Antitrust Law & the Economics of the Coronavirus
Dr. Aurelien Portuese
12th May 2020
Unprecedented and unanticipated, the Coronavirus crisis inflicts upon us all tremendous and lasting consequences. Citizens are harmed, firms are jeopardized. Never, in contemporary times, has an invisible weapon caused so much damage — both socially and economically. Crisis-marred competition policies can adapt and address these difficult times only once we acknowledge the lessons we can all learn from the current crisis.
First, we must accept that we are fully indebted to the digital life — now more than ever: self-isolation is eased thanks to digital devices and platforms, social media, and (virtual) interactions. We used to forget the non-economic benefits of digital platforms, or sometimes, used to disdain them as frivolous devices forcing us to mute into a robot-like life. The tech backlash is however only suspended, not reversed. It would be wise to take due consideration of these non-economic benefits of digital players who bring people together, who maintain social interactions. Life is not only about monetary value — competition policies must take into better consideration the free economy where costs are weighed against non-measurable gains.
These non-economic benefits bring us to the second lesson to be drawn from the current crisis: free is better than cheap. The disutility of price to consumers remains greater than the disutility of data privacy wavers. Indeed, the marginal value attached to free digital services is proportionally higher the than the marginal costs associated with data-accumulation. This is further evidenced by free Covid-19 apps designed by either big tech companies or, more sensationally, by governments. Digital privacy control, once demanded, is being waived in a minute for the sake of expected social and sanitary benefits. We have to acknowledge that price trumps data privacy: this is the business model upon which most digital platforms have thrived. We may have overstated the aspirations of data privacy control by consumers as opposed to their irremovable aspirations of free services. In the economic arbitrage between zero-priced services and data privacy control, the former benefit often seems to override the latter — the Covid-19 crisis exemplifies the appeal for free digital apps despite the full loss of data privacy.
Whilst it seems the tech backlash is currently suspended, the current crisis reveals the increased frequency of economic crises, and their impact on business cycles. The 2000 tech-bubble crisis, the 2008 financial crisis, the 2013 sovereign debt crisis, and now the 2019 Covid-19 crisis: the increased frequency of crisis entails quicker, yet more dramatic, vicious spirals in economic activity. These more rapid business cycles have antitrust implications. How can we better take into consideration these business cycles for antitrust enforcement? Should there by “antitrust cycles” whereby times of economic prosperity are seen as recoupments of previous losses? The impact of business cycles on antitrust enforcement has been neglected for too long. The Covid-19 crisis must offer the antitrust community an opportunity to reflect on these inevitable “antitrust cycles”.
These lessons must help us better design the optimal rules of antitrust in times of distress, such as this. If the financial crisis has spurred the “too big to fail” motto on banks, the current crisis may very well generate a “too big to bail” motto on major segments of our industries. Considerations for taxpayers’ money and for the potential of unfair competition have legitimately led the European Commission to warn against any sort of nationalization. Nevertheless, States aids are systematically allowed, and strategic stake-building in return for equity or hybrid capital instruments by Member States is currently considered by the European Commission under the Second Temporary Framework Amendment. With the threat of Chinese takeovers looming, European businesses are in dire need of consolidation, contrary to the widespread thinking that concentrations are a detrimental recent phenomenon. Consolidations should be the favoured approach as compared to the vain attempt to bailout companies at the expense of taxpayers’ money, and at the expense of the evolutionary efficiency of the competitive process.
Secondly, as implied by this consolidation-as-first-priority approach, the “failing firm defense” justification must be more widely accepted. This justification is invoked for merger clearance whenever a firm is likely to exit the market, whereas it may be beneficial to clear the merger if such an exit implies that competitive pressures are likely to reduce. This careful consideration has been fully assessed by the Competition & Markets Authority (CMA) in its recent 16th April 2020 provisional clearance of acquisition by Amazon of Deliveroo because of the financial situation faced by Deliveroo since the Covid-19 crisis. Indeed, the CMA has interestingly noted that “(…) as a result of the Coronavirus (COVID-19) crisis, Deliveroo is likely to exit the market unless it receives the additional funding available through the Transaction (…) We have provisionally concluded that the loss of Deliveroo as a competitor would be more detrimental to competition and to consumers than permitting the Amazon investment to proceed (…)”. The failing firm defense has consistently remained negligible in merger reviews. Because of the consolidation-as-first-priority approach over State aids and nationalisations, and because of the blatant need for European businesses’ to further concentrate at time of aggressive global competition, the “failing firm defense” argument may be one of the concrete winners in antitrust enforcement and merger review to come out of the current Covid-19 crisis.
No doubt the tech backlash is only suspended and shall come to the fore again once this crisis is over. But, the acknowledgement of the existence of “antitrust cycles” alongside shortened business cycles may entail a change of perspective with respect to the benefits of economic consolidation, corporate concentration, and market viability through vicious downturn. Antitrust enforcement may gain from this crisis if necessary reflections are carried out as to the need to devise antitrust rules which can remain both in times of prosperity and in times of distress. Otherwise, we are bound to repeat the same past errors.
Dr. Aurelien Portuese is a Senior Lecturer at St Mary’s University London; Adjunct Professor of EU Competition Law, Global Antitrust Institute of the George Mason University; Research Fellow, Catholic University of Paris.
The views expressed herein are those of the author.