It’s a volatile time in competition law and policy, and nobody can guarantee what enforcement or markets will look like on the other side of the Covid-19 pandemic. But when I think about what’s coming in antitrust/competition in 2022, I’m most struck by the changes in tone and topics occurring at a high level.
Instead of discussing the minutiae of econometric models and product overlap and pricing models, policymakers and legislators are talking about big societal concerns and the role that private companies should play in society. Big ideas are in play, and power structures are shifting.
Here are four big shifts to watch for during the coming year.
New Laws, Old Power Struggles
While antitrust has become a hot topic in the past few years, this year saw big legislative pushes in a number of key jurisdictions to revise or reform antitrust/competition law itself. Behind those proposed changes is a fundamental debate about what the laws should do and where the balance of power lies between lawmakers, enforcers, and courts.
Laws applicable to tech platforms have occupied most of the antitrust news headlines this year, but the new measures that enforcers are considering—or, in some cases, implementing—will often apply much more broadly (including the proposed U.S. legislation). And more importantly, the changed approach to market regulation reflected in these laws has policy implications for everyone. Antitrust is one of the few areas in U.S. law that talk openly about market power; attitudes about the balance of power between consumers and enterprises, big and small businesses, and government and private businesses are all involved in the debate.
Some laws will make it through the legislative gauntlet, and they will fundamentally shift investment patterns, and may even shift entrenched power in a few big markets. The long game of interpreting any new laws in the courts will begin shortly thereafter. All of that means uncertainty for market participants and enforcers alike.
Market Forces, Societal Goals
Increasingly, policymakers are looking to competition law to advance societal goals beyond pure market efficiency. These include goals related to labor, privacy, the environment, innovation, and investment. There is a rising conviction that markets must serve society, rather than the other way around, and a growing realization that failed markets might need intervention rather than mere maintenance. For example, if a market is fundamentally broken because externalities (such as pollution or abusive worker practices) aren’t priced into products or services, then keeping prices low doesn’t achieve the goal of optimal function—or even of healthy competition, which is the beating heart of antitrust law.
Some enforcers have always included broader industrial policy in their competition regulations, and the idea finds expression in different ways in different places. But in the U.S., even acknowledging that attaining the lowest possible consumer prices might not be the central goal of antitrust/competition law is controversial. The discussion is ramping up (including in the pending legislation) and a debate about how power is distributed and used in market structures is intensifying.
Concerns About Concentration
This is an activist era for merger enforcement, which is crashing head-on into a white-hot M&A market. There is a growing concern among enforcers that existing merger review regimes have looked at markets too narrowly and failed to appreciate macro effects and interplay between markets. The bias against Type 2 errors (over-enforcement crimps growth and innovation) means enforcers over-chose Type 1 errors (under-enforcement concentrates power and ossifies markets), the argument goes. Fundamentally, not everyone is sure anymore that mergers benefit society at large.
Against that backdrop, global enforcers have been conducting econometric studies and reviewing the market impacts of past merger enforcement decisions. The results are still hotly contested, but an argument is growing that many markets have become less competitive and pricing power among dominant players has become widespread. Expect a whole lot more regulatory scrutiny than many deals would have faced in the past—particularly for vertical mergers. And also expect a period of recalibration while enforcers ingest the outcomes of their research, consider and implement policy and metrics changes to improve the market outcomes from enforcement, and communicate the new normal to parties.
Between jurisdictional activism, the growing number of countries enforcing merger review regimes, and the rise of foreign investment controls, cross-border deals are likely going to take more time and face more friction. At the same time, supply chain concerns make an international presence more valuable for many companies. Parties will need to allocate time and resources to getting deals approved in more than one jurisdiction, and they may come to consider some targets unattractive based on location or principal markets.
“Globalism” isn’t what it once was. But hedging market and political risks by diversifying into different jurisdictions—or, alternately, buying into an insular national market by purchasing an active foreign player—is still an attractive proposition for many companies. Weighing the risks and benefits, and drafting M&A agreements to best reflect how the parties will approach them, is an ongoing challenge for the new year.
In short, political and regulatory risk are coming to the forefront worldwide, especially in a few key industries. We can expect those risks to accelerate into 2022.
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