Gestión Digital – COVID-19 and the limits of antitrust law

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DATE: 28-04-2020

CORRALROSALES IN THE NEWS: 

-Ana Samudio

The main objective of antitrust law is to ensure the existence of an equal playing field so that competitors have the same opportunity to offer goods and services to consumers in every relevant market. This initial budget necessarily implies the ban of agreements between competitors – any express or implicit agreement that reduces uncertainty about the behavior of a competitor – and the abuse of market power.

Within the framework of necessary and urgent measures to confront the world health crisis derived from the COVID-19 pandemic, several competition authorities have seen the need to relax – and even suspend – the sanctioning regime applicable to agreements between competitors, allowing exceptionally that these take place when temporary cooperation is necessary to guarantee the fair provision of essential goods and services during the crisis.

The first such announcement was from the Norwegian competition authority, which allowed, over a three-month period, coordination of itineraries between two local airlines to ensure the availability of the service. This announcement was quickly followed by regulators in Germany, England and the Netherlands, who relaxed the control regime for agreements between competitors aimed at guaranteeing the provision of goods and services; allowing competitors: (i) the exchange of information regarding availability, (ii) the cooperation necessary to keep the establishments open, (iii) the sharing of logistics of warehouses and transport; and (iv) the assignment / exchange of personnel to meet demand.

On its part, the European Competition Network (ECN), which groups the European Union’s competition authorities, issued a joint statement determining that, under current circumstances, reasonable cooperation between competitors would not constitute a restriction of competition in the terms of the community regulation and / or creates efficiencies in the production and distribution of goods and services that overweight the restriction that they could generate; and defined channels of attention to resolve doubts that operators may have about the legitimacy / illegitimacy of an intended cooperation, in light of these exceptional circumstances.

Likewise, the authorities in charge of the control and judgment of competition matters in the United States of America -Department of Justice and Federal Trade Commission- have created an expedited procedure -with duration of seven (7) calendar days- for the analysis and authorization of cooperation between competitors. The entire process is carried out online, for which operators interested in cooperating must provide information that demonstrates the relation with the crisis, necessity, and reasonability of the cooperation, under the protection of the crisis unleashed by the pandemic.

In Colombia, an exceptional regulation was created by which the Logistics and Transportation Center, created as an independent entity from the competition authority, has the mission of evaluating and approving agreements between competitors that are intended to generate efficiencies in the logistics and cargo transportation market which would be deemed illegal at any other time.

Along with these measures that make the system applicable to agreements between competitors more flexible, several authorities have stressed the importance of guaranteeing the provision, at fair and competitive prices, of products considered essential to protect the health and life of consumers (such as respirators, masks and disinfectant products), while warning that the operators that abusing their market power to affect this guarantee will merit a swift and hefty sanction. Along these lines, the Superintendence of Control of Market Power in Ecuador has issued two warrants to producers and sellers of these goods, reminding them that, according to the Organic Law of Regulation and Control of Market Power, they cannot take advantage of the emergency to increase their profit margins through unjustified price increases and will remain vigilant and implement the necessary control actions to preserve consumer rights and free competition.

In the first of the warrants, the Superintendent of Control of Market Power stated, that “Any variation in prices must obey the dynamics of the market and the individual and independent decisions of economic agents and not to anti-competitive agreements or union recommendations.” This assertion -which a priori would be contrary to the affirmative actions taken by competition authorities from other jurisdictions that were explained above- applies to the anticompetitive price-fixing agreements and not to the fair temporary cooperation between competitors aimed to benefit the consumers and tends to guarantee the supply  in this delicate estate of emergency, under the exemption to the prohibition provided in article 12 of the Organic Law of Regulation and Control of Market Power, which in the present state of affairs would justify cooperation between competitors when the following conditions are met simultaneously:

  1. Consumers or users be allowed to participate equally in their advantages: The purpose of cooperation would be to guarantee the provision of goods and services during the state of emergency, with which this condition would be fulfilled.
  2. That they do not impose restrictions that are not indispensable for the achievement of those objectives: Any intended cooperation must be strictly limited to measures required to meet the objective.
  3. That they do not grant economic operators the possibility of eliminating competition with respect to a substantial part of the products or services contemplated: The terms of the cooperation must not constitute barriers of entry or permanence of other competitors in the market.

If you want to read this article in Spanish, click here

Implementation of an expedited merger control procedure by the Superintendence of Market Power Control

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On April 20, 2020, the Antitrust Authority issued an abbreviated analysis and control procedure applicable to certain combination transactions.

This expedited procedure, also known as fast-track, is common in most jurisdictions that have an antitrust merger clearance process and generally apply to transactions that either (i) do not imply any change in the market structure – such as a change of control of a local business in favor of a foreign acquirer with no prior participation in the Ecuadorian market-; or, (ii) in which,  a priori, the market power resulting from the operation is not significant enough to allow unilateral anticompetitive/abusive behaviors by the combined operator.

The analysis and resolution within a fast-track process must be completed within 25 business days. This term contrasts with the regular process that usually lasts between 4 and 14 months (when remedies apply).

The fast-track process is applicable to the following 6 scenarios:

  1. When the change of control of the business occurs in favor of a foreign economic operator with no prior economic activity in Ecuador.
  2. In horizontal combinations (transactions between competitors) where the joint market share of the economic operators involved in the transaction and of their affiliate entities -when applicable- is less than 30% in each relevant market affected by the transaction.
  3. In horizontal combinations that occur in markets where the Herfindahl-Hirschman index (HHI) before the combination is less than 2,000 points and, as a result of the transaction, the HHI index variation is less than 250 points.
  4. In vertical combinations (transactions between operators in the same production/marketing chain), where the joint market share of the economic operators involved in the transaction and of their affiliate entities -when applicable- is less than 30% in each relevant market affected by the transaction.
  5. In vertical combinations where the Herfindahl-Hirschman index (HHI) of each of the vertically integrated markets post-merger is less than 2,000 points.
  6. In transactions involving one or more economic operators that are at risk of bankruptcy, duly supported and qualified by the Antitrust Authority.

The implementation of the fast-track processis highly positive to facilitate new business opportunities, particularly involving foreign investors. In addition, it contributes to the timely application of the competition regulation in the scope of merger control during the state of emergency deriving from Covid-19.

 

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DISCLAIMER: The previous text has been prepared for informational purposes. CorralRosales is not responsible for any loss or damage caused as a result of having acted or stopped acting based on the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm.

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