Competition in the time of corona
What role does competition policy have to play in the age of Coronavirus? This is the question which the outgoing Chair of the CMA, the Rt Hon Lord Tyrie, examines in his paper for the thinktank IPPR, published at the end of last month.
The question is clearly an important one to pose, not least because governmental responses to the virus the world over have been characterised by unprecedented levels of state intervention, other more pressing policy objectives have been (rightly) prioritised above competition and the pandemic has already caused very considerable economic disruption in the form of recession, reduced output, increased unemployment and sharply increased public borrowing.
This is the backdrop against which Lord Tyrie sets out, in the first part of his paper, how the CMA has responded to the virus thus far and, in the second, the role competition policy has to play in shaping our economic recovery. Whilst this note focuses on the latter, Lord Tyrie’s point as to the extent to which the CMA, in seeking to respond rapidly to the impact of the virus, was effectively acting out of character is interesting to consider. He says that the CMA’s legislative underpinning provides no basis for crisis response – instead the regulator’s modus operandi (as dictated by its statutory foundations) is one of predictability, characterised by due process, deadlines, checks and balances. Responding to the crisis has necessitated a different and more agile approach, demonstrated by the fact of the CMA’s Emergency Taskforce being set up within a fortnight.
Competition and the recovery
The combatting of the shorter-term impacts of the pandemic aside (which Lord Tyrie notes have taken the form of action on price gouging and unfair business practices), to ensure a robust and sustainable economic recovery, the CMA must promote competitive markets and the maintenance of trust in the economy by guarding against unfair practices and consumer detriment. He sets how both aims can be achieved via responses to a number of implications of the pandemic for the economy, for competition and for the CMA’s work:
- The first is increasing concentration in a number of sectors – a phenomenon which pre-existed the crisis but which Tyrie expects the pandemic will exacerbate as a proportion of businesses will simply not survive the recession. Whilst not all concentrations present economic ills, competition policy can prevent those that do with effective merger control, the close monitoring of the potential for consumer detriment as sectors develop and, Tyrie suggests, robust advice to government in order to avoid what may be the ultimately inefficient keeping afloat of failing firms. With regard to merger control, Tyrie predicts an increased use of the ‘failing firm defence’ (which, he says, must continue to be justified) and a rise in ‘killer acquisitions’, wherein an incumbent eats up would-be competitors. The example Tyrie cites here is Facebook’s 2012 acquisition of Instagram.
- The second broad implication Tyrie identifies is Big Tech’s increased power by virtue of “having a good crisis”. Our increased reliance on technology (both in our work and personal lives) as a result of the pandemic is well-established. Work meetings and family get-togethers became, and for many still are, video-calls. Last term’s classroom was a virtual one and shopping is an ever increasingly web-based affair, undoubtedly accelerating the decline of the high street. The digital technology sector is already one which is characterised by significant concentrations of power – think Google, Amazon, Facebook, Apple and Microsoft – and a recession is likely to bolster these firms’ strength as start-ups go to the wall or are snapped up in killer acquisitions. Here, Tyrie notes that the impact of the pandemic will likely fortify the consensus around the need for pro-competitive regulation. It will be important, he says, that the public utility in the tech giants’ services is not dismissed but that the CMA must make dispassionate assessments of their dominance and the effects on competition, consumers and wider society of their increasing power.
- Third, Lord Tyrie cites an increased vulnerability of consumers – both due to reductions in income but also due to increased opportunities for unfair practices and anticompetitive conduct such as failures to refund cancelled bookings or misleading advertising. The CMA can take enforcement action where firms breach competition and/or consumer law and encourage government to take steps which will ultimately bolster consumer confidence.
- Lastly, Lord Tyrie notes the impact of the crisis in reduced international trade, including via the growth of protectionism and calls for greater economic self-reliance. A decline in free trade will entail less international competition: the question for domestic regulators, Tyrie says, is whether this can be replaced by domestic competitive pressure. Lord Tyrie goes on to disavow an industrial strategy which extends beyond a policy of competition (increasingly popular on the continent), although, as he acknowledges, such an approach must deal with the gaps left by globalised free trade: unfair market outcomes and the existence of poorly-functioning markets to name just two.
Long-term challenges ahead
As Lord Tyrie points out, the pandemic has weakened the economy and reduced competition; it has also accelerated concentrations of market power in key sectors, increased our dependence upon digital platforms and assisted in making consumers more vulnerable to anticompetitive and unfair practices. These factors present a very significant challenge to the CMA and to competition policy more broadly and yet the regulator’s effective response to each is vital to the health of our post-pandemic economy.