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ANALYSIS: Antitrust Regulators ‘Flexible’ ... But Watchful

April 1, 2020, 9:24 AM

Worldwide during the Covid-19 crisis, antitrust regulators have signaled flexibility about necessary market coordination to ease critical shortages, but warned businesses that hardcore competition law violations will be prosecuted.

That’s confusing. The problem with unprecedented situations is that nobody has a template. But thankfully, the antitrust authorities in most jurisdictions are pledging a mix of flexibility and speedy guidance to market participants who need to coordinate in order to secure supplies of vital products, or work together on important research and development. It would be wise for market participants to take regulators up on that offer of guidance, because if businesses coordinate in ways that violate the law, there could be serious ramifications when the crisis is over.

Well-functioning competition is the best market structure in the long run. This is something all of the competition authorities stress in their responses to the severe dislocations associated with the Covid-19 pandemic. Some regulators, ordinarily hostile to providing private guidance, have opened a dialogue with business, and regulators with established mechanisms for private guidance have pledged greater speed and flexibility. All stress that they won’t tolerate opportunistic moves now that threaten full-throated competition in the longer term.

Two-Edged Guidance

A good example is guidance issued last week from the European Competition Network (ECN), an organization of national competition authorities in the European Union. The ECN said it is “fully aware” of the market and social consequences of the outbreak, and “the ECN will not actively intervene against necessary and temporary measures put in place in order to avoid a shortage of supply.”

The ECN also stresses, however, that it is of utmost importance to ensure that products considered essential to protect the health of consumers in the current situation (e.g. face masks and sanitizing gel) remain available at competitive prices. “The ECN will therefore not hesitate to take action against companies taking advantage of the current situation by cartelising or abusing their dominant position.”

So what is the difference between needed and beneficial collaboration and illegal activity? Likely, it has to do with actions that raise or stabilize prices versus those that lower prices or improve shortages or misallocation. The ECN suggested as much by reminding manufacturers that they can set maximum prices for their products within the law (in most circumstances). Experienced competition lawyers can assist companies with any desired collective action to help them figure out where to draw the line.

Guidance Is Available

But the safest route in unusual circumstances is to seek guidance from a competition regulator before instituting cooperative measures. While different regulators have different approaches to provide private guidance to market participants, most regulators have said they are open to assisting companies during this crisis.

For example, in the U.S., the Federal Trade Commission and the Justice Department both have established staff guidance procedures for private parties. Because it can take months to get an answer, however, they have pledged to provide guidance to businesses that ask specific questions about compliance on collaboration within seven days.

The EU has also offered guidance on collaboration during the crisis. The European Commission launched a dedicated website to provide guidance to companies, trade associations, and competition lawyers about what cooperation initiatives are within the bounds of EU competition law.

“The Commission acknowledges that cooperation among businesses might be crucial in order to ensure the supply and fair distribution of essential goods and services, as well as to mitigate as much as possible the negative economic and social consequences of this crisis,” the EU press release said.

Among its initiatives, the EU has established a dedicated mailbox through which businesses can request “informal guidance.” Informal guidance is not something that the EU has been in the business of dispensing; in the past, the EU has been fundamentally uncomfortable providing the kind of staff guidance that the U.S. regulators dispense. The dedicated mailbox, therefore, constitutes a flexible approach to the fast-moving market realities that companies are likely to face.

The EU’s guidance also points companies to their national competition enforcers, who are “competent to apply the EU competition rules in their respective territory.”

Australia’s Competition & Consumer Commission (ACCC) is another example of an enforcer providing guidance on coordination “that is ordinarily prohibited but which is necessary and in the public interest at this time.” For example, the ACCC notes coordinated efforts by supermarkets to ensure adequate supplies nationwide. Like the EU, the ACCC published a dedicated email address for inquiries about cooperative efforts. “These matters will be progressed very quickly,” ACCC pledged. Like other enforcers, however, the ACCC also stressed that enforcement will “address any behaviour by businesses which seek to exploit the crisis either to unduly enhance their commercial position or harm consumers.”

Mixed Markets

Most countries replace competition with regulation in some industries or markets. For the time being, some markets are going to operate more like utilities than usual, or extraordinary methods may be necessary to allocate and marshal scarce resources. Competition authorities have signaled that they understand these realities and are ready to bless necessary cooperation during the crisis. But given the severity of cartel penalties, including criminal charges in some jurisdictions, businesses will need to exercise great care in ensuring that their measures qualify as “necessary” and go no further than needed. This isn’t a time or place to wing it.