The Costs of International Antitrust Enforcement and Superficial Convergence

Josh Wright —  29 September 2008

There is an interesting profile on Intel in the WSJ.   While the profile focuses on some of the technological and competitive challenges facing Intel and CEO Paul Otellini, the CEO mentions the proliferation of antitrust laws across the globe, and the uncertainty associated with regulatory costs in such an environment, as one of the major potential impediments facing the company:

“The problem is that there used to be one set of rules out there — U.S. antitrust laws were the de facto rules of the world. Now with globalization, we have different sets of rules for different regions, such as the EU, written around entirely different philosophies. It would sure make things easier if we decided on a single set of rules once again — whatever they are. Then we’d know how to behave and we could plan better for the future.”

If one reads Nellie Kroes’ recent speech on single firm conduct and effects-based analysis, one might be tempted to conclude that there is much more “convergence” or “agreement” in this area than their actually is in terms of the economic understanding.  The same is true for many speeches and articles that come out of the US side.  It is true that both jurisdictions care about the effect of a given practice on consumer welfare.  That is actually quite an achievement, but it would be misleading to call this convergence if, for example, the US and EU agreed only on the objective and never on the conditions under which certain forms of conduct would leave to negative and actionable effects.  Never is too strong a word.  The US and EU do agree about a few things in these areas.  But the real remaining (and significant) divergence in single firm conduct enforcement theory is not about labels such as consumer welfare or “effects-based” analysis.  Discussions and exchanges where the relevant parties repeat first principles about consumer welfare, protecting competition and not competitors, but reserve the right for healthy disagreement about a few controversial topics don’t advance the ball.  For example, if harm to a competitor is a sufficient condition for finding harm to competition in a single firm conduct case alleging exclusion, there is nothing more than a superficial convergence.  While slogans about convergence on first principles sound promising and quite reasonable, when these declarations simultaneously allow entirely different analytical philosophies to be applied to discounting or exclusive dealing without discussion of the details, an opportunity is being missed to help out folks like Otellini and others run a business with some degree of certainty that they are not running afoul of the law.

The true disagreement is about whether agreement on these first principles means anything at all if we don’t have some shared understanding of how to think through the economics analysis.  How much and what type of evidence is sufficient to show harm to consumer welfare under a given theory?  How should the social costs of false positives and negatives be weighed in the enforcement calculus?  How much empirical evidence supporting a formal theory of competitive harm should be present before making it the basis of antitrust policy?  These, I think, are more fundamental questions that could allow for a deeper and more meaningful convergence and a better understanding of the reasons for remaining divergence (including, for example, Chairman Kovacic’s hypothesis that the availability of private rights of action and treble damages in the United States is a root cause of a body of law that is more sensitive to false positives).  I hope that we see more detailed discussions of these differences, especially in the area of pricing conduct and exclusivity where there appear to me to be some real and significant differences in how both enforcement agencies and courts are approaching antitrust analysis.