The relationship between antitrust enforcement and regulation depends on policy choices which must answer a question: how should antitrust enforcement and regulation relate to each other?
This paper, which is available here, looks at this question in the context of deregulated industries. It argues that antitrust enforcement should run countercyclical to regulation, especially during strongly deregulatory cycles. The comparative importance of countering deregulatory shifts arises because, while increased regulation can keep antitrust enforcement out of regulated markets, reduced regulation triggers no such mechanism for pushing antitrust back into deregulated markets. It is argued that good reasons for antitrust enforcement to run counter to deregulation can be found in economics, legal doctrine, and current debates over competition policy.
Part I discusses why deregulation can lead to enforcement gaps.
A variety of institutions can govern economic competition. Decentralised, capitalist economies generally rely on markets to provide the incentives and discipline necessary to keep prices low, output high, and innovation moving forward. When market forces alone cannot ensure efficiency and economic welfare, governance of competition by a nonmarket institution might be warranted. One such institution is competition law. Regulatory agencies can also be empowered to intervene where they see the need to address competition and market structure.
Antitrust and regulation present alternative approaches to governing competition and addressing market failures. Deregulation raises the prospect that federal agencies or Congress will repeal or stop enforcing some competition-oriented rules. The likelihood of gaps in competition enforcement becomes higher as the government more aggressively pursues deregulation. Even if competition-focused rules make up a very small proportion of total regulation, deregulation can still have important implications for competition enforcement.
Part I also looks at how US law can lead to enforcement gaps.
The US legal framework can also make it difficult to close enforcement gaps caused by deregulation. For decades, courts treated antitrust enforcement like a complement to regulation that could come into play when antitrust did not conflict with regulatory objectives. The Supreme Court held in 1963 that, unless antitrust and regulation are in direct conflict with each other, courts should try to “reconcile the operation of both”. It was also widely accepted that antitrust agencies could challenge conduct even if a regulatory agency already had authority to challenge that very same conduct. This led to a presumption of concurrency unless there was ‘plain repugnancy’ between competition enforcement and economic regulation, with exemptions from antitrust rules being implied ‘only if necessary to make the [regulation] work and even then only to the minimum extent necessary’.
Two cases in the last fifteen years have significantly weakened the ‘plain repugnancy’ standard – Trinko and Credit Suisse. In Trinko, the SupremeCourt held that one key factor in deciding whether to recognise an antitrust claim against a regulated firm “is the existence of a regulatory structure designed to deter and remedy anticompetitive harm” because “[w]here such a structure exists, the additional benefit to competition provided by antitrust enforcement will tend to be small.’ This suggests that, even when a plaintiff does plead a cognisable, non-conflicting antitrust claim, courts should still preclude the claim on grounds of enforcement efficiency if a regulatory structure could address the harm. In Credit Suisse, concerning price collusion, the Supreme Court held that there was no conflict between the antitrust claims and the regulatory statute, since the conduct was unlawful under both. The Court nonetheless held that, even where a correctly construed antitrust claim does not actually conflict with regulation, the antitrust claim could still be barred on potential conflict grounds – i.e. the risk of conflict between antitrust and regulation, even if arising solely from judicial mistake or confusion, seems to suffice to preclude antitrust enforcement.
The result is that nowadays antitrust and regulation are expected to work more like substitutes and less like complements. With antitrust less able to act in parallel or as a complement to regulation, the enforcement of competition in regulated industries will depend on the nature of the relevant rules, the regulator’s commitment to enforcement, and the kinds of sanctions the regulator can impose. As regulators repeal such rules or back off from actively administering them, the resulting competition enforcement gap could become even greater than before, because antitrust has been sidelined as an available supplement or complement to regulation. Recent developments therefore magnify the competition enforcement consequences of strong deregulatory cycles.
Part II turns to the question of how antitrust authorities should respond to the enforcement gaps created by deregulatory cycles.
The author advances four reasons why antitrust policy should be countercyclical to deregulation. First, since consumer welfare declines when markets are anticompetitive, antitrust should be available to enjoin anticompetitive practices that deregulation might allow. Second, antitrust enforcement has potential advantages over regulation and, in many settings, might govern competition more efficiently and effectively than regulation. Third, enforcing antitrust in markets where the government has reduced regulation or enforcement could lead courts to limit the circumstances under which the two forms of intervention are mutually exclusive substitutes and clarify where they can operate as complements. Finally, if antitrust enforcement retreats along with regulation during a deregulatory cycle, this could create an inaccurately weak impression of what antitrust can accomplish, which could in turn distort policy decisions in favour of unnecessary regulation when political cycles turn.
The consequences of strong antitrust to counter strong deregulation extend beyond the consumer-welfare benefits of competition enforcement. Bringing cases as markets deregulate would allow antitrust authorities to push courts to clarify recent doctrine and restore antitrust as a complement, rather than substitute, for rules in regulated markets. Bringing such cases would also help identify markets in which antitrust has a comparative advantage over regulation, e.g. by protecting and promoting competition more efficiently and effectively than previously done by the regulatory agency. Such a demonstration is particularly important when, as now, a growing debate exists about whether to strengthen competition enforcement by expanding the criteria and objectives of antitrust law, or to apply regulation to constrain large firms in particular economic sectors.
Strong enforcement of existing antitrust law during this deregulatory moment could help inform the debate, while potentially avoiding resorting to costly regulatory and legislative responses when political administrations eventually change. Countervailing antitrust enforcement is therefore the best available means not only to ensure competitive, well-functioning markets during a deregulatory cycle, but also for the healthy development of competition policy as political cycles change over time.
It is hopefully not apparent from this review, but this paper is a rant against the deregulatory zeal of the previous US administration, and of the absence of competition enforcement to compensate for it. I do not think this is relevant for our purposes here, but, if you are interested, you can find a discussion of this in the paper.
More to the point, the paper builds on the author’s longstanding work on the interaction of competition and regulation – and, as should be apparent, one can extract a paper focused solely on how this relation should work in a deregulatory environment from this piece. On that front, the paper is quite interesting, as are the discussions on how US federal law approaches the overlap of regulation and competition, on how competition law and regulation relate to one another at a conceptual level, and on the challenges created by deregulation.