Is Certainty a Good Thing for Section 2 Standards?

Josh Wright —  14 March 2007

I was searching through the eCCP site for some interesting antitrust reading material, which it always carries in surplus, and came across this testimony from Joe Sims (here is his Jones Day bio) at the Section 2 hearings discussing the lack of certainty in monopolization cases:

This is generally a good thing, but it inevitably carries with it uncertainty of outcomes in particular cases. I noticed that the Microsoft representative in an earlier hearing took the common business position of urging that there be more clarity in the law. This is perhaps understandable given that company’s recent history, but it is a common business position – just tell me the rules and I will follow them. I have always thought that was a relatively short-sighted position by business. More clarity will not always (or even generally) mean better law, and in this area of law it will almost inevitably mean more restrictive rules than are justified by the facts, and probably long term adverse economic effects. It would make the advisory job easier, but probably is not in the long term public interest or in the long run interest of business generally. But unfortunately, in many areas businesses today are driven to concentrate on the short run, and don’t have much incentive to take the long view.

That is an interesting perspective and one that stands out from the chorus (of which I a member) advocating increased certainty and bright line rules in antitrust. However, I always thought the primary case for rules in antitrust was that fuzzy standards in antirtust invite greater Type II error. eCCP also has various other testimony, editorials, book reviews, and scholarly works in Competition Policy International. Go check them out.

5 responses to Is Certainty a Good Thing for Section 2 Standards?


    I think I understand what you’re saying, Josh, and I’m happy to restrict these comments to Section 2.

    From my position as an advisor to investors and corporations, everything I try to get them to do could be seen, after a fashion, as an attempt to monopolize a part of trade or commerce. I’m afraid there is little philosophical wiggle room on this score. To provide an admittedly crude analogy, when you coach a batter, you don’t tell them to aim for .300, you tell them to aim for 1.000 and see what they can do. Telling them if they get too good (“we can tell you exactly how much is too much”) invariably undermines the benefits of having everyone attempt to maximize.

    I would agree that a company might gain such an overwhelming advantage in some core business that through various restrictive practices they could evolve into a force that harms consumer welfare. I believe, however, that such monopolistic harm has rarely occurred or been threatened to the point of presenting an insurmountable, long-term barrier to competition, either before or after the passage of Section 2, without governmental protection at its root.

    Given that unlikelihood of long-term harm, I believe that the legal friction involved in having a vague law that could logically be interpreted (and has been) against an infinite array of real-world behaviors, including trying to optimize on Type I vs. Type II errors, simply isn’t worth it. I believe that whatever the good intent of you and like-minded judges in making these sharp distinctions economically valid, we’ll still be presented with politically motivated debacles like the American Airlines case of just a few years ago.


    You’ve guessed correctly Marc.

    The reality is that the history of enforcement of the antitrust laws in the United States — all 117 years taken as a whole — is probably inconsistent with economic logic. But that doesn’t mean that we cant do better and enforce the antitrust laws in a way that enhances consumer welfare. Section 1 is an obvious example. I dont think many dispute the proposition that cartel enforcement does not make consumers better off.

    It is Section 2 where the real dispute is and where lots of economists disagree over how to identify single firm anticompetitive conduct rather than collusion (see, e.g. the Section 2 hearings) in a way that minimizes Type I and Type II error costs and benefit consumers. The challenge is whether Section 2 standards can be made easier to apply in a way that doesn’t blow up Type II error costs and chill competitive conduct on the one hand, or completely exonerate clearly anticompetitive behavior on the other.

    There are no shortage of proposals on this score: consumer welfare standards, safe harbors, the no economic sense test, equally efficient competitor tests, the good old fashioned rule of reason, etc. And the complaint is that Section 2 standards as applied will do exactly what you fear: undermine the competition they purport to protect.

    But let us not mistake Section 2 for the entire antitrust enterprise. Not to open a whole new can of worms, but the evidence in my view supports the claim that at least Section 1 enforcement is good for consumers. And there is a ton of serious thought in economics and empirics that aims to improve our application of Section 2. Whether that enterprise will be successful will be seen over the next decade or so.

    But I do disagree with the proposition that ANY attempt to make objective Section 2 standards must necessarily harm consumers or be entirely toothless.


    This exchange reminds me of a discussion I once had with a Russian lawyer. One of the intentional peculiarities of the Soviet system, she said, was the vagueness of their laws. Their leaders used vague laws (and still do, at times) not to prevent specific behaviors, but as the easiest means to keep their subjects in fear. If you never know whether you are behaving within the law, the authorites become a constant threat.

    I definitely have much less knowledge of antitrust law than either Geoffrey or Josh, but I do understand enough to know what Geoffrey is saying, and am convinced by it. Given that, I ask you, what does it say about a law that making it objective would be dangerous to our markets?

    Personally, I always figured that the antitrust laws were fundamentally inconsistent with market logic, i.e., taken to their logical conclusion they inevitably undermined the competition they purported to protect. My corollary belief was that any attempt to make them more objective and definitive would either reveal that inconsistency or enshrine what economists would quickly recognize as anti-competitive behavior. My guess is that Josh would not agree with this.


    The law making / enforcement distinction is a useful one. I agree with most of this — but am trying very hard to believe that being for bright line rules doesn’t mean that I have to support bad bright line rules. But this is an excellent reminder that both uncertain standards and bright line rules each have their own (potentially large) costs.


    To the extent that Sims’ point is that we’re likely to set the bright lines in the wrong place, it’s a very good point. In the law-drafting (as opposed to the law-enforcing/rule-making) context, we’re accustomed to praising the relative pithy uncertainty of US-style antitrust legislation over its EU and other-country counterparts (compare Sherman Act Sec. 2 to Art. 82 of the EC Treaty, e.g.). The main reason is because the more specific proscriptions in the EC Treaty prohibit perfectly desirable behavior that could be (and is) permissible under the vague US law. The same dynamic applies in enforcement. And just as law drafters are more likely to get antitrust laws wrong than right (or so I would argue–I’m sure others disagree), it’s also the case that enforcers and courts, constrained by limited knowledge, political reality and some rent seeking, are more likely to get the bright line rules wrong, as well. Unless the bright line rules are more likely than not to constrain enforcement to be more right than wrong, the cost of wrong-headed rules could well be more than the benefit of increased certainty.

    And I agree, eCCP is an excellent site.