Five Meanings of ‘Competition’ in EU Law

1. Introduction

Competition is everywhere. It encompasses activities as mundane as turning breakfast into a race against the clock to encourage your child to finish quickly,¹ the Darwinian notion of ‘survival of the fittest’ in evolutionary biology,² the constant rivalry among car manufacturers to get you to buy their car, the Olympic Games, or the endeavours of religious groups to attract more members.³ Given its pervasiveness, numerous definitions and characterisations of competition have been formulated.⁴

Competition is also abundant in law. One might assume that in legal areas where competition is central, the concept would be clearly defined. That is not the case. Not even competition law has a definition of ‘competition’.⁵ Neither does public procurement law. The same is true for other areas where the regulation of competition is central. A simple word count on a few legislative documents is illustrative. The Concessions Directive mentions ‘competition’ 29 times.⁶ The word features 83 times in the main directive on the telecommunication market, the European Electronic Communications Code Directive.⁷ The EU Staff Regulation mentions it 46 times.⁸ The Olympic Charter mentions ‘competition’ 48 times.⁹ Yet the word ‘competition’ is not defined.

This article tries to answer the question of what ‘competition’ means. This question has been central in economics, and, to lesser extent, sociology.¹⁰ In legal research, significant effort is continuously being devoted to competition law, to the relationship between State and market generally,¹¹ and to the relationship between competition law and other areas of law, such as environmental law and public procurement.¹² The fundamental question of the meaning of the word ‘competition’ is less explored.

As the title indicates, the approach here is legal, and the aim is not to provide one common definition. Rather, the aim is to describe more precisely different meanings of ‘competition’ relevant to an understanding of law. The article will not provide an exhaustive list of what ‘competition’ means or can mean in legal documents. For instance, it will not be elaborated that ‘competition’ is used to refer to ‘competitors’, because I have not found that it causes interpretative difficulties or opens new interpretative possibilities.¹³ The five concepts that will be described are thus somewhat arbitrarily chosen. They are the ones I consider most relevant for improving the understanding and interpretation of law.

The five conceptualisations of ‘competition’ are derived from a combination of dictionary definitions,¹⁴ a review of economic and sociological literature on competition,¹⁵ legal historical research on public procurement regulations,¹⁶ and a study of a wide variety of current legislation and judgments at both the EU and national level.¹⁷ Most illustrations will be from EU public procurement law, because it is a field of law where it is apparent that the meaning of competition is especially relevant. The points made in the article are also relevant to other areas of law and life where competition and competitive procedures are prevalent as well, such as auctions,¹⁸ employment,¹⁹ concessions,²⁰ authorisation schemes for service provision,²¹ sports,²² and more.

A few examples from EU legislation can illustrate how a lack of nuance around the concept of ‘competition’ can cause interpretative difficulties, both in specific provisions and on the level of principles and purposes.

In telecoms, the mentioned EECC Directive is concerned both with tackling actors with significant market power and with the fair distribution of limited exclusive rights, such as access to networks, numbers, radio frequency etc. When cross-border disputes arise, Article 27 obliges national authorities to invite to consultation procedures. The national authority may, however, adopt interim measures without consultation where there is an urgent need to act ‘in order to safeguard competition’. What does competition mean? Can consultations be skipped to safeguard competition within specific competitive procedures for the allocation of, eg, lucrative phone numbers,²³ or does the achievement of several participants in such award procedures fall outside the word ‘competition’ as rightly interpreted in that provision, eg because the allocation of phone numbers will not affect the competition in telecom markets?

An example on the level of principles is that the General Public Procurement Directive Article 18 on general principles prohibits the designing of procurement procedures with the intention of ‘artificially narrowing competition’.²⁴ What does competition mean? Does it mean artificially narrowing participation in a specific procurement procedure and/or narrowing the competitive structures on the relevant market? The same provision is argued to be an operationalisation or expression of a more general ‘principle of competition’.²⁵ What does the word ‘competition’ mean in such a principle?

The Services Directive prescribes that limited authorisations for service provision shall be awarded through competitive procedures.²⁶ The preamble states that to prevent forcing privatisation on Member States, its provisions, amongst others on authorisation schemes, shall apply ‘only to the extent that the activities in question are open to competition’. What is required for an activity to be considered ‘open to competition’? Is it sufficient and/or necessary that the activity is awarded to a private entity who is active in a commercial market? Is the activity open to competition if the entity is a monopolist (de jure or de facto)? Is the activity open to competition if it is awarded through a competitive procedure, even if the only service provider in a position to receive the authorisation is a monopolist? The ways in which ‘open to competition’ is understood can affect interpretations of the scope of the directive.

In addition to improving such interpretative difficulties, an aim of this article is to provide a clearer understanding of the fundamental characteristics of different meanings of competition, which can provide new and improved legal arguments on a conceptual level, not necessarily linked to the wording of specific provisions.²⁷ I also believe that the strong connotations and denotations of the word ‘competition’ may obscure understanding and colour perceptions and interpretations where it is not warranted, and that legislation, judgments and other documents should avoid the vagueness of the word ‘competition’ when their points can be made clearer using other words.

This article is structured as follows. Section 2 presents five notions of competition in law, and the interplay between them. The five concepts are: competition as market structure; competition as a market-making process; competition as a competitive situation for a scarce good; competition as a contest; and competition as competitive parameters. Section 3 uses EU public procurement law to illustrate that the word ‘competition’ is or has been used in all five of these senses in the EU directives. Section 4 clarifies some more fundamental differences between competition in the meaning of ‘contest’ and other notions of competition. Section 5 shows how the different understandings of competition can improve legal argument about specific provisions (5.1), purposes and principles (5.2) and conceptually (5.3).

2. Five Concepts of Competition

The word ‘competition’ does not have a customary meaning in law in the US, UK, or EU. The dictionaries identify several meanings, where two are recurring. First, that it means a situation, process, or activity in which someone tries to outperform others, especially in the market. Second, an organised competitive event, which is essentially synonymous with the word contest.²⁸ However, the same dictionaries are not very precise, either in the entries on ‘competition’ or ‘contest’, or in the entries on similar words in some other European languages (ES. ‘competición/competencia’, FR. ‘la concurrence’, NO/DK/SV. ‘konkurranse/konkurrence/konkurrens’, DE. ‘wettbewerb/konkurrenz’).²⁹ The concepts of competition presented here can be sorted into one of these two dictionary meanings.

One concept of competition pertains to the competitive structure of markets. Lisa Herzog, in her article ‘Markets’ featured in the Stanford Encyclopedia of Philosophy,³⁰ highlights that ‘competition’ is one of the two prerequisites for markets, with the other being the exchange of goods and services for self-interest.³¹ The self-interested exchange where agents seek to find the best deal gives rise to competition among the participants on the other side of the market. Markets are called ‘competitive’ when they have certain structural features, such as many buyers and sellers, comparable goods, and the absence of informational asymmetries. An objective of competition law is to maintain competitive market structures through means such as the prohibition of cartels and merger controls to prevent the creation or strengthening of a dominant position.³² Competitive market structures are often understood as a prerequisite for public procurement regulation.³³

Competition, understood as structure, may lead to the erroneous belief that competition is a constant. Friedrich A. Hayek tackled this potential misconception in the essay ‘The Meaning of Competition’ in 1948,³⁴ and argued that competition is essentially ‘a process of the formation of opinion’ – a market-making process. Market actors produce and distribute information through their behaviour which ‘creates that unity and coherence of the economic system which we presuppose when we think of it as one market’. The actions of market actors create views about what is best and cheapest, and possibilities and opportunities. Hayek writes, ‘[i]t is thus a process which involves a continuous change in the data and whose significance must therefore be completely missed by any theory which treats these data as constant.’

A third understanding of competition is that of contest.³⁵ Contests are not as continuous as Hayek’s process of competition. Contests are events that share a basic structure of an initial establishment of the rules of the contest, a competition phase, and the selection of winner(s) based on the rules of the contest. More specifically, each contest is an episodic event in which an organiser invites participants to a time-limited procedure for the award of a scarce prize, which is awarded based on a set of rules for the contest. Scarcity is necessary. The procedure to award driver’s licences is not a contest since everyone who meets the requirements is entitled to a driver’s licence. The rules of the contest determine who can participate in the contest, rules on behaviour and award, and sanctions for breaking the rules. Contests have a minimum of transparency, since participation is impossible without knowledge of the existence of the contest, and voluntary participation is very unlikely if the contest rules are not available at the outset. Another key feature is that rules are set out to govern the procedure and outcome of the specific contest, eg, that the medal goes to the fastest female runner in the 100-metre sprint, not the runner closest to an ideal time, let’s say 15 seconds. Contests include events like the 100-metre finals in the Olympic Games, public employment procedures, public procurement procedures, and the lottery for tickets to the new year concerts of the Vienna Philharmonic. As will be elaborated in section 4, contests are essentially procedures with no other inherent objectives than the allocation of scarce resources,³⁶ as opposed to the inherent efficiency objectives of competition.

The fourth meaning of competition is competition as a situation, or competitive situation. The Cambridge English Dictionary states that one meaning of competition is ‘a situation in which someone is trying to win something or be more successful than someone else.’³⁷ Similar definitions are found elsewhere.³⁸ The concept of competition as a situation overlaps with both competition as market structure and competition as a market-making process, both of which can be seen as situations. When the word ‘competition’ is used in contexts where contest procedures are prescribed for the allocation of scarce goods, it is useful to view competitive situations as a distinct category since this separates the competitive situation for a specific scarce good, such as a contract, from the broader understanding of a competition structure and market-making process.³⁹ It also highlights that a competitive situation for a specific good can be present (or absent) both within and outside contests.

Finally, the fifth notion of competition to be presented is competition in the sense of competitive parameters.⁴⁰ From a legal point of view, competitive parameters are every criterion that one is permitted to compete over – every criterion where one can do better than one’s competitors. Pharmacists cannot compete on the quality and price of cannabis if the selling of cannabis is prohibited. If prohibited, legislation has ruled out cannabis as a competitive parameter (although it may in fact be a competitive parameter if the rules are not enforced). If it is not prohibited, it is a competitive parameter that allows for the ‘creative destruction’ of the competitive process, where new products and innovations outcompete former ones. That competitive parameters are those that are not forbidden follows from the legal baseline of freedom to conduct business and contractual freedom.⁴¹ An understanding of competitive parameters as a residual – all that is not prohibited – is especially relevant when organisers of contests decide on the rules of the contest. Should the job description rule out applicants without master’s degrees, thus limiting the competitive parameters for applicants with perhaps lots of experience but no degree? Should the seller at an auction accept payment in cryptocurrency and credit, in full or in part? When buying computers for an office, should one require Microsoft Windows as the operating system? Can it amount to artificially narrowing competition to require all computers to run on Microsoft Windows? By setting the rules of the contest, organisers define and limit competition, understood as the competitive parameters in a specific contest. In contrast, the organiser of a contest procedure cannot create new competitive parameters, only limit them to a larger or lesser extent. Limiting some will increase the relative weight of others, thus steering effort, but new competitive parameters are not created.⁴² This point will be elaborated in Section 5.3.1.

To illustrate the interplay between different understandings of competition, consider the sale of vans. Car producers engage in daily competition for customers, spending vast sums on marketing. A typical purchase involves conducting some testing and research on price, functions, and quality of different models, before contacting the preferred seller for an offer or accepting to make a purchase based on the listed price. Such a purchase is made without the use of contests, but there has been intense competition (both as market structure and market-making process) over the years to lead consumers to buy a Volkswagen, not a Toyota. However, if the consumer only contacts and negotiates with one seller, one might not have a competitive situation for that consumer’s specific purchase. A competition as a situation will arise if the consumer sends an email to three car dealers asking for an offer for a used VW Transporter because the sellers, knowing that you have asked the competitors for an offer, will take that into consideration when presenting their offers.

If we instead picture a municipality or a private estate manager who wants to buy ten vans to be used for janitorial services, they will probably put the contract out to tender. In other words, they will organise a competition (a contest) by publishing a contract notice that requests tenders for the purchase of ten vans and will determine who wins the contract based on the rules outlined in the contract notice. If the municipality receives tenders from Toyota, Tesla, Ford and Volkswagen, they have achieved competition as a situation within the contest.

Although a competitive market structure is present, the organising municipality might receive none or only one bid for the van contract due to factors such as unreasonable commercial conditions, miscommunication or coincidences resulting in a lack of competitive situation in the contest. Additionally, even if several tenders are received, and we presumably have a competitive situation, that will not hold true if those bids are rigged through collusion in a cartel.⁴³

These interplays are not specific to procurement. It is normal for employers to publish a call for applications for open positions, where the employment will be awarded to the best applicant based on a test or other requirements and qualifications listed in the call. The EU Staff Regulation consistently calls such employment procedures ‘competitions’.⁴⁴ These are contest procedures, and a procedure may or may not achieve competition (competitive situations) for the employment. Many companies also accept applications on a running basis, awarding employment to whomever they find sufficiently qualified. There can be strong competition (competitive situation and market structure) amongst applicants also for these positions, eg, for associate positions in law firms, even if they are not awarded through a contest procedure.

It is evident that competition can exist in one sense but be absent in another. One can organise a contest in a competitive market but end up without a competitive situation for the contract. Conversely, one can achieve a competitive situation for a contract without organising a contest. To illustrate the imprecision and plurality of meaning of the word ‘competition’, this can instead be worded: one can organise a competition where there is competition, but end up without competition for the contract. Conversely one can achieve competition for a contract without organising a competition.

3. The Five Concepts of Competition in EU Public Procurement Law

The purpose of the section is to illustrate that ‘competition’ is in fact used widely and variably in a field of law where different meanings of competition are especially relevant, as will be elaborated on in Sections 4 and 5.

The word ‘competition’ has been used in the EU public procurement directives in all five of the observed meanings. Competition in the meaning of competitive market structure is found in the current General Public Procurement Directive Article 32(2)(b)(ii), which sets out the different conditions for the use of direct contracting. Direct contracting is allowed under the provision when the works, supplies or services can be supplied only by a particular business because ‘competition is absent for technical reasons’. It follows from the preamble Recital 50 and case law that this encompasses situations when only one supplier has the technical capabilities needed,⁴⁵ in other words a de facto monopolistic situation in a pocket of the market for the goods or services required by the contracting authority. In those situations, choosing to arrange a contest to award the contract would very likely be futile as a means to achieve a competitive price,⁴⁶ (but as we shall see, there may nevertheless be other reasons to arrange a contest in those circumstances.)

An early example of competition used in the meaning of market-making process, as described by Hayek, is found in the preamble of Directive 71/305:⁴⁷

Whereas to ensure development of effective competition in the field of public contracts it is necessary that contract notices drawn up by the authorities of Member States awarding contracts be advertised throughout the Community;

The phrase ‘ensure development of effective competition in the field of public contracts’ appears to mean the market-making process described by Hayek. The phrase presumes the existence of competitive market structures that were not put into use for the benefit of all actors in public procurement markets, since public contracts were not advertised throughout the community. By increasing transparency of the possibility to be awarded public contracts, the general market-making process of competition could be extended.⁴⁸

Competition understood as contest is found in the phrase ‘call for competition’, which has been used in different directives. Its meaning is most clear in the Utilities Directive 2004/17/EC Article 40. Article 40 second subparagraph sets out that the available procedures are the open, restricted, and negotiated procedures, provided that, subject to subparagraph three,⁴⁹ ‘a call for competition has been made’. Subparagraph three, on the other hand, allows for the use of a procedure ‘without prior call for competition in the following cases: (…)’, listing conditions for direct contracting. We see that the term ‘call for competition’ in the directive is directly linked to procedures that are contests and procedures that are not. The wording ‘call for competition’ could (more precisely) be replaced with ‘call for contest’, without alteration of the meaning. Almost identical wording is still in use in Article 26(1) of the General Public Procurement Directive. Another example of competition in the meaning of contest is the term ‘mini-competition’ under framework agreements, in the same directive Recital 57 and 61.

Competition understood as a situation within a contest is also used in the directives in connection with procedures where the buyer limits the number of participants. The General Public Procurement Directive Article 65(2) second subparagraph sets fixed minimum numbers of five in restricted procedures and no less than three in negotiated procedures, before adding: ‘In any event the number of candidates invited shall be sufficient to ensure genuine competition.’ It is not clear what is meant by ‘genuine’, but ‘competition’ clearly means the competitive situation in the specific procedure.⁵⁰ Can the provision also be read to ensure genuine competitive market structure ? It would entail that the contracting authority must not only take into consideration how limiting the number of participants will affect the competitive situation for the contract but also how it would affect competitive market structure in the relevant market.

Finally, competition in the meaning of competitive parameters is found in Article 18(1), which forbids the design of the procurement with the intention of ‘artificially narrowing competition’.⁵¹ If a contracting authority sets a requirement that is only feasible for a specific supplier, it may be considered an artificial narrowing of competitive parameters for the contract. If ‘narrowing competition’ is instead (or additionally) read as referring to the competitive market structure, the interpretation is quite different. An example could be that a contracting authority arranges a procurement procedure where all requirements are reasonable, but where a dominant market actor is very likely to win, and by winning the contract, it would end in a monopolistic position. Could that be seen as artificially narrowing competition, not in the procedure as such, but through the likely narrowing of competition on the market? This illustrates that the meaning of ‘competition’ in the EU public procurement directives is not always confined to one meaning, and it can be unclear what is meant.

4. Clarification of Similarities and Differences Between the Concepts of Competition

This section provides an analysis of some more fundamental conceptual differences between the five meanings of competition.

The existence of competitive parameters is a precondition for competition understood as a market-making process, market structure and competitive situation, and these all share the core idea that competition is generally a ‘struggle or contention for superiority’, ‘a striving for the custom and business of people’.⁵² In a public procurement context, they are all linked to the market, and ultimately share the aims of economic efficiency and value for money brought about through the voluntary, self-interested efforts by competitors on the marketplace. As held by the economist Lester G. Telser:⁵³

[T]he competitive process gives an efficient equilibrium. The process is valuable because it serves this purpose and not for its own sake.

The competitive process’ drive towards an efficient equilibrium further provides the benefits of efficient allocation, efficient productivity and dynamic efficiency.⁵⁴ In short, competition results in better goods and better prices than centralised planning or other steered development. The ultimate aim of economic efficiency is a common trait of these three notions of competition, whether the competitors are competing on a specific tender (competitive situation), are in an ongoing competition for market shares (competitive market structure), or are actors in the same subsection of the market without necessarily seeing each other as competitors (market-making process). The last of these could be the case because they, for the time being, are aiming at customers in different segments of a market, eg, some law firms going after Fortune 500 companies, others going after SMEs. Even though the two law firms are not competing now, they form part of the dynamics of the market-making process of competition, and may increase the competitive pressure, especially through lowering expected barriers to entry in the other market segment. In essence, through their mere participation and activity on the market they are part of the competitive process, and ultimately support the market’s objective of economic efficiency.⁵⁵

Both Arora-Jonsson, Brunsson and Hasse (2021) and Konrad (2009) premise that contests are used to make actors compete and that actors can make an effort to affect the outcome of the contest.⁵⁶ Thus, in their view, contests share the ultimate aim of creating economic efficiency like the other notions of competition. One can discuss the finer delineations of what traits are necessary for a procedure rightly to be labelled a contest,⁵⁷ and there might be reasons to delimit the word for different purposes. I do not claim that the conception of contest I present here is the only true understanding. But I do contend that from a legal and empirical perspective, it is mistaken to understand contest procedures with such inherent objectives of economic efficiency. While one will typically consider a public procurement procedure as failed if it receives only one tender, since it has not achieved competition as a situation, this is not necessarily so.

Recall that contests are events sharing a basic structure of an initial establishment of the rules of the contest, a competition phase, and selection of winner(s) for a scarce prize based on the rules of the contest. This structure gives rise to the characteristics of being rule-based, transparent, and episodic. They do not give rise to inherent goals of generating efficient economic outcomes through the competitive efforts by participants. As we shall see, contests are and have been used for a variety of purposes. In addition, the characteristics of contests make the procedure an efficient control mechanism.

Since contest procedures are usually referred to with the term ‘competition’ and are normally used to motivate competitive effort between participants,⁵⁸ whether for a public contract, a job at a university or an Olympic medal, it can be hard to spot that contest procedures are also used where competition is not expected to take place, is not even meant to take place, or where the objective of efficient outcomes takes second place. In such situations contests are instead used entirely, primarily, or partially for other purposes, as illustrated by the following examples.

No competitive situation is expected to take place when a public buyer invites to public tender even if ‘competition is absent for technical reasons’, and the buyer may thus award the contract without public tender, under the General Public Procurement Directive Article 32(2)b). Why would a public buyer choose to organise a quite costly, time-consuming, and rigid public tender procedure when it knows that only one supplier can provide the needed goods or services? A purpose for using (or being obliged to use) a contest procedure in these cases could be to support the integrity of the process. Employing the rule-based and transparent contest procedure can prevent corruption and support people’s trust in the proper use of public funds more generally, even if the outcome is given beforehand. An additional purpose might be market communication – to signal clearly to the (monopolistic) supplier and the rest of the market that there is demand, but only one supplier. Similarly, a formal contest procedure for a professorship might be published even if everyone assumes only one person is qualified, and the university hopes he or she will apply. No competition is expected to take place, but the rule-based and transparent procedure can foster trust.

Contests can even be used where no competitive effort is meant to take place. This is the case when the Vienna Philharmonic awards tickets for their new year concerts through a lottery where each registrant receives one lottery ticket. The choosing of a contest procedure with lottery draw is used to avoid competition for the tickets and instead base the allocation on equal opportunity, so that ‘music lovers from all over the world have an equal chance to purchase these highly desired tickets’.⁵⁹ I have myself also been a participant in a municipal contest procedure for the allocation of subsidies for electric cargo bikes, where the winners were chosen by a lottery draw.⁶⁰ The goal was to reduce emissions by moving people from cars to electric cargo bikes. The total funding was very limited, so a lottery procedure was much more cost-efficient than assessing applications on expected individual emission reductions or other criteria.

Another blind spot which can arise from using the word ‘competition’ about contest procedures is that these procedures are often primarily used as control mechanisms to ensure compliance with other purposes, such as central policy, while still allowing for efficiency gains from competitive efforts. The contest procedure opens for decentralised oversight driven by the participants’ interests. This decentralised control function of contest procedures is evident in EU public procurement law. When the first Remedies Directive 89/665/EEC was adopted, it was highlighted in the assessment before the EU Parliament that the Commission did not have enough resources to ensure effective control and enforcement. It was important with a two-track enforcement system with ‘direct action by the Commission’ and ‘indirect’ action through the claims and complaints from the suppliers, ie, the interested participants in each contest.⁶¹

Contest procedures in public procurement, concessions, employment and similar have been used, and are still used, as a control mechanism for compliance with central policy, eg, environmental policies, labour market policies or economic policies. It is well known that many national procurement regulations have had rules both for national redistribution of contract opportunities to less developed parts of the country,⁶² and for preferential treatment of national suppliers in competition with foreign suppliers.⁶³ In fact, even the EU used the public procurement regulations to oblige contracting authorities to discriminate suppliers from third countries. The Utilities Directive 1993/38 Article 36(3) required contracting authorities to slap an extra 3% onto the offer from suppliers from non-Member States.⁶⁴ While many public buyers agree with and want to comply with centralised policy instructions, one can easily imagine a contracting authority in Milan not wanting to pay extra to award a contract to a supplier from the less economically developed Naples. One can also readily imagine a public buyer today not wanting to pay extra from its budget to comply with what it considers excessively strict centralised environmental standards. The contest procedure helps to control that the specific entity awarding a scarce (public) good complies with central policy.

This control function with central policy can be found in other legal fields as well, such as in employment, state aid or education, eg with central rules on quotation or preferential treatment for specific groups, such as indigenous peoples, gender or other.

5. Some Interpretative Implications