Antitrust cases are long. We are talking Lord of the Rings Extended Edition long. Australian Open final with Rafael Nadal long. All Too Well (10 minute version) by Taylor Swift long.

Mergers are now commonly assessed by regulators in many countries, each with their own timetable and style of working. This means that, all in, deals could take years to get regulatory clearance. Antitrust cases involving collusion or abuse of dominant positions can take even longer. At best, these are resolved over a few years but could often drag on for decades. On the extreme end, there’s the Intel case in which European Courts have recently issued a judgement for a complaint made in 2000. To put that in perspective, we didn’t have any of the Lord of the Rings movies, Rafael Nadal or Taylor Swift in our lives in 2000!

And in addition to being long, the dynamic between regulators and firms can feel fairly antagonistic.

– Regulators work to identify and resolve any potential competition concerns but they must also make sure that the reasons for their decision making can stand up to an appeal in court. In merger enquiries, an appeal may come from the merging parties (in case of a block) or a third party (in case of clearance) so the threat of challenge is present irrespective of the outcome. Determined to cover off every conceivable economic issue, regulators could be tempted to issue sprawling RFIs for data and documents that may have little to do with the main issues. It is like going all out for something that’s totally not worth it – similar to Taylor Swift’s Reputation tour where she had giant, stadium-sized inflatable snakes in the background, just to get back at some online bullying she faced a few years ago…

– Firms, who likely spend most of their time worrying about making cool things for their customers or about the lean, mean competitor stealing their customers, may fail to understand why have to go through a never-ending saga of antitrust enquiries. For many LoTR-style cases that drag on for years, there are often Hobbit-style prequels and LoTR-TV-series spin-offs. Take antitrust cases against Google for example – in the last ten years, regulators have launched enquiries into Google’s search, shopping service, ad exchange, android, YouTube, Fitbit, and potentially others. Facing regulatory onslaught of this intensity, firms could either try their best to answer those RFIs, choose to fight regulators on these requests or lose faith in the seemingly never-ending process and give up entirely (undoubtedly incurring more regulatory wrath).

The Chief Economist of the EC, Pierre Régibeau, recognised this dynamic, hoping for a ‘less completely antagonistic’ relationship where firms do not ‘fight like hell’. Of course, nobody expects regulators and firms to get along like Frodo and Sam (last LoTR reference, I promise) or for cases to wrap up in hours like an early round Rafael Nadal match at the French Open (cannot promise this is the last Nadal reference sadly). Effective regulation would need challenge from all stakeholders, and take some time for the necessary information to be gathered. But it doesn’t need to be – as the Chief Economist’s words imply – a completely antagonistic dynamic. Surely it’s no fun for business execs to spend their day jobs doing regulatory RFIs or for the regulators to work through thousands of emails, documents and datasets they’ve requested. Then why do we keep doing this?

The reason for this may be explained by the microeconomic concept of the Prisoners’ Dilemma. Yep, the poster-child of Game Theory 101 which provides the seemingly obvious but still useful insight that two people pursuing their own best interests could end up in a situation that is worse for both of them compared to a world where they behave in a cooperative way.

Imagine both the regulator and the firm facing antitrust action have the choice to cooperate or ‘fight like hell’. The outcomes they can get would look something like this.

What the table with a bunch of random numbers is trying to say is that there could be four possible outcomes:

– Both the firm and the regulator are cooperative: this is the least painful outcome for both the regulator and the firm. The happy place where regulators make enquires targeted at relevant issues and firms proactively work with them in resolving any antitrust concerns.

– Firm cooperates but regulators fight like hell: if regulators are minded to find issues with firms, they will find and write up issues anyway and the helpful firm (by answering requests comprehensively) would only be making the regulators’ case stronger. This is a terrible outcome for the firm (-15) and good for the regulator.

– Firm fights like hell but regulator is cooperative: similar to the case above, here the regulator is well-meaning and targeted but the firm is evasive and combative. Firms are able to avoid a thorough antitrust assessment and the regulator looks ineffective (-15 for them).

– Both fight like hell: this is the worst of all – the outcome where regulators issue long and never ending enquires and firms fight them by providing evasive answers or not responding.

In this game, the outcome for the regulator depends on how the firm behaves (and vice versa) so the regulator takes the firms’ behaviour into account in choosing its own actions (and likewise for the firm). In terms of the overall outcome then:

– Economic theory would tell us that both the firm and the regulator would choose to ‘fight like hell’ (their ‘dominant strategy’ given they will individually be worse off when choosing to cooperate).

– In practice, what world we are in might depend on who you ask the question. Both regulators and firms might find it easier to see the other ‘fighting like hell’ but may be immune to acknowledging the daggers they themselves have drawn. Although, one thing everyone would agree with is that we’re definitely not in the best case scenario where everyone cooperates.

Thankfully, economics also has the answer for how to solve the Prisoners’ Dilemma: repeated interaction, in which both players can develop a reputation for cooperation. If regulatory interaction is a one-shot game, firms might find the option to fight like hell irresistible. But firms who know they are likely to be regular customers of the Commission do well to play the long game and think about investing in and developing their regulatory brand.

In all this, it goes without saying that real world dynamics between firms and regulators are complex and no model would fully explain the incentives or predict the actions of each market participant. But just like simple demand and supply frameworks that help us think through different market forces in a systematic way, the prisoner’s dilemma example above should illustrate that antitrust enforcement may be stuck in a worse place than it needs to be. A cooperative approach is better for everyone – even though achieving it might seem as improbable as Nadal winning the Aussie Open at two sets and a break down.