How Should European Competition Law Be Applied in a Recession?

Abstract

It has often been informally suggested that competition policy should be altered in a recession although competition authorities have in general argued that it should not, except in connection with state aid. This paper is intended to discuss systematically the main issues that arise as a result of recessions. It does not attempt to summarise all the legal rules that may be relevant, but only the effects of recessions under those rules. The paper is intended to look at European Union competition policy as a whole although it points out that in fact it is not completely integrated.

The first conclusion suggested here, which is applicable to both the Commission and national competition authorities, is that there is no sufficient reason for modifying the legal or economic principles, or the standards of proof, in a recession. However, because of the unusual circumstances, the results of applying those principles may be different during a recession. This conclusion means that there is no need to define a recession in order to decide when different principles should be applied, and no need to try to state special or modified principles. Some of the special problems of applying the principles during a recession are discussed below.

The second conclusion suggested is that more should be done to integrate and harmonise the European policies on restrictive agreements, abuse of dominance, mergers, state aid, and national monopolies and measures restricting competition. These should be made into one consistent policy, not five separate policies. It appears that the Commission has never looked carefully at competition law as a whole

The whole policy should be uniformly enforced. This is desirable anyway but is particularly so in a recession. This would mean that in individual cases alternative solutions should be considered, e.g., state aid instead of an anticompetitive merger. This is not done formally at present and, in particular, the rules on national measures restricting competition are under-enforced.

The fourth conclusion arises from comparing the rules on state aid with the rules on statutory monopolies. If a monopoly is set up to provide a public service, any profits exceeding the cost of the service cannot be based on the justification for setting up the monopoly, and are not justified. In contrast to state aid rules, the excess is not regulated. The excess is not regarded as an aid because it does not come out of State funds.3 However, in particular, in a recession, monopolies should be strictly regulated to ensure that they do not make unjustified profits. Since regulation is cumbersome and it is not possible to calculate the economic cost of a monopoly, state aid is usually preferable to a monopoly. Member States should establish monopolies and allow monopolies to continue, and should allow restrictive mergers, only when it is clear that for some reason they are more efficient economically than state aid would be. In a serious situation, all the alternatives should be considered.

The consequences of recessions for competition policy are most obvious in the case of state aid, however, it is useful to begin by recalling the effects of recessions, the arguments for changed policies, and some general considerations. It is then convenient to analyse the economic issues under Article 101 since many of the same issues arise also in connection with mergers, state aid, abuse of dominance and national measures restricting competition.