CPI Report: Competition Policy in Global Markets – Efficiencies and Remedies in Lean Times

On Friday June 22, 2012 the annual competition conference took place at the Chatham House in London hosting senior officials from antitrust authorities from major and emerging jurisdictions as well as leading competition practitioners. The discussions were centered around the challenges posed by the global economic downturn and how this reinforces the need for a dynamic antitrust policy, streamlined procedures, more pragmatic enforcement, and enhanced cross-border cooperation. The participants put their views and proposals in the context of specific sectors, focusing in particular on extractive industries and new technology markets.

Structural and Procedural Challenges: Faster, Leaner, Meaner?

In this first session, the need for improvements in policy and institutional structure was reiterated. At the present setting, competition policy is to respond and adapt to both the economic crisis and the commercial world’s demands. Markets are characterized by global standards and are linked to each other. This puts pressure on agencies to adapt and ensure stability and safer conditions of doing business. Moreover, the traditional EU-U.S. competition authority duopoly is conclusively over with emerging markets such as China, India and Brazil to place themselves at center stage politically as well as economically.

Senior public officials stressed the need for a vibrant competitive landscape that is driven by innovation and consumers. They indicated their willingness to commit to international cooperation, in particular in the area of merger control, and rejected the notion of national champions. They also focused on the pressing need to address market failures with balanced regulatory approaches complementary to antitrust intervention, as is the case in the financial sector. There has been a unanimous urge to move to expedited and more streamlined antitrust processes, and flexibility in reaching decisions or settlements while securing fairness to parties and consumers.

Challenges for competition policy include the vitality of growth-focused initiatives in these times of distress; efficient and non-distortive public spending; regulatory mixes that help the restructuring of productive capacity; remedies and conditions that correspond to actual problems and fast-evolving markets, and; greater use of economic analysis to underpin institutional and cultural convergence and efficiencies considerations that are transmitted to the real economy. The message communicated was that of substantive and procedural change in competition policy in difficult circumstances, to tackle the above challenges.

Extractive Industries: Responses to the New, Global Challenges

The second session focused on the interplay between resource nationalism, strategic merger review and antitrust. The panelists underlined the tension between the three and analyzed the divided interest of countries in desiring to maximize their benefit from natural resources while not scaring off investors. Indeed, recent protectionist trends in competition law have been identified in jurisdictions such as Canada or Australia that were traditionally considered “friendlier” to foreign investors. Such protectionism, it is suggested, is to hamper M&A transactions.

Merger control regimes have also become more complex and burdensome, but most importantly, less predictable. Merger review procedures are today considered commonplace even in small countries when forming strategic alliances or cooperation initiatives with local players. Foreign investment rules pose further implications as they bring into play national and regional sensitivities of each jurisdiction. In a few–but notable–cases, dubious political considerations such as national security can be used to circumvent traditional rules and block deals in an attempt to safeguard national concerns. Review of minority interests is yet another rising concern in this area. So, parties are left in doubt as to whether they should launch a transaction or even what to expect from public authorities in the course of their review.

Although a global playing field is far from realistic, panelists suggested concrete steps in fostering greater business and legal certainty: by increasing antitrust review thresholds, expediting deadlines and limiting third party participation in merger control processes.

New Technologies, New Markets, New Modes of Competition

At the last session of the conference, dynamic competition and new technology markets were brought before the spotlight. Participants highlighted the unique features of these fast-evolving markets and they raised objective justifications rejecting ”one size fits all” approaches in terms of enforcement of competition law in this context. They further stressed the fact that innovation and competition are rather complementary notions not actually dampened by antitrust intervention. Put into commercial perspective, when people innovate, monopoly is the ultimate goal of their activity, so a certain degree of it is to be tolerated by regulators for that purpose.

However, as crucial it may be to legally “protect” a first mover’s advantage in a free market economy, absolutely unrestrained competition can be dangerous. The recent experiences from the financial sector proved to illustrate this risk. The question is, therefore, not one of whether antitrust intervention is needed, but when and to what extent it is required to address complex market scenarios, especially in the presence of high fixed costs, two sided markets and networks effects (to name just a few of the characteristics of modern technologies).

Regulators are called upon to nurture incentives to innovate, but they should not hesitate to safeguard general welfare interests and persecute abuses against consumers. Careful and pragmatic evaluation of innovative industries is thus essential when assessing potential antitrust violations and when considering effective remedies or commitments to eliminate upcoming antitrust concerns.