USDA Pushes Regulatory Elimination of Consumer Harm Requirement

Josh Wright —  21 June 2010

Danny Sokol points to the Obama administration’s most recent effort to “reinvigorate” competition policy: some new proposed rules adding new sections to the existing regulations under the Packers & Stockyards Act. Emerging from the joint DOJ/ USDA agriculture workshops (see comments from Manne & Wright here; TOTM archives on agricultural antitrust here), the USDA must not have come away to impressed with the DOJ’s ability to enforce the antitrust laws on the behalf of consumers.  Either that, or the USDA was never too interested in consumers in the first place.

The proposed rules essentially would ban packers from “exclusive arrangements with a dealer except those dealers the packer has identified as its packer buyer.”   Further, the  new rules essentially eliminate through regulation any requirement that the plaintiff demonstrate anticompetitive harm.  Mike Sykuta warned about exactly these types of regulatory changes to the PSA in his analysis here.

Regulatory elimination of the need to show competitive harm seems to be a theme this summer.  Sound familiar?  First the FTC.  Now the USDA.   Public comments can be submitted for the next two months.  One can only hope that the DOJ will join other commenters in pointing out the variety of ways in which these regulatory changes will harm consumers.

I doubt the USDA has spent much time thinking about the competitive implications of the rule changes.  Consider the compelling legal and economic logic behind Secretary of Agriculture Vilsack’s comment about the removal of the competitive harm requirement to demonstrate a violation:

That’s tantamount to having your car stolen, but before the police investigate … you have to prove that that theft impacts not just you, but all of your neighbors. Well, that just doesn’t make sense to us.

No.  No, it is not like that at all Secretary Vilsack.  Not even close.  Consider the rules limiting the use of exclusive dealing arrangements.  There are an abundant of pro-competitive and efficient reasons to use exclusive dealing.  In fact, most would agree the anticompetitive exclusive dealing arrangements is the exception and not the rule.  When one observes an exclusive dealing arrangement in the marketplace, one is not sure that consumers are better off, worse off, or in the same position, though the practice is generally benign.   The antitrust laws require proof of competitive harm because, if they didn’t, the rule would chill a host of pro-competitive conduct.  The rule rationally, thank goodness for consumers, responds to concerns about error costs.

Of course, car theft is different in obvious ways.  Its always an offense.   The closer analogy would be something like requiring proof of actual theft before incarcerating a defendant when the facts show that 90% of the time the “victim’s” automobile goes missing it has actually been borrowed with authorization by a family member.   OK, the analogy isn’t perfect.  But you get the point.  The consumer harm standard does the work of requiring the plaintiff show that this instance of business conduct has generated anticompetitive effect precisely because economic knowledge and empirical evidence tells us that the same conduct that can possibly produce that harm is generally pro-competitive.

The standard the Secretary describes, and the one embodied in the new rules, is one that turns the well established antitrust rule of protecting competition and not competitors on its head.  The competitive process has winners and losers over time, but consumers are the beneficiaries of this process.  The new rules put consumer welfare to the side in favor of favoring individual competitors and stakeholders.  This is nothing new.  But make no mistake about it, the USDA’s proposed rules are a tried and true recipe for anti-consumer policy.