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6. Regulation as another instrument in the toolbox

6.3. The interface between competition law and regulation

Having in mind what the differences between competition law and regulation are the next logical question that emerges is what should the relationship between them be? Thus far, the academic literature has presented mainly two models. According to the first model, competition law and regulation are to be treated as inherently distinct substitutes that cannot co-exist

107 Ibid 46.

108 Drexl and Di Porto (n 96) 33.

109 Dunne (n 92) 46.

110 Ibid.

111 Ibid.

36 together. Conversely, according to the second model competition law and regulation are treated as being complimentary to each other and capable of existing concurrently.112

6.3.1.Competition law and regulation as substitutes

To start with, the underlying theoretical foundation of the first model is based on the concept that, as has been established in the previous section, competition law and regulation can have different objectives which they achieve in different ways. More specifically, the main

differentiating factor which this model focuses on is the attitude that they have towards the market mechanism. By its very nature, competition law seeks to operate within the market mechanism as it aims to correct dysfunctional markets in order to restore their efficiency.

Competition law embraces well-functioning market competition as the main way of achieving its objectives and at no point tries to overstep it. In contrast to this, as has been stated above,

regulation adopts a completely different approach and aims to replicate competition by in essence mandating to the market how it should operate. According to Eastbrook, ‘Regulation displaces competition. Displacement is the purpose, indeed the definition, of regulation.’.113 Furthermore, according to Breyer, unlike competition law, regulation aims at replicating competition and because of this both regimes need to be contrasted and antitrust should not be viewed as just another form of governmental regulation.114 The logical conclusion of this line of thinking is that by displacing competition in the market and restricting market actors from operating freely in the way they would otherwise do in the context of an unregulated market, regulation leaves no space for competition law to apply. Simply put, if there is no possibility for competition according to the rules of the free market mechanism, there is nothing which

competition law can fix and consequently it should not apply. 115

Looking beyond the theoretical discussion in the academic literature, this approach to conceptualizing the respective roles and applicability of competition law and regulation has

112 Ibid 49.

113 Frank H. Easterbrook, ‘Antitrust and the economics of federalism’ (1983) 26(1) Journal of Law &

Economics <https://heinonline.org/HOL/P?h=hein.journals/jlecono26&i=35> accessed 29 July 2022, page 23.

114 Stephen Breyer, Regulation and Its Reform (Harvard University Press 1982), page 157.

115 Dunne (n 92) 50.

37 found acceptance into the case-law of some national courts. A notable example is the case of Trinko where the Supreme Court of the United States of America has ruled that the existence of a regulatory structure designed to deter and remedy anticompetitive harm makes the additional benefit of competition provided by antitrust enforcement to be small.116 Moreover, the

simultaneous application of competition law and regulation could result in false positives that would ultimately be detrimental in the broader scheme of public intervention into markets.117 Additionally, regulatory agencies are by their nature inherently specialized in contrast to courts applying antitrust law and the concurrent application of both regulation and antitrust rules leads to a duplication of efforts in protecting competition.118

Because of this, the existence of sector-specific regulation excludes the application of US antitrust rules.119 Furthermore, in the subsequent case of Credit Suisse, the Supreme Court upheld and strengthened its decision by holding that the antitrust rules do not apply to securities markets because it would create a serious conflict between them and the enforcement of

regulatory laws on securities.120 As a result, the Supreme Court solidified its stance that sectors which are extensively regulated are unlikely to be subject to the competition law rules.121

6.3.2. Competition law and regulation as complimentary regimes

As has already been discussed above, the second approach to conceptualizing the relationship between competition law and regulation is to treat them as being complimentary to each other.

The fundamental conception on which this model is built states that competition law and

116 Verizon Communications v Trinko 540 US 398 (2004).

117 Kati Cseres, ‘Intersection of Competition and Regulation in Abuse of Dominance and Monopolization’

(2021) Amsterdam Law School Legal Studies Research Paper No. 2021-36

<http://dx.doi.org/10.2139/ssrn.3961466> accessed 29 July 2022, page 20; Amedeo Arena, ‘The Relationship Between Antitrust and Regulation in the US And The Eu: Can Legal Tradition Account for the Differences?’ (2014) 3(2)Cambridge International Law

Journal <https://doi.org/10.7574/cjicl.03.02.202> accessed 25 July 2022, page 348.

118 Margherita Colangelo, ‘The Interface between Competition Rules and Sector-Specific Regulation in the Telecommunications Sector: Evidence from Recent EU Margin Squeeze Cases’ (2013) 14(3) Competition and Regulation in Network Industries

<https://heinonline.org/HOL/P?h=hein.journals/netwin14&i=220> accessed 23 July 2022, page 231.

119 Cseres (n 117) 20.

120 Ibid 21.

121 Ibid.

38 regulation are both different expressions of the same phenomenon, namely state intervention into the free market.122 As a result, the two regimes are delineated not on the basis of their modes of operation (i.e. the embracing or supplanting of the market mechanism) but on the degree of intervention that each one entails. If the unrestricted free market is taken as the default position, then competition law would amount to a lesser degree of intervention compared to regulation because it does not aim to overstep and supplant the market mechanism.123 It should be noted that the complementarity approach does not necessarily negate the idea that competition law and regulation have fundamentally distinct approaches to the market mechanism. However, at the same time it approaches this divergence by taking a top-down perspective and focusing on the fact that both competition law and regulation are state-created and serve the same purpose of correcting market failures. Consequently, it declares that they are both categories of the same phenomenon- state intervention. The logical conclusion that flows from this line of thinking is that both regimes are non-competitors and the existence of one does not exclude the existence of the other.124 Rather, they are in a mutually reinforcing relationship where they can be applied together consecutively or simultaneously. 125 Furthermore, competition law and regulation can both serve to compensate for each other’s limitations.126 Consequently because of this they can be bundled together for the purpose of achieving the most effective outcome and the degree to which one is used in comparison to the other would depend on the market failure that is being remedied. 127

Much like its alternative this model of conceptualizing the interface between competition law and regulation has also found support into the case-law of existing jurisdictions. A notable example is the case-law of the European Court of Justice (ECJ). More specifically, a case that illustrates quite well the approach taken by the ECJ is that of Deutsche Telecom.128 In it, the

122 Dunne (n 92) 54.

123 Ibid 54 and 55.

124 Cseres (n 117) 5.

125 Ibid 5.

126 Baldwin, Cave and Lodge (n 90) 116.

127 Jacques Crémer, Yves-Alexandre de Montjoye and Heike Schweitzer, ‘Competition policy for the digital era’ (2019) Publications Office of the European Union

<https://ec.europa.eu/competition/information/digitisation_2018/report_en.html> accessed 29 July 2022, pages 4 and 5; Dunne (n 92) 58.

128 C-280/08P Deutsche Telekom v. Commission EU:C:2010:603.

39 Court establishes that the EU competition law rules remain applicable even in regulated markets and undertakings can be held liable for anticompetitive conduct unless such conduct has been expressly mandated by rules of ex ante regulation.129 As a result, the effect of this ruling is that, while regulation clearly takes precedence, the rules of competition law remain applicable in situations where undertakings have control over their actions, thus applying concurrently. On its own end, this presents a framework where competition law is treated as supplementing ex ante regulation by conducting an ex post review and the Court explicitly acknowledges that this is the case.130

7. A solution in sight? Tackling the challenges presented by