Antitrust in the Shadow of Market Disruptions

Abstract

The COVID-19 pandemic triggered a chain reaction of large-scale disruptions, which drew attention to an old antitrust theme: the relationship between competition policy and large-scale market disruptions, such as wars, financial crises, natural disasters, pandemics, political upheavals, and technological change. This paper revisits the topic.

Discussions of the topic in the literature emphasize concerns that large-scale disruptions tend to lead to the relaxation of antitrust enforcement and assertions that lax antitrust standards subvert preparedness for large-scale disruptions. The COVID-19 pandemic inspired reams of commentary presenting both sets of concerns. Despite their popularity in the literature and public discourse, these claims are uninformed.

The United States partially suspended antitrust enforcement three times in the first half of the 20th century, when the belief that competition was ruinous and wasteful was common and influential. By contrast, today, there is a broad consensus that the competitive process is beneficial and that antitrust standards have been overly lax in recent decades. It is, therefore, doubtful that the COVID-19 crisis would lead to further relaxation of enforcement standards.

Assertions that lax antitrust standards undermine national preparedness for disasters, in turn, reflect a misunderstanding of the competitive process. When governments fail to address disruption risks, the market system does not generate adequate incentives for organizations and individuals to invest in preparedness. In the absence of regulatory resilience standards, market competition can deter private investments in preparedness measures because firms do not internalize the effects of their conduct on disruption risks. By contrast, when the government sets and enforces resilience standards, the competitive process is likely to drive down the costs of compliance with the standards and foster innovation in preparedness technologies.

Keywords: antitrust, competition policy, Covid-19, technological change, market disruptions