When Antitrust Enforcement Gets Bashful

It is difficult to identify the relationship between antitrust law and the economic cycle. Some claim that antitrust enforcement should be anti-cyclical, allowing business to better react to crises, while the application of antitrust policies should be strict in periods of increased growth to avoid positive signals translating into incremental prices and profits. The solution for anti-cyclical fluctuation depends on the amount of trust in the virtues of markets' self-redemption. If the market could quickly react to shocks, then attitude towards competition restrictions should not change with the economic cycle. Traditional antitrust objectives should be defended both from a qualitative point of view (protecting competition for efficiency, rather than for competitors) as well as from a quantitative point of view (the most restrictive behavior should be strictly sanctioned both for a direct discouraging effect, and for an indirect discouraging effect, which should then influence the future behavior of all businesses).

If, on the other hand, markets do not react immediately, a more prudent policy would be necessary since a "neutral" application of the policy to protect competition could stimulate the reach and duration of the crisis.
The position of antitrust authorities certainly should not be envied. A strict stance, determined in the short-term to take troubled businesses out of the market, would produce immediate and severe consequences, both in social terms and in terms of visibility of antitrust action. In this case, competition benefits would only appear gradually, in the medium- and long-term, and results would be much less impalpable given that the advantages would be distributed over all consumers and citizens. The choice in these cases, especially for less independent authorities, would inevitably be in favor of a very tolerant policy. This is why even champions of the antitrust tradition, such as the United States, have seen sentences in the past that justify cartels as innocent attempts to "organize the coal industry and to relieve the deplorable conditions resulting from overexpansion, destructive competition, wasteful trade practices, and the inroads of competing industries" (Appalachian Coals, 1933).

It is therefore not a surprise that the European Commission has softened its stance towards competition protection objectives in the current financial crisis. In December of 2008, the Commission adopted a new framework for assistance to support the access to funding: the framework provides member states further possibilities in the field of government assistance to fight against the effects of tight credit on the real economy, introducing temporary measures that allow government to face the exceptional difficulties that business, particularly small companies, have in obtaining funding. The EU antitrust policy demonstrated that it is flexible in the face of the crisis, and reasserted its relevance. This avoided a variety of responses dictated by national governments alone, along with the associated risk of rewarding excessive protection of domestic business interests. It is just as important that all actions aligning antitrust constraints were designated and communicated as temporary. The message is that the exceptional nature of the crisis can justify acting less strictly, but businesses should know that the partial retreat from tighter policies regarding government assistance will end as soon as there are signs of a lasting structural recovery. A strict, and perhaps myopic, antitrust enforcement which aggravates the consequences of the crisis in the short-term should be avoided if possible, and instead those instruments that ensure benefits of competition in the long-term should be kept intact. It is difficult to predict how successful it will be.