of the enforcement authorities and a practice of priority setting 5 3.4 Rejecting a complaint, due to the complainant’s ability to litigate 3.5 Settlements and informal procedures of the enforcement authorities 4. Public enforcement of competition law in Georgia 4.1 Initiating an investigation 4.2 Non-existence of priority setting mechanism 4.3 The need for innovative and informal forms of enforcement 4.4 Summary 5. Private enforcement of competition law in the EU 5.1 A brief history of private enforcement in the EU 5.2 Ex-ante deterrence with private actions 5.3 Consumers as private enforcers 5.4 The most common challenges for private enforcers 5.4.1 Legal standing 5.4.2 Pass-on defense 5.4.3 The damages suffered without purchasing infringement-related goods and services 5.4.4 Access to evidence 5.4.5 Calculation of damages 5.4.6 The litigation culture 5.5 Collective actions 5.6 Summary 6. Private Enforcement in Georgia 6.1 The current status-quo 6.2 Problems of Georgian private enforcement system 6.2.1 Time limitation to take an action 6.2.2 Collective redress CEU eTD Collection 6.2.3 Suffering from damages without purchasing infringement related goods and services 6.2.4 Relevance of the case law of the EU courts 6.2.5 The competent court 6 6.2.6 Summary 7. Conclusion Chapter V. Institutional Design of the Enforcement Authorities 1. Introduction 2. Defining the scope 3. Literature review and research gap 4. Institutional autonomy of EU Member States and consequential challenges 5. The wave of redesigning market regulating authorities around the EU 5.1 EU Commission and DG Comp 5.2 CNMC, Spain’s “super-regulator” 5.3 Netherlands, Authority of Consumers and Markets 5.4 The UK, Competition and Markets Authority 5.5 Denmark, Competition and Consumer Authority 5.6 Finland, Competition and Consumer Authority 5.7 Ireland, Competition and Consumer Protection Commission 5.8 Portugal, sole responsibility authorities 5.9 France, rejecting a two-pillar model 5.10 Common tendencies 6. Design of enforcement and regulatory authorities in Georgia 6.1 Brief historical analysis 6.2 Georgian