Idea of the Day: A Progressive Antitrust Enforcement Program Tailored to the Economic Downturn

May 11, 2009

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Renewed attention to antitrust enforcement should focus on several key areas in order to encourage speedy economic recovery. First, policing cartels will be even more important as the economic downturn drives some companies to seek the easy life by arranging treaties with their rivals. Second, businesses may attempt to use the difficult economic times as a justification to consolidate with competitors in ways that would not have been imaginable or acceptable under a more robust economy. This threatens to create entities with excessive market power that far outlasts the recession. Third, the temptation for dominant firms to gain market share by unlawfully excluding competitors may be greatest when they view that path as a shortcut to preserving shareholders’ profit expectations in tough times.

Some may suggest that antitrust enforcement should be minimized because of the economic downturn. Those people believe that competition is a burden too great to bear when the market is suffering. They could not be more wrong. Antitrust enforcement is even more vital when markets are shrinking, prices are rising, and market opportunities are falling. As market opportunities diminish, some companies may attempt to collude or coordinate to keep profits at traditional levels and dampen the impact of the economic downturn. Other dominant firms may find it even more tempting to engage in exclusionary conduct—behavior that stifles opportunities for rival companies. Still others may try to use the economic downturn to propose mergers or acquisitions to obtain market power.

Competition does play an important role in supporting the economic recovery. Yet all of the actions described above—cartels, price fixing, exclusionary conduct by dominant firms, and mergers securing market power—dampen rather than strengthen economic growth. Not surprisingly, one of the strongest periods of economic growth— during the Clinton administration—was accompanied by a balanced but comprehensive period of antitrust enforcement.

For more on this topic, please see:

• Restoring Trust in Antitrust Enforcement by David Balto