Competition Law's Market Failure Paradox : Economic Efficiency, Consumer Welfare and Public Policy in EU Antitrust and State Aid Law

Abstract: Contemporary markets grapple with pressing challenges to secure socially and economically outcomes. Against this backdrop, market failures, notably those accentuated by sustainability and income inequality issues, have risen to prominence in competition law discourse, both doctrinally and in the realm of policymaking. This dynamic hints at an evolving paradigm: competition law might no longer be immune to suboptimal market outcomes that reduces social welfare. The purpose of this thesis is to investigate the role and value of market failure theory in competition law when assessing the compatibility of public policy measures. Over the past two decades, competition law has undergone a modernisation process, leaning towards a more economic approach prioritising economic efficiency and consumer welfare. However, within this economic framework, the outcome of broader public policy goals remains nebulous. A reasoning by analogy to the analysis of private restrictions of competition, suggests an equally more effect-based approach to public policy intervention under those provisions. To determine whether public policy intervention in the market is warranted welfare economic has developed the theory of market failure. This construct has gained some traction in EU antitrust scholarship as a concept capable of explaining the outcome of public policy measures. Intriguingly, thesis unveils a significant transformation – market failure’s evolution from a mere policy term to a legal concept, marking the juridification of the theory.Nevertheless, a hurdle persists. The ambiguity surrounding the definition of market failure, traditionally rooted in welfare economic, poses a challenge. Conventionally, it construed as an inherently welfare economic theory. In this respect, it contours beyond economic efficiency remains nebulous. If a traditional view is unsatisfactory the question arises if we can conceive a new alternative understanding of market failure in EU competition law? This thesis takes on that task by dismantling the different meanings of a market failure test in order to assess its potential role within the legal framework. The research question which this thesis addresses is: What value, if any, does market failure hold within the legal analysis of public policy intervention on markets in EU competition law? In order to reply to the research question the thesis have three main aims. First the thesis aims to establish a framework for assessing the relevance of market in EU competition law. The theory of market failure must be conceptualised as a tool to systematise the applicable law. Therefore, the different meanings of market failure across economic, legal and political spectrums are dismantled. Through this exploration, two discernable standards of market failure arise: a narrower and a broader understanding. It is suggested that the principle of proportionality emerges as a critical tool to conceive market failure as a legal requirement, leading to the formulation of a ‘market diagnostic’ test.Second, the market failure framework is applied across the different areas of EU competition law, thereby determining its functionality. This entails an assessment of legal documents and a critical assessment of the proportionality test’s application in the case law of the EU Courts.Third, the meaning of market failure in the different fields is dissected. The role of, and relationship between, the different grounds for derogations within that framework are analysed in order to assess the nexus of market failure in EU competition law. An EU competition law-specific doctrine of market failure emerges, potentially diverging from its economic counterparts.It is concluded that EU competition law embodies a striking ‘market failure paradox’. Both theoretically and practically, a discord is evident between the legal framework and empirical economic insights. The ubiquitous nature of market failures, as per economic theory, stands in stark contrast to their exceptional treatment in EU competition law. This theoretical paradox leads to inconsistent and ambiguous enforcement policies. Moreover, the paradox is also present from a practical point of view. Here, it is shown that the role and value of market failure remain fluid, moulding itself to distinct objectives across EU competition law sectors.