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Can Antitrust Laws Assist with the Economic Recovery?

 |  July 30, 2020

By: John Pecman (C.D. Howe Institute)

Antitrust enforcers have said they need to remain vigilant to protect consumers and assist with the recovery during the COVID-19 pandemic and economic downturn. Does the strict enforcement of competition laws stimulate a quick economic recovery, or would a more flexible approach in distressed sectors better serve the economy?

Vigorous antitrust enforcement worldwide protects competition and ensures a dynamic of creative destruction, promoting economically efficient allocation of scarce resources, higher quality products, relentless innovation and lower prices. However, during an economic crisis, markets can face disruptions that may impair efficient adjustments of production and prices, resulting in politically unacceptable distributional outcomes and causing longer-term “scarring” for the economy. In the present circumstances, policymakers must reflect on whether competition is truly vital to manage the impacts of the crisis and create the best environment for economic recovery.

First, we note that, for antitrust enforcement, the 2008 financial crisis was “business as usual”.  The 2008 financial crisis differed from the COVID-19 crisis in cause (i.e., liquidity), effects (primarily a financial shock to demand rather than widespread constraints on real activities) and scale (i.e., the size of the economic contraction). Unlike the 2008 crisis, the economic impacts of the pandemic prompted various countries’ competition agencies to loosen their rules…