What is the Competition Law and why is it necessary?

introduction by Mr. Alin ZABAVA, Consultant

SCA Nestor Nestor Diculescu Kingston Petersen

Competition is one component of the complex relationships existing among suppliers operating on a certain free market segment (defined in terms of product and geographical area). Due to competition, suppliers adjust the prices of the products they offer on the market in order to derive a decent profit, based on production costs and demand and on the pressure exercised by the other players operating on the market, via the prices they ask for their products.

Competition intensity can vary to a large extent, from perfect competition, when the number of independent undertakings operating on the market segment is very high (theoretically, infinite) and competition is most intense, to monopoly, when there is only one supplier for a certain market segment and no competition. Basically, one can consider that any undertaking operating on a market segment desires to become a monopoly, in order to derive the monopolistic profit and to provide the highest return for the investors in such an undertaking, on behalf of the consumers of the product it supply, which pay the monopolistic price for such product.

As a monopolistic market may be considered as opposite to a free market and in such market there are but very few (if any) incentives for innovation, product enhancement and, generally, for economical and technical progress, because the respective monopoly derives the highest possible profit irrespective of the market trends and the consumers’ needs, such status should not be allowed in any market segment, to the most reasonably possible extent. For this purpose, various States enacted dedicated legal statutes for the protection of the competition on their markets, which specify how undertakings should behave in order to maintain reasonable competition environment on the market segments in which they operate.

In Romania, as in many other States, competition is considered as fundamental for the appropriate functioning of the free market. Accordingly, the Competition Law was enacted in 1996 (Law No.21/1996), as an organic law. This law was latter on modified and supplemented, in December, 2003, under Government Emergency Ordinance No.121/2003, further sanctioned by the Parliament, in May, 2004, under Law No.184/2004 (an organic law too) and, more recently, in November, 2004, some minor changes in Art.5‑7 thereof were enacted, under another organic law – Law No.538/2004.

The Competition Law No.21/1996, as further modified and supplemented, specifies how should Romanian and foreign undertakings conduct their business in Romania in order to maintain a reasonable competition environment on the Romanian market. The Romanian Competition Law is of great interest for the business community operating in Romania, as competition rules specified under this law and under the secondary and tertiary legislation promulgated thereunder are rather strict and the sanctions which are applicable in case of breach of such rules.

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