Danny Sokol makes some predictions about Post-Obama antitrust, and about my disappointment in what he perceives to be the likely direction of antitrust policy in the Obama administration:
1. increased challenges of mergers and monopolization cases, especially at DOJ
2. more consumer protection work at the FTC with a push to more expansive consumer rights
3. less language by US enforcers internationally about “convergence” and more on “harmonization”
4. a move away from cartels as the supreme evil of antitrust to more holistic approach that elevates unilateral conduct (if I am right, Josh Wright must be beside himself in terms of what this means under an error/cost framework)
Interesting. Though I agree with 1, 3, and 4 more than 2. I think the right place to start if we’re going to predict what an Obama antitrust regime will look like is what the President-elect has said he will do. There are other sources as well. Many have made much, far too much in my view, of Obama’s ties to the Chicago School, the Harvard School via Professor Elhauge who is an advisor, or behavioral economics via Cass Sunstein. But that seems like a reasonable place to start. So, here’s Obama’s Policy Statement on Antitrust to the American Antitrust Institute, which I’ve commented on previously.
Let’s start with what Obama says he’s going to do:
- Bring more cases. “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.”
- Aggressive enforcement against international cartels. “My administration will take aggressive action to curb the growth of international cartels”
- Prosecute Against Pharmaceutical Settlements that Prevent Generic Entry. “An Obama administration will ensure that the law effectively prevents anticompetitive agreements that artificially retard the entry of generic pharmaceuticals onto the market, while preserving the incentives to innovate that drive firms to invent life-saving
medications.” - Prevent Insurance and Drug Companies from “Abusing Monopoly Power.” “My administration will also ensure that insurance and drug companies are not abusing their monopoly power through unjustified price increases – whether on premiums for the insured or on malpractice insurance rates for physicians.”
- Relatedly, Introduce legislation to repeal the antitrust exemption for malpractice insurance with respect to price-fixing claims. “I have introduced legislation in the Senate that would repeal the longstanding antitrust exemption for medical malpractice insurance. This narrow bill would do so only for the most egregious cases of price fixing, bid rigging, and market allocation. As president, I will sign this bill into law.”
- Competition Advocacy in the U.S. and Internationally. “My administration will strengthen the antitrust authorities’ competition advocacy programs to ensure that special interests do not use regulation to insulate themselves from the competitive process. Finally, my administration will strengthen competition advocacy in the international community as well as domestically. It will take steps to ensure that antitrust law is not
used as a tool to interfere with robust competition or undermine efficiency to the detriment of US consumers and businesses. It will do so by improving the administration of those laws in the US and by working with foreign governments to change unsound competition laws and to avoid needless duplication and conflict in multinational
enforcement of those laws.
Two of these proposals are specific and easy to evaluate: prosecuting patent settlements that prevent generic entry and legislation to repeal the antitrust exemption for medical malpractice insurance. The fourth, standing alone, doesn’t make much sense. I’m not sure whether this is referring to prosecuting monopolists for charging monopoly prices (which he cannot do under current law) or something else. The next sentence in the statement is refers to this exemption bill, so perhaps that is what he is referring to. The statement about patent settlements in the pharmaceutical industry, however, could signal a major change to the extent that the FTC/DOJ rift on patent settlements disappears.
Numbers 1 and 6 are less specific: bring more cases and strengthen competition advocacy programs. Without particulars on competition advocacy, a program that is strongly supported by the current Chairman, I’m not sure if there is anything to evaluate here.
I’ve criticized the idea that merely bringing more cases strengthens or reinvigorates antitrust enforcement in any meaningful sense or from a consumer welfare perspective. I don’t think it does without a clear showing that the marginal case is going to improve consumer welfare. That may or may not be the case at current levels of enforcement. I’m not sure. But I haven’t seen any compelling evidence that this is true. As I’ve noted previously:
As a general matter, I do not find “more is better” arguments (see, e.g., here) causally linking agency activity to the quality of antitrust policy to be very persuasive. All of these claims should be taken with a grain of salt or two. It is one thing to make observations about trends in public antitrust enforcement over time….
All of this can be quite productive in terms of generating dialogue concerning potential improvements in antitrust policy. However, it is quite another thing to assert that such data are capable of establishing a causal link between enforcement activity level and the “quality” of antitrust enforcement and/or consumer welfare. I should be incredibly clear here: I do not read Baker & Shapiro to be claiming to have demonstrated such a link empirically (though it is clear from the article that they believe more enforcement would be a good thing) and am not making this point in response to their article. Rather, I am responding to appeals to evidence on activity levels alone to suggest that “more” or “less” enforcement would bring about positive changes for consumers. Maybe such a link would be useful if we were talking about dramatic changes in the rate of enforcement (say, abruptly plummeting to zero or increasing tenfold).
But one should be very cautious about making inferences about consumer welfare from small changes in aggregate enforcement data or anecdotal evidence from a handful of cases. I offer this word of caution in the spirit of the current season when these types of claims are quite popular with the politicians and journalists: while it may be true that the most active antitrust agency is the most influential for a number of reasons, there is simply no theoretical or empirical basis to suggest that the most active agency produces the greatest benefits for consumers.
And let’s not forget that “more antitrust enforcement” depends on what type of enforcement actions we are talking about. That brings me back to Danny Sokol’s point about the mix of cases in an Obama regime shifting away from cartels and toward monopolization on the margin. I suspect he is right in some sense. But we should note that a movement toward monopolization cases, where we know the least about the likely consumer welfare consequences of particular forms of single firm conduct, the marginal case is less likely to have a positive impact for consumers.
All of that said, let me take a stab at some predictions about antitrust in the Obama regime:
- Monopolization Enforcement will Increase, but Moderately. There will be a prominent monopolization case or two filed during the first four years. I don’t think we’ll see much of a shift toward monopolization cases. So, I’m not quite “beside myself” about what this means in terms of the error-cost framework which I believe should guide antitrust policy decisions. But I’m not optimistic either. While the FTC or DOJ might want to bring these cases, current law makes single firm conduct cases (especially those involving pricing conduct, e.g. Intel) extremely difficult to win. And whatever impact Obama does have on the antitrust enforcement agencies, I suspect that loss aversion is relatively stable across political administrations. So, look for a few big name monopolization suits in prominent industries: health care, pharmaceuticals, microprocessors. I suspect that Post-Chicagoans hoping that the Obama administration is their chance to pursue a lot of monopolization cases are going to be a little bit disappointed.
- Reverse Payments. This is relatively low hanging fruit. The inter-agency tensions concerning the right approach to reverse payment settlements is going to go away with the new DOJ. The agencies will join together and successfully petition the Supreme Court to grant cert and apply per se/ inherently suspect analysis to patent settlements that delay generic entry. This, to some extent, overlaps with my first prediction. So let me note that I predict at least one, but probably not more than two, major monopolization suits excluding reverse payment cases.
- Competition Policy Advocacy. Nothing will change. Except perhaps, as Danny Sokol predicts, there will be much more talk about harmonization and much less about convergence. I do wonder how aggressive competition policy advocacy under the Obama administration will be against international antitrust efforts against U.S. firms that have been occasionally criticized as protectionist.
- Minimum RPM is Per Se Illegal Again. Dr. Miles was dead, but will come back to life via proposed federal legislation sponsored by Senators Clinton, Kohl and Biden. Empirical economists everywhere will be disappointed as the opportunity to exploit state variation in the legal status of RPM to identify its competitive consequences will disappear.
- Increased Merger Activity. Again, this is what President Obama said about his plans for antitrust enforcement if elected and I have no reason to believe it is not true. Whether this is good or bad for consumers depends a great deal on case selection and, even more so, the mix of mergers presented to the agencies during the next four years. Given that economic conditions have changed substantially, there is no doubt that the mix of cases will be substantially different than those under the second term of G.W. Bush. This will be interesting to watch.
- Patent Holdup. This one involves conjecture on my part and does not derive specifically from anything in the Obama statement. But I would be willing to bet that President Obama will strongly support both the FTC patent holdup agenda, as well as using the antitrust laws and FTC Act Section 5 to pursue cases like N-Data. I suspect we are likely to see an expansion of the patent holdup / conduct before SSO enforcement agenda. For my views on this subject (along with co-author Bruce Kobayashi, see here). This point also ties into the likely monopolization agenda. I think one might observe the expansion in monopolization enforcement linked to cases involving patent holdup and/or other forms of so-called “regulatory gaming,” e.g. pharmaceutical settlements and product hopping cases. The advantage of these cases is that they circumvent the problem of case law that makes it very difficult to win traditional pricing / discounting cases and that they usually involve big-name industries and firms.
- Network Neutrality legislation. I’m going to count this as an antitrust issue.
Those are my thoughts. My personal views on these are that 4, 5 and 7 are likely to make consumers worse off. Collectively, 1, 2 and 6 each depend on the types of cases that are brought. While I have less strong views about a more aggressive agenda pursuing some patent settlements, I think an expansion of the patent holdup enforcement agenda as represented by N-Data would harm consumers as well. I also believe monopolization enforcement under Section 2 in pricing cases involving loyalty or bundled discounts are not likely to improve consumer welfare — though I suspect these are not winners in federal court. I don’t suspect 3 will change much, and so I don’t suspect there will be any large changes on the margin here. One question I have is whether the Obama administration will prioritize competition research and development and take an economic and empirical approach to addressing current unknowns? That remains to be seen. The FTC Microeconomics conference and FTC at 100 events, I think, have been and will be productive endeavors in this area and ones that I hope will continue over the next four years.