Covid-19 pandemic: Impact on competition law and policy?

Thur 11 June 2020 

By Professor Deborah Healey


The COVID 19 pandemic presents a clash of humanitarian and economic goals and costs. The extent of the resultant loss and damage to lives and communities is huge. Competition law and policy will be critical to ensuring that markets remain vibrant both globally and in individual jurisdictions. 

Competition law raises questions about the acceptable extent of collaboration to ensure supply chains in essential goods and services. It queries the bigger picture of how mergers should deal with failing firms. It asks how the growth of market power be addressed where firms are forced to leave the market in large numbers, particularly in the context of the impact on SMEs, although there will be casualties at all levels of the economy.  Also, how should price gouging in essential items be dealt with?  

In the longer term, COVID 19 challenges current assumptions about globalisation, government intervention in markets and the appropriate goals of competition law itself. There have been suggestions by experts that it may be time to take a longer-term perspective and to better integrate risk into our economic analysis and policy decisions in the competition law and policy area to guard against future disasters.   Two major areas for consideration in this context are collaboration and the role of government in the market.

Collaboration between competitors/rivals in the form of cartels is recognised as the most egregious form of anti-competitive action and treated harshly under all competition laws.  The current economic environment values cooperation at the expense of competition in the public interest due to the acute  situation in relation to essential items and services. Many competition authorities are relaxing the rules for collaboration. Some are issuing letters of comfort to allow parties to collaborate.  US experts have queried whether it might be a good idea to have a public interest clause or emergency crisis clause in place to allow collaborations that would be illegal in normal times. Or would such flexibility be too inviting of opportunism and abuse? 

 The ACCC in Australia has been granting interim authorisation under the Competition and Consumer Act, giving specific exemptions for named parties and carefully identified conduct other than price fixing. Clearly the public benefits of collaboration in a number of circumstances are much greater at this point in time.  Interim authorisation allows conduct to start quite quickly but may be revoked on further investigation or after a specified time, and has been granted in relation to  applications in essential areas such as co-operation between hospitals, distribution of medicines, finance terms for small business, electricity and gas supply, cooperation between supermarkets for acquisition and deliveries of product in circumstances of panic buying, regional air transport and petroleum distribution. The ACCC undertakes public consultations and review for final authorisation concurrently. Important questions arising from these more relaxed policies in Australia and elsewhere are whether they will increase the tendency among firms to collude in the post COVID 19 world and whether economies will return to their earlier strict focus on collaboration as an anti-competitive evil. 

The response of competition authorities to governments giving loans, funding for specific companies and or sectors, preferencing SOEs or other market interventions from a competition policy perspective is also complex. While it is quite clear that government market interventions are necessary, bigger issues are whether the interventions are appropriate or fit for purpose and no more anticompetitive than necessary, and when and how they should be phased out. In the EU, for example, state aids in cases of market failure are expressly meant to be effective and proportional, as otherwise trade and competition distortions in the internal market will result. The EU has provided a temporary framework for State aid measures to support the economy in the current pandemic. Other jurisdictions have done the same but outside the system of constraints imposed by EU law, so they do not have the same checks and balances. There is also likely to be push back between governments and companies and their medium-term goals. They will lobby for continuation of the assistance in the longer term. In some circumstances where companies are recapitalised, government may become a shareholder or owner.

It is crucial that competition authorities take the initiative and engage in competition advocacy with governments. In some jurisdictions legislation requires that governments consult with the competition authority on proposed laws and policies. In other jurisdictions the competition authority is routinely consulted. In others the competition authority is routinely  ignored. Where private companies are concerned, the position is more difficult particularly where large companies have strong links to government.

Jurisdictions which have initiatives such as Competitive Neutrality Policy in relation to SOEs generally allow some non-compliance where public benefit overrides the neutrality requirement. Competitive neutrality is never absolute . However, as a matter of principle,  the competition authority must encourage government to clearly document its approach and justify any anticompetitive impact by claimed public benefits at the outset and going forward. If government will not do this, the competition authority should undertake the task and present its findings to government. Finally, where law and policy within a jurisdiction is routinely reviewed for anticompetitive impact as in, for example, the  Fair Competition Review Policy in China, transparency and objectively assessable documentation to support the impact on competition of the approach and justify its public benefits going forward is particularly important. Competition authorities must advocate strongly for this and undertake the assessment in the absence of government justification.

Competition advocacy by the competition authority will be of the utmost importance going forward to ensure that COVID-19 initiatives only last as long as is absolutely necessary and are limited to the extent that they can be. They may need to be replaced by lesser actions from time to time as circumstances improve and ultimately removed but a similar assessment exercise should be undertaken for each new initiative. 

Finally, what is the future for competition law and policy? One can imagine that jurisdictions will need to decide whether they wish to maintain the ability to apply measures more quickly, flexibly and within some type of framework in the future. The disillusionment which some already had with competition and globalisation will impact competition law and policy means that it is unlikely that jurisdictions will embrace it fully going into the future. Competition authorities will have to work harder to ensure that competition remains at the forefront of economic policy. The crisis will impact globalisation to the extent that jurisdictions will be more likely to want local solutions to some of their critical important products and services, regardless of increased costs. Competition authorities will need to recognise these views but strive to keep competition whether global or jurisdictional at the forefront of policymaking.