We Are Not Just Going to Stand Here, We Are Going to Do Something!

Josh Wright —  28 September 2007

That seems to be the message of presidential candidate/ Senator Barak Obama’s response to the American Antitrust Institute’s questions on antitrust (HT: Antitrust Review). First off, kudos to Obama for stating his position on antitrust in a public forum. I hope the rest of the candidates will do the same. Do go read the whole thing.  The thrust of the message appears to be that an Obama administration would be more active than the Bush administration and that more is better:

Regrettably, the current administration has what may be the weakest record of antitrust enforcement of any administration in the last half century. Between 1996 and 2000, the FTC and DOJ together challenged on average more than 70 mergers per year on the grounds that they would harm consumer welfare. In contrast, between 2001 and 2006, the FTC and DOJ on average only challenged 33. And in seven years, the Bush Justice Department has not brought a single monopolization case.

The consequences of lax enforcement for consumers are clear. Take health care, for example. There have been over 400 health care mergers in the last 10 years. The American Medical Association reports that 95% of insurance markets in the United States are now highly concentrated and the number of insurers has fallen by just under 20% since 2000. These changes were supposed to make the industry more efficient, but instead premiums have skyrocketed, increasing over 87 percent over the past six years. As president, I will direct my administration to reinvigorate antitrust enforcement. It will step up review of merger activity and take effective action to stop or restructure those mergers that are likely to harm consumer welfare, while quickly clearing those that do not.

I am not so sure I’m convinced that level of activity is a good proxy for consumer welfare.  There exist both Type I and Type II enforcement errors.  It may be a bit simplistic to claim victory on behalf of consumers by “doing more.”  Because of the possibility of enforcement errors in both directions I also do not believe that it is “clear” that consumers have been harmed by the lower level of activity in merger enforcement over the past several years.  Note that I am not claiming that the statement is demonstrably false as an empirical matter.  I do not know what the optimal level of merger challenges is, but I do know that it is a function of the error costs imposed by both overactivity and underactivity.

I don’t want to go too far with this as a criticism of the Obama statement specifically.  After all, there is only so much one can do with a two pager on a candidate’s position on all of antitrust enforcement.  Besides, the statement does say that an Obama administration will review the mergers on their merits and only challenge those that are likely to harm consumer welfare.  But I guess all I’m saying is, how does he know then ex ante that his administration will challenge more mergers (much less that more is better)?

10 responses to We Are Not Just Going to Stand Here, We Are Going to Do Something!

  1. 

    AAIreader: Agreed. Obama does specifically mention one exemption (med mal insurance) and hopefully, other candidates will follow his lead on the elimination of immunities.

  2. 

    Kudos to the Obama paper for tackling one of the nastier underbellies of AT law – statutory immunities. These rent-seeking provisions seem to be a paragon example of “bad” government intervention in markets.

  3. 

    Anon: Thanks for the comment. I’m not quite sure what to make of your criticism here.

    As to why I would post when Obama doesn’t set forth a real policy to discuss, I suppose my answer is that bit is fair game to take seriously a policy statement put out by a presidential candidate.

    Now, we both agree that we cannot know his entire policy from the 2 pager. So what do we know from the 2 pager? That an Obama antitrust regime will bring more cases and that some of those will be in the health care market. You describe the statement about the healthcare market as a “test case,” but isn’t it really just naming an entire industry and saying that perceived high prices in that industry are an antitrust problem. This doesn’t tell us anything about the policy. It gives us zero idea about how Obama would change the substantive antitrust analysis and thnk about cases relative to the status quo. All we know is that there are likely to be more lawsuits because more activity is better.

    You take me to task for not analyzing his policy. That is fair enough. But I don’t think there is much to analyze there. If you are disappointed that I went on to comment publicly about this because the statement said nothing, I guess I can understand that too. But I think I’m entitled to take the document seriously. And to the extent that one takes “more is better” as a serious antitrust policy, I think it is worth criticizing on the grounds that the statement appears to have no appreciation for error costs (i.e. that the only error costs that should influence policy are false negatives). I said that in the post.

    The reason I wrote that I did not want my criticism of the “more is better” approach to be taken as too critical is that (as I note in the post), Obama left himself some outs by mentioning that he would only stop or restructure mergers that harmed consumer welfare. Again, that is not a policy. It is just roughly restating the legal standard under Section 7.

    Ideally, I would like one of these statements to make a concrete statement about how their antitrust analysis would differ from the status quo not just that they will bring more cases. What type of cases? What is the current administration doing in its merger review that Obama would do differently in terms of the substantive analysis? When and if that happens, I will do my best to respond in greater detail and provide more analysis. But in the meantime, is it not fair game to comment on what is missing from the statement?

  4. 

    “I don’t want to go too far with this as a criticism of the Obama statement specifically.”

    All you did with this supposed “criticism of the Obama statement” was raise, as you concede, questions that aren’t answered by the two paragraph statement of the policy. Then, you did not even attempt to answer these questions. Why even publicly comment on the policy, then, considering your admitted ignorance in the area? Your comment does nothing more than potentially – not certainly – poke holes in the policy, based on certain empirical assumptions on which you can shed no light.

    In fact, there was quite a bit of substance in Obama’s statement, given its brevity. He provided a test case in the antitrust context and drew some conclusions, the basis for which you could have commented on and disputed. Yet, you didn’t. Again, why comment publicly at all, given your level of familiarity with the area? I.e., what does it add to the debate but the implication – which you admit you have no basis for – that Obama might be wrong?

    I shouldn’t have to add, but will, that I don’t think his policy is necessarily correct. I was just disappointed in the analysis underlying your “criticism.”

  5. 

    Your last, I would say leading, question cuts to the heart of what Obama was really getting at. There is a premise among his audience that the government that governs most governs best.

    You’re critique, based on a reasonable analytical standard, gives Obama too much credit. I think he could have told his target audience that mergers should be approved by a government-run coin-toss or lottery, and gotten the same reaction.

    His example of health care is particularly laughable. One can think of dozens of ways to increase competition in those markets having nothing to do with antitrust enforcement. How about letting me buy the health insurance package that my cousin in Maryland can get?

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