This paper, which is from the whole of Tilburg’s competition department, as far as I can tell, is available here.

EU Covid

It explores how EU competition enforcement might be affected by the COVID-19 pandemic. The authors recommend that competition authorities should be watchful of excessive prices and price discrimination, and rely on interim measures if necessary. Collusion should remain an enforcement priority, but a procedural pathway to review agreements that may be in the public interest should be adopted. In merger control, the Commission’s strict interpretation of the failing firm defence is appropriate but, in general, a more sceptical attitude towards mergers may be warranted during this period. Advocacy will play a key role: competition agencies can both point to existing regulations that limit competition and monitor proposed emergency legislation that would harm competition for no good reason.

A first section provides an overview of the nature of competition law in the midst of a crisis.

Competition law is a political enterprise, administered by agencies which must, in order to retain their legitimacy, offer an enforcement strategy that serves the public interest. Like any other administrative agency, competition authorities must pursue a delicate balance between applying their political mandate with independence and integrity while retaining their legitimacy by responding to the needs of the public. In the present context, the authors argue that a wise competition policy should accommodate the needs that arise from the COVID-19 crisis in a manner that ensures that competition law remains part of the policy tools that, applied properly, can serve to preserve public health and accelerate economic recovery; and that its rules, and the goal it pursues, are generally sound and should be enforced.

Section three deals with abuse of a dominant position.

At the time of writing, the most likely challenge in this field is to ensure that firms do not take advantage of market conditions to increase prices. In practice, this will mostly refer to exploitative pricing practices.

The issue of exploitation may overlap with price gouging. It is well understood that these two instruments have a different purpose and scope of application: price-gouging laws prevent traders in general from profiteering of situations of necessity, while Article 102 TFEU prohibits dominant undertakings from imposing excessive prices or other unfair conditions. Nonetheless, in the absence of effective price gouging laws, Member States may have instrument other than competition law to control price increases. Further, even if the enforcement of price gouging is effective, dominant undertakings may still take advantage of their position to discriminate across Member States, withhold supplies, and apply price increases or unfair terms. The case law of the Court of Justice of the EU is quite pliable, and extends to significant and sudden price increases and other shifts in selling conditions. The case law also covers price discrimination across Member States. Excessive prices may be shown by comparison with the prices of other Member States, and discrimination can also be considered an abuse in and of itself, as can withholding supplies to enforce such price differences.

In their enforcement practice, competition authorities may prioritise products that protect the health of consumers – such as facemasks and sanitising gel. However, the authors argue that this prioritisation should extend to any market power created by COVID-19. The Commission has indeed previously signalled it is ready to act in relation to exploitative practices regarding pharmaceuticals. This may become particularly important should one company monopolise a vaccine, where a balance between rewarding innovation and ensuring availability at a reasonable price will have to be struck.

In view of the above, the main obstacle to the application of Article 102 TFEU is that the investigated company must have a dominant position. This requirement must nevertheless also be considered in light of the present situation. Not only are the ‘conditions of competition’ different according to national and regional exposure, but many of the stringent restrictions of circulation that have been imposed may prevent effective ‘chains of substitution’ from operating across geographic areas. Competition authorities should therefore be open to much smaller geographic market definitions than usual. A related option might be to explore if the notion of ‘situational monopoly’ applies under Article 102 TFEU, whereby a firm happens to dominate a market during a very narrow space of time. Such situations are usually the reason for price-gouging laws, but as stated above Article 102 TFEU may also apply.

The COVID-19 emergency also presents an opportunity to boost the application of interim measures. European competition authorities are empowered to impose interim measures in cases of urgency where there is a risk that competition will be seriously damaged. This solution is temporary, and can only be renewed only as long as the measure is still necessary and appropriate. While interim measures provide an attractive option for temporary and rapid tailor-made solutions, the adoption of interim measures still requires a full-blown investigation to be sure that there is a prima facie infringement – otherwise the interim measures are likely to be rejected in judicial review. To address this risk, the authors suggest the creation of special working teams devoted to carrying out rapid inquiries concerning conduct in markets most closely affected by COVID-19, as has already occurred in South Africa and the UK.

Section four looks at collusion.

Competition authorities should remain vigilant over cartels in times of emergency. History shows that economic downturns are periods when collusion Becomes more likely. There may also be other arrangements which, without configuring a cartel, may prove especially detrimental in the context of COVID-19.

At the same time, in these exceptional circumstances, cooperation between undertakings may be in the public interest. The ECN has referred to such cooperation being acceptable if it works to  ensure ‘the supply and fair distribution of scarce products to all consumers’. The scope of useful cooperation can nevertheless be drawn wider than supplies, in particular by ensuring that workers in contact with the public are not endangered. This kind of cooperation should also take the degree of emergency into consideration, such as the current lack of emergency medical equipment, which may involve setting quantities to be manufactured by different firms which would raise objections in other circumstances. The ECN has also stated that it ‘will not actively intervene against necessary and temporary measures put in place in order to avoid a shortage of supply’, advising undertakings to reach out to competition authorities for informal guidance.

The authors propose that instead of merely providing guidance, competition authorities should provide for a notification system for these cooperative agreements. In exchange, NCAs will undertake not to intervene in relation to notified practices but will reserve the right to take either of the following steps: (i) to request firms who submit patently anticompetitive agreements to abandon these, thus nipping anticompetitive action in the bud, or (ii) to advise firms on whether less restrictive options may be available. The authors do not recommend that the competition authority respond to every notification, but only issue advice when the agreement is patently out of line or where less restrictive alternatives can be identified relatively easily and the parties refuse to implement them. Absence of response from the NCA would be interpreted as an indication that the agreement is unproblematic and no fine would be expected.

  • Section five takes on merger control.

On 16 March, the IMF issued a warning about the possibility of a bankruptcy cascade due to the severe economic downturn that COVID-19 may cause. Against this backdrop, it is not unreasonable to think that we might witness a new wave of mergers to rescue companies facing serious viability difficulties in the short or medium term.

Under EU merger control, merging parties can resort to the failing firm defence. This option gives green light to those concentrations where one of the undertakings involved in the transaction would exit the market unless the merger takes place. The legal test for the failing firm defence comprises three cumulative conditions: (i) the failing firm would be forced out of the market in the near future; (ii) there is no less anti-competitive alternative purchase than the notified merger; and (iii) the assets of the failing firm would inevitably exit the market. If these three requirements are met, there is no causal link between the merger and the detriment to competition: absent the merger the acquiring company would dominate the market anyway.

The acceptance of the failing firm defence in times of financial distress is not unprecedented. However, some might argue that a relaxation of the conditions of this legal test would be advisable under the current circumstances. Others might even suggest a general loosening of merger review standards. The authors suggest that, for the same reasons that the test is not stricter in times of economic prosperity, it should not be more lenient in times of economic downturn. Indeed, mergers should be the last option to be considered for a failing firm – insolvency or state aid should be preferred when firms struggle. In effect, the design of the failing firm defence already acknowledges that mergers are a last resort. Instead, a more sceptical attitude towards mergers during the COVID-19 emergency would be healthy and easy to implement. Safeguarding a competitive market structure is a conservative but time-tested way to protect consumers in the long-run.

Comment:

This is a remarkably thoughtful and comprehensive piece – unsurprising given the authors, impressive given the very short time in which it was written. It displays the authors’ intimate knowledge of current EU law and practice, provides illuminating examples and anecdotes from the last crisis, and reads like a detailed policy brief. In a striking sign of the times, some of their proposals have already been superseded by events – e.g. by the European Commission creating a dedicated email address to provide informal guidance on cooperative arrangements, instead of adopting a notification system.

There was also a section on state aid, but I did not review it above. Suffice to say that, as with mergers, the authors recognise that these are not normal times but seem to argue in favour of applying existing instruments and principles inasmuch as possible. I mention it only because I believe that, as with mergers, the authors may be too optimistic about competition agencies’ ability to face the deluge of notifications coming their way, and the overwhelming pressure to address them quickly – and this before taking into account the added number of notifications that would flow from the authors’ proposal regarding collusive arrangements. Coupled with the assumptions governing public action during this period – that these are not normal times; that it is paramount to save as many viable companies as possible; and that it will be exceedingly difficult to distinguish those companies that were naked when the tide was high from those whose bathing suits were violently ripped when the tide suddenly ran out – I find it hard to see how their proposed approach can be anything more than an important statement of principle or intent.

For similar reasons, I also have doubts about whether the authors’ paean to the advantages of insolvency over merger control makes sense in a policy environment furiously striving to prevent companies from failing in the first place. A merger would be much quicker and certain than insolvency, and policy-makers may (justifiably) prefer expediency, even if this could raise serious doubts about politically led distortions of competition (e.g. bailing out failing firms, promoting national champions).

Part of the reason for our differences in this matter is that the authors use the 2008 crisis as a benchmark. While understandable – and potentially relevant in the medium-term –, I think that these are completely different crises. In particular, I think that the coming economic crisis is going to be much more sudden and wide-ranging in its initial stages than the global financial crisis. As such, it is not clear to me how one can expect the authorities to identify conditions that will maintain competition ex ante, and that the risk of competition authorities being overwhelmed in the short run is much higher than in 2008. If the crisis is deep enough, one option may be to adopt instruments that allow competition authorities temporarily to (re-)investigate and impose conditions ex post, even after having cleared a merger during this crisis. This should be justified particularly if the target firm is collapsing – and, thus, the merging valuation cannot be said to amount to a market price / the company only survived as a result of an injection of public money. This is, of course, less than ideal, but I do not think anyone would say we are living through an ideal time.

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