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The Antitrust Paradigm Shift (Without A Clutch)

If half of Professor Jonathon B. Baker’s policies were adopted, life would be improved in the antitrust world. 

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Today, LawProfBlawg tackles an obscure topic known as “antitrust,” a topic that has become much more popular to discuss among policy wonks.  And presidential and Senate candidates, several of whom are or were law professors, have started to discuss the issue with much more regularity.

Here’s the problem:  Businesses keep getting more concentrated.  That creates greater economic power, and it creates greater political power.  Combine that with cases such as Citizens United, and corporations wield much more power than your average citizen or any citizen group.  Mergers in one level of the economy can spur other mergers in another.  There are ripple effects to economic concentration, and antitrust was supposed to stem that tide, depending on whose view of economic history you adopt and which flavor of antitrust Kool-Aid you’ve been drinking.

The antitrust enforcement agencies of the United States — the Federal Trade Commission (FTC) and the U.S. Department of Justice Antitrust Division — profess that they are doing their jobs just fine.  If you look at their scorecards, they can point to the cases they bring, the fines they get, and the divestitures and other remedies they extract in consent decrees to demonstrate what an awesome job they are doing.  The FTC even wrote a retrospective to demonstrate that in fact they did almost everything right, apart from a few minor quibbles.  It must be nice to put the happy sticker on your own kindergarten homework.

The enforcement agencies point out that markets (as they define them) are not concentrated.  Competition is robust! Look, consumers, if you just looked at markets like the agencies look at markets, you’d know that you aren’t getting screwed by monopolists at all.  Silly people!  Now sit down and let one of our economists tell you why that last merger that we approved was in the interests of consumer welfare while you sit in an unemployment line and face rising prices or lower quality.

I’ve thought, despite the opinions of others, that U.S. antitrust law is as dead as the dead parrot in the famous Monty Python skit.  Billions of dollars spent looking into mergers that are then let through without challenge.  The ABA Antitrust Spring meeting is a large event dedicated to the discussion of a few key issues, discussing a few key cases.  Not enough to worry about, but enough to assure that lawyers and economists are paid.

It’s against this backdrop of deadness that I read Jonathon B. Baker’s book, The Antitrust Paradigm: Restoring A Competitive Economy.  As Professor Baker puts it:  “Antitrust doctrines and enforcement actions once thought adequate to protect competition are proving insufficient.  Fixing the problem is urgent.”

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Professor Baker’s book is well researched, well thought out, and well written.  Professor Baker begins by laying out the case for failing antitrust institutions, namely increased market power.  Antitrust enforcement agencies have done little to deter anticompetitive mergers, diverse investments that link companies through common ownership, and other transactions that yield problems to the competitive process.  Professor Baker goes on to discuss how the threat of economic concentration, once accepted by mid-century as the key goal of antitrust, has been fundamentally undermined.  The Supreme Court, fixated on mainstream neoclassical economics taught to it by the Chicago School, has engaged in a silent campaign to erode antitrust.  Unlike Professor Baker, I’m not of the opinion that we’ll ultimately reach a point a tipping point where there will be no use for antitrust laws, instead resulting in a political backlash crying for antitrust’s ugly stepsister, regulation.  As one looks at the calls to regulate Facebook, Amazon, and Twitter, I think that time is already here.

Professor Baker continues by discussing a topic that has perplexed antitrust for ages: Type I (agencies and courts impose remedies when the activity is procompetitive) versus Type II errors (agencies and courts fail to impose remedies when activity is anticompetitive).   For the longest time, there has been a saying:  Above all, do no harm.  No one has bothered to ask the question: Harm to whom?  Fear of Type I error has dominated and smothered fear of Type II errors.  Professor Baker reframes the argument, writing that “courts have the tool they need to recalibrate the structural presumption, a sliding scale that is more heavy handed when market power is higher.”  In other words, the risk of errors is not constant, and the greater the market power the more the risk of Type II error.  It is a clever argument.

In Part II of his book, Professor Baker pivots and addresses new challenges to antitrust.  Antitrust as it developed in England and borrowed into the United States focused on commodity based economies.  We are now a society more focused on services and innovation.  Things such as the impacts of algorithmic coordination on pricing, two-sided markets, and other threats to innovation perhaps are bases upon which to create greater agreement among antitrust policymakers, Professor Baker argues.  Sadly, I don’t think that’s ever going to happen, although I think Professor Baker’s proposals are great places to start.

Because this is a discussion of an academic book, I will make one quibble.  And it’s a big one on the third page of Chapter 9.  It is a discussion of out-of-market efficiencies.  I think that the problem here is that this could get out of hand, and that’s what the Court was warning about in Philadelphia National Bank:  “If anticompetitive effects in one market could be justified by procompetitive consequences in another, the logical upshot would be that every firm in an industry could, without violating § 7, embark on a series of mergers that would make it in the end as large as the industry leader.”  I feel that perhaps this is the standard that the DOJ and FTC have adopted quite recently (heck, it’s in their horizontal merger guidelines).  Sadly, it is also the rule that swallows the greater rule.

I won’t spoil the read by discussing Professor Baker’s policy prescriptions, but I feel that if half of Professor Baker’s policies were adopted, life would be improved in the antitrust world.  At least I wouldn’t feel like it was an area of law where people just get rich, and consumers get robbed.  Until then, let’s just call antitrust what it is: A tax.  You can have your merger, but you have to pay lawyers, economists, and also maybe show through some cheap remedy that the agency is doing its job.  Wow, that does sound a lot like regulation!

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PS:  If you’re not convinced yet to read this book, then you should read these reviews by Spencer Waller, Fiona Scott Morton, and Shubha Ghosh.

LawProfBlawg is an anonymous professor at a top 100 law school. You can see more of his musings here.  He is way funnier on social media, he claims.  Please follow him on Twitter (@lawprofblawg) or Facebook. Email him at lawprofblawg@gmail.com.

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