Uncertainty In Competition Law: Why Big Companies Are Anxious About Competition Law More Than Regulation
The Paradox
Large companies are well-versed in regulations, licensing, compliance, and reporting. These are predictable, negotiable, and budget able. However, competition law often causes hesitation, not because of penalties but because of the control it exercises over corporate behavior. While they lobby, comply with, and budget for regulation, big firms are more cautious with antitrust laws, thinking twice to avoid potential violations. Why does competition law induce more anxiety than detailed regulation?
Regulation Is Predictable; Competition Law Isn’t
Regulatory law generally works ex ante. It tells firms, in advance, what they can and cannot do. Whether it is through sanctions or punishments, it leaves no room for speculation. It is clear as day that if you fail to fulfil your CSR requirement, you will have to pay the calculated amount. It is predictable. Businesses, whether big or small, seek predictability; it helps them anticipate and prepare for potential harm. Compliance becomes a managerial problem, not a strategic dilemma. As long as the firm stays within clearly defined boundaries, it can operate with relative certainty.
On the contrary, competition law has an ex post nature, meaning that conduct is evaluated after it has already occurred. Firms are rarely told in advance that a particular strategy is unlawful. For businesses, it creates speculation and makes them worry about a decision that has already been made. The broad definitions and context-specific procedures of competition law make it hard for businesses to make decisions freely. It is tough for them to determine what fines or actions their decision might trigger.
Uncertainty as the Real Deterrent
This uncertainty is not a flaw but an intentional mechanism in place by the lawmakers. Competition law prevents harm through two distinct mechanisms: Direct and Indirect.
Direct mechanisms are relatively straightforward; authorities proactively or directly intervene to prevent anti-competitive conduct. For instance, imposing fines or ordering searches when a harm is detected. Since businesses are aware of an incoming action, they are better prepared for it.
On the other hand, indirect mechanisms create a deterring effect. Businesses fearing unexpected actions by the authority, rethink their decisions. They may avoid taking any lawful pro-competitive actions that could be seen as an unfair advantage. To understand how uncertainty is created, it is essential to know a basic principle of competition law. It works on a case-by-case basis, by making an enquiry into the situation and figuring out how much of an unfair advantage a business decision created.
According to Jan Broulik’s paper, the indirect mechanism relies on how a section differentiates itself, which essentially means the level of inquiry it permits in a given situation. When a section is more differentiated, it tends to introduce more uncertainty because it allows for a variety of inquiries. To generalise, a section that asks the question “what happened?” will be less complex to answer than a section that asks “what happened”, “why it happened”, and “how much damage was done”. This uncertainty mainly arises from two key factors.
For example, A large company offers very low prices to attract more customers. Low prices are not illegal in themselves, but competition law later inquires about the reasons behind the low prices and their impact on rivals. The uncertainty arises from the fact that the same pricing decision can be viewed as healthy competition or as unfair exclusion, depending on how the authority assesses it.
Why This Makes Competition Law Powerful
The uncertainty makes the competition law powerful and is the primary tool used to achieve the objective of competition law. It makes the business cautious about the consequences of its action. Businesses adapt with a gentler approach, avoiding more damage than a direct approach ever would. A UK survey of businesses and their legal advisers found that the number of infringements deterred per each detected case was at least five for cartels, seven for other types of business agreements, and four for abuses of dominance.
However, this doesn’t come without a downside. The self-deterrence of business is not mathematical; they might overestimate the potential sanctions, resulting in overly protective measures that harm healthy competition. If businesses cannot predict this well, competition law will be frustrated in achieving its objective due to the resulting mis-deterrence, that is, over- and/or under-deterrence.
In conclusion, paradoxically, this uncertainty is what gives competition law its strength. It does not need constant intervention or rigid rules to influence behaviour. The mere possibility of scrutiny encourages firms to moderate their actions. Competition law shapes conduct indirectly, by making firms internalise competitive concerns before acting.
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