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Why Should Competition Lawyers Care about the Formal Rule of Law?
Modern Law Review  (IF1.779),  Pub Date : 2021-02-23, DOI: 10.1111/1468-2230.12625
Ryan Stones

Bruce Wardhaugh, Competition, Effects and Predictability: Rule of Law and the Economic Approach to Competition, Oxford: Hart, 2020, 272 pp, hb £70.00

Competition law scholarship tends to be preoccupied with questions of substance. ‘More’ or ‘less’ intervention? Contentment or concern with concentrated markets? Which business practices should be prohibited? These are key issues with significant consequences for enforcement. But the substantive reach of competition law – the ‘what’ we prohibit – cannot be divorced from questions of the legal form of market intervention – ‘how’ we determine legality. At what likelihood of harm do we adopt a presumption of illegality for a practice? When an anticompetitive impact is more likely than not? Solely when convinced that it is harmful in every circumstance, for fear of condemning efficient conduct? Alternatively, if we can only be sure that a practice is anticompetitive following individualised, context‐specific analysis of its economic consequences, should commercial uncertainty, the risk of errors, and scarce resources suggest that it isn't worth the hassle?

Competition, Effects and Predictability by Bruce Wardhaugh is notable for directly addressing questions of legal form in competition enforcement. Its novelty derives from a strong emphasis upon the formal rule of law. To those unfamiliar with European competition scholarship, such ‘novelty’ – and indeed responses to the title of this article – may seem banal. But that really isn't the case.

Scholarly appreciation for realising the formal rule of law in EU competition enforcement has been marginal since the 1960s, owing to a near consensus that effects‐based, ad hoc determinations of legality constitute the economically optimal form of market intervention. In 1967 René Joliet criticised the fledging European regime for adopting generalised presumptions, bluntly delineating the boundary between legality and illegality.11 R. Joliet, The Rule of Reason in Antitrust Law: American, German and Common Market Laws in Comparative Perspective (Liège: Faculté de Droit de l'Université de Liège, 1967) 117. Sophisticated enforcement required ‘a thorough factual analysis, on a case‐by‐case basis, in the light of economic investigation’, thereby accurately prohibiting the ‘bad’ and permitting the ‘good’.22 ibid, 190. This set the tone for decades. Some question the need for competition law to be predictable.33 For example I. Forrester, ‘The Modernisation of EC Antitrust Policy: Compatibility, Efficiency, Legal Security’ in C. Ehlermann and I. Atanasiu (eds), European Competition Law Annual 2000: The Modernisation of EC Antitrust Policy (Oxford: Hart, 2001) 102‐103. Others have advocated determining the legality of business conduct through context‐specific economic analysis of its competitive effect,44 For example V. Korah, ‘EEC Competition Policy – Legal Form or Economic Efficiency’ (1986) 39 CLP 85, 92‐93. thereby undermining aspirations towards a system of clear and generalised obligations.55 The exception is the presumptive illegality of cartels. This has been especially pronounced in scholarship critical of EU law on abuses of market dominance.66 For example Economic Advisory Group on Competition Policy, ‘An Economic Approach to Article 82’ 2‐6 at (last visited 3 December 2020). Other imperfect generalisations intended to foster legal certainty – block exemption regulations,77 For example S. Bishop, ‘Modernisation of the Rules Implementing Article 81 and 82’ in Ehlermann and Atanasiu, n 3 above, 56. indicative enforcement guidelines88 For example P. Akman, ‘‘Consumer Welfare’ and Article 82EC: Practice and Rhetoric’ (2009) 32 World Competition 71, 78. –have also been dismissed as formalistic ‘pigeon‐holing’,99 See D. Hay, ‘Pigeonholes in Antitrust’ (1984) 29 Antitrust Bulletin 133. ignoring the actual economic consequences of the conduct in question.

Resistance to this consensus on the appropriate form of competition law is difficult to pinpoint in European scholarship before the mid‐2000s.1010 For example R. Whish and B. Sufrin, ‘Article 85 and the Rule of Reason’ (1987) 7 YEL 1, 37. But in the last 15 years this has started to change. Several scholars have challenged the notion that realising generalised, predictable norms, and economically sophisticated enforcement are mutually exclusive. Sometimes labelled a ‘Neo’‐Chicago approach, they advocate the incorporation of economic learning into the design of presumptions and structured tests, thereby aiming to reconcile accurate economic outcomes with approximating the formal rule of law.1111 For example D. Evans and J. Padilla, ‘Designing Antitrust Rules for Assessing Unilateral Practices: A Neo‐Chicago Approach’ (2005) 72 U Chicago LR 73; A. Christiansen and W. Kerber, ‘Competition Policy with Optimally Differentiated Rules Instead of “Per Se Rules Vs Rule of Reason”’ (2006) 2 JCLE 215; Y. Katsoulacos and D. Ulph, ‘On Optimal Legal Standards for Competition Policy: A General Welfare‐Based Analysis’ (2009) 57 Journal of Industrial Economics 410.

Competition, Effects and Predictability contributes to this debate. Wardhaugh's overall argument is that an ‘effects‐based approach’ to determining legality ‘is a threat to the rule of law’ (2). Following an account of how both competition law in the US (Chapter 2) and EU (Chapter 3) have increasingly favoured this means for determining legality, Wardhaugh ultimately adopts a solution akin to the ‘Neo’‐Chicagoans of incorporating economic learning into the ex ante design of presumptions and structured tests (11‐12, 211–212, 222).1212 However unlike ‘Neo’‐Chicagoans, Wardhaugh advocates including non‐economic goals when designing legal tests (212). In this way, competition enforcement can be economically informed and foster legal certainty for businesses.

Competition, Effects and Predictability has much promise as the first monograph‐length analysis of the formal rule of law in competition law. The significance of the ideal tends to be underdeveloped in this field, limiting its conceptual clout in contemporary debates on the form of market intervention. Wardhaugh had the opportunity to offer a clarion call for fellow advocates of the formal rule of law in competition enforcement, providing a persuasive articulation of why it matters, anchoring other scholarship critical of the formal consensus. It could also have caused those advocating case‐by‐case, effects‐based determinations of legality to directly address the consequences of their preferred form of market intervention.

Competition, Effects and Predictability fails to realise this potential. Unfortunately, it does so in a way that is arguably more damaging for those of us who sympathise with Wardhaugh's aim of re‐emphasising the rule of law in competition circles. The problem is that the argument of the book falls at the first hurdle: Competition, Effects and Predictability doesn't offer a compelling account of why any reader, ally or adversary, should care about the formal rule of law in competition enforcement. Wardhaugh's account of ‘The Rule of Law and Why it Matters’ (Chapter 1) is so underwhelming that it is incapable of sustaining analysis of the ideal's alleged demise for the rest of the book. After hinting that the origins of the concept lie in attempts to constrain centralised power (16‐17), such justificatory beginnings are quickly abandoned as ‘not our task’ (17). Wardhaugh is correct that ethereal jurisprudential discussions of the rule of law are easily dismissed as a lawyerly fetish in a field animated by economic goals in real‐world markets (14). But that does not mean that one must choose political or economic justifications for the formal rule of law in competition enforcement.

In any event, Wardhaugh advances neither for around 20 pages. The reader is instead offered a basic account of the formal conceptualisation of the rule of law through a listing of desiderata proposed by Lon Fuller and Joseph Raz (18‐19). Occasional references are made to predictability, guiding legal subjects, and avoiding arbitrary decision‐making (18‐21), but no sustained attempt is made to convince the reader of their importance. If anything, Wardhaugh's lukewarm allusions to any ‘pros’ makes his explicit consideration of the ‘cons’ hit even harder: the ideal upon which he grounds Competition, Effects and Predictability is compatible with ‘even the most abhorrent regimes’ (21) and coheres with ‘laws that are bad or wrong or even evil in content’ (22). Although Wardhaugh ultimately accepts that substantive interpretations are too broad (24‐27), the damage to the formal account has already been done.

His next step is to demonstrate that the formal rule of law is valued by the USA and EU legal orders, occasionally being mentioned in judicial decisions (27‐35). Again, a justification for why it should be considered important in competition law is absent; this is unfortunate given reference to the is/ought fallacy immediately beforehand (26).

The final substantive section of the chapter is titled ‘Why the Rule of Law Matters’. Although reiterating that convincing competition commentators will require a robust economic justification, Wardhaugh instead offers a paragraph on New Institutional Economics (36), recognition that ‘the rule of law’ is a World Bank development indicator (37‐38), acknowledgement that international investment treaties attempt to stabilise the regulatory environment (38‐39), and brief reflections on uncertainty as a transaction cost (40).

Is that all there is? Is that what commentators in competition circles are defending or disregarding? A concept of murky liberal origins, purely concerned with legal certainty but without clear justification, compatible with evil but occasionally mentioned by judges, and included within investment relations and pseudo‐scientific development indicators? No wonder concern for the formal rule of law has been drowned out by a push towards effects‐based analysis; even those sympathetic to Wardhaugh's argument will finish the chapter wondering whether the formal rule of law ideal is worth fighting for in competition law.

The main purpose of this piece is to achieve what Wardhaugh does not: to argue why competition lawyers should care about the formal rule of law. To effectively scrutinise individualised, effects‐based determinations of legality and to advocate a more balanced reconciliation of accurate outcomes with realising the formal rule of law, a compelling articulation of what is at stake is necessary. In failing to explain its value within this specific context of economically animated market interventions, concerns about the appropriate form of competition law can easily be dismissed as stereotypical lawyerly qualms. This article will articulate the political and economic significance of the formal rule of law in competition policy.

This is not to say that with stronger foundations Competition, Effects and Predictability would be free from problems. Having built his theory around the importance of legal certainty, Wardhaugh's subsequent embrace of behavioural economics may be difficult to reconcile with the assumption of rationality underpinning the formal rule of law. Furthermore, the exclusive focus upon predictability is too narrow: the equal application of generalised laws is almost entirely absent from consideration; and Wardhaugh's criticism of courts misses their importance for dynamically approximating the formal rule of law, thereby making the ideal more achievable. For the formal rule of law to be taken seriously in competition scholarship, it is critical that such inconsistencies and omissions are avoided.