THE STRUCTURAL AND BEHAVIOURAL DEBATE: AN ASYMMETRICAL REMEDY REGIME
Updated: Nov 8, 2021
[Chandra Lekha is a fourth year law student at OP Jindal Global University]
In the context of competition law legislation, remedies are corrective or preventive measures imposed by competition authorities to restore a level-playing field in the market. The purpose of a remedy in antitrust law is to ensure that firms do not participate in conduct that would impede or even eliminate effective competition between various players in the relevant market. The most common forms of remedies are structural and behavioural remedies; and infrequently, hybrid remedies, which are an amalgamation of the former two. While their effectiveness varies, there exists a curious asymmetry between the frequent use of structural remedies by competition authorities and their sparse use and disinclination towards behavioural ones. The European Commission, in its Merger Remedies Notice, went to the extent of stating that “commitments relating to the future behaviour of the merged entity may be acceptable only exceptionally in very specific circumstances.” This brings us to the current question of whether such disinclination is justified and whether it is time for a wider acceptance of behavioural remedies.
Structural Remedies: Why or Why not?
Structural remedies are usually one-off in nature and eliminate the need for long-term monitoring and involve resolutions like divestment of assets or commitments to exit from a joint venture. Most competition authorities prefer structural remedies for they do not require constant monitoring and tackle the source of competitive harm directly at its root. In stark contrast with behavioural remedies which place emphasis on the after effects of the market harm, structural remedies centre in on the market situations and behaviours which have led to this market harm. They bring legal certainty and are compatible with the changing market conditions. They are considered viable since they cannot be distinguished from the usual workings of a market that already involve divestures. Yet, their limitations are often overlooked by authorities. In instances where there are no assets for the authorities to divest, like in the case of Schneider/L&T, structural remedies often fall through. Moreover, the difficulty of finding a divestment purchaser is often undervalued by the authorities. In industries that require high investments with no immediate returns, like the Pharma industry, the authorities fail to find an acceptable purchaser. Structural remedies do not account for instances where the divestment does not allow for the creation of a viable independent business leading to the failure of the divestment business, especially if the purchasers are inexperienced in the field. In most tight-knit companies, separation of capital and employees is even more difficult and may even reduce the firm’s incentive to innovate. In certain industries, separation might also harm the customers who rely upon and trust the establishment. The added high costs of implementation only act as an added detriment to this large pot of issues.
Is it time for openness towards the behavioural approach?
Behavioural remedies are designed to regulate the conduct of the undertaking and are ongoing in nature. They consist of rules and obligations for the firm to follow and ensure the elimination or reduction of the harm caused to the market. While the popular criticisms of behavioural remedies hold true, it does not take away its benefits. Instances like Schneider/L&T would be quickly resolvable (as was done by the Competition Commission of India) and can be tailored to each case. This allows the authorities to target their intervention to specific issues which do not occur homogeneously across the market. Behavioural remedies adapt to the changing market scenarios and the specific requirements of the firms to avoid disruption to established structures of the company. Another advantage is their ability to change during the course of implementation. The authorities are given the chance to observe the conduct of the firms and make changes as may be required to reinforce the level playing field of the market. While structural remedies are undoubtedly effective in dealing with horizontal agreements, where the acquirer’s share in the market leads to anticompetitive actions, it is not so much the case with vertical agreements. Structural solutions like divestments are impractical when dealing with anticompetitive agreements at different levels of the production chain. The main concern in these agreements is of foreclosure of competition at different levels of production. Behavioural solutions like long term white labelling, price caps, and access to information are considerably more successful than divestures in preserving valuable efficiencies which may be lost through a divestment. This outlook has also been gaining ground in the international community with the French competition authority rallying for the adoption of behavioural remedies which was also backed by Margrethe Vestager, the Vice President of the European Commission for a Europe fit for the Digital Age and Competition. She maintained that in most vertical or conglomerate mergers that lead to the failure of divestments, it is pertinent for the EC to adopt behavioural remedies.
The Need for Greater Flexibility
While both structural and behavioural remedies carry their fair share of caveats; in my opinion, rather than favouring one, taking the route of the Competition Commission of India (CCI) is a promising way into the future of competition legislation. The CCI accepted hybrid forms of remedies in cases like the PVR/DT where the parties were directed to leave out certain movie screens from their transaction and also provide undertakings not to expand or acquire new screens. This strategy has also proven to be effective in cases of bundling, where a divestment of overlapping businesses in addition to a behavioural remedy of non-bundling and non-exclusive distribution channels ensures the best of both worlds. It succeeds in attacking the anti-competition issue at its root by rectifying the market control through the structural remedy and also ensures monitored and flexible protection of competition while preserving the efficiencies of a transaction through behavioural remedies. With anti-competitive behaviour becoming increasingly complex, it is pertinent for competition authorities of all nations to overcome institutional barriers and adopt flexible solutions to anti-competitive behaviour. This not only ensures that cases damaging market equilibrium are truly dealt with on a case-to-case basis but also maintains the fine balance between over and under-enforcement by authorities.