Antitrust regulators adjusted quickly to the Covid-19 crisis and attendant economic disruption.
In general, competition authorities worldwide have been both flexible and resolute: flexible in suspending or bending rules to permit governments and businesses to pivot and meet challenges, and resolute in ensuring that any anticompetitive behavior undertaken during the crisis won’t get a pass once the dust settles.
Some of the issues coming into focus will consume a lot of minds and legal dollars for the next year (or several) while we figure out which parts of the changes wrought by the crisis are temporary and which ones will initiate long-term resets.
Below are a few candidates for longer-term change to competition regulation as a result of the crisis, and some effects we’ll probably be seeing for years to come.
Most antitrust regulators are still open for business, despite their entire staffs working from home. For regulators that avoided digital filings and communication, this has been a big shift. And digital filing is the best candidate for long-term change from the crisis. A lot of regulators have, out of necessity, overcome systemic problems and prejudices about digital filing and may adopt these methods more broadly after the crisis passes.
That kind of shift could improve access for distant businesses, and may make it easier for international firms of all kinds to manage these processes across borders.
EU State Aid Shift
To build vibrant, integrated markets, European Union member states needed to allow companies to compete on even footing, as opposed to subsidizing a preferred winner. Therefore, the EU has worked to make sure that incumbent state industries and local favorites didn’t hold onto market power through state aid.
But the crisis has required a massive government response to keep industries afloat and people employed, so the EU has been speedy in reviewing and approving schemes to do that at the national level.
The questions of how and when supports are removed, where to permit companies—or even industries—to fold, and what will replace them are going to consume a lot of effort. The shift away from a recent focus on tax schemes that favor specific businesses and toward reviewing the flood of public money into a broad array of industries could force a change in how the EU competition commission allocates people and money.
This issue will be complex for years to come. And U.S. businesses competing with European businesses will face very different market circumstances, with longer-term consequences.
As isolated consumers have rushed online to work, learn, and stay connected, some have declared the “techlash” against digital businesses passe.
But it is easy to see those issues coming back with a vengeance as global lockdowns ease.
First, any contacts-tracking procedures or digital passport programs to reduce contagion will involve a substantial privacy incursion. Because many competition regulators have viewed privacy as a non-price feature of digital products, collaborations on these initiatives impact competition. Will cellular systems no longer compete on these features? Will privacy competition continue, but on a fundamentally different baseline? The world can’t escape grappling with privacy and its intersection with competition.
Second, widespread isolation efforts are devastating brick-and-mortar businesses. The Covid-19 crisis will almost certainly push more retail traffic permanently online. If local stores are gone, so are the alternatives consumers felt they had to the big e-commerce platforms.
Furthermore, it’s unlikely that giving platforms even more market power will improve their conduct. The same abuse of dominance/monopolization issues will inevitably rise to attention again.
Of particular interest will be how and when regulators and courts adjust how they conceive of relevant markets. Big breaks in market trends make it harder to predict future markets because they unmoor the present from past performance.
‘Failing Firm’ Defenses
The U.S. policy response all but guarantees another wave of consolidation after the crisis. Distressed assets will change hands, and many vertical mergers will seek to lock down supply chains and reduce counterparty risks.
The “failing firm” defense to a merger challenge—that one of the merging parties will exit the market through bankruptcy if not for the deal—has fallen on hard times in U.S. courts. Based on recent cases, including the Department of Justice’s successful challenge to a waste company merger in 2017, the standard is high and difficult to meet. But a New York federal court’s credit to the related “weakened firm” defense in rejecting a challenge to the TMobile US Inc. purchase of Sprint Corp. in February unsettled the status quo and may have breathed new life into the defense.
We’re probably about to see a rich supply of mergers providing a better view of where the “failing firm” defense is now. We may also get better data on whether the defense makes policy and economic sense—something experts dispute.
New Sources of Litigation
Finally, if today’s antitrust and unfair trade actions are a guide, we’ll be litigating issues that crop up now for a decade. Inevitably, private antitrust actions will arise out of investigations into price changes during a crisis. Businesses driven out of the market may bring monopolization suits against consolidated survivors.
But the declared federal and state emergencies also bring with them new actions. Most every state has laws prohibiting price gouging, and sometimes hoarding, during a declared emergency. That patchwork of laws applies to nationwide sales of scarce materials, and a single pricing decision could lead to varying levels of liability in different places.
Likewise, the Defense Production Act includes an anti-hoarding provision. In March, the U.S. Department of Health and Human Services designated a list of 15 categories of products as “scarce,” triggering the Act’s hoarding and price-gouging prohibitions regarding those products. Attached to the law, at 50 U.S.C. § 4513, is a criminal penalty provision (Class A misdemeanor).
Those provisions are virtually unlitigated. Accordingly, any enforcement or disputes that arise will involve tremendous uncertainty and serve as fodder for extensive appeals. Antitrust and trade litigators will be busy.
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