Antitrust Exemption Time Machine

Josh Wright —  4 July 2010

I’ve been struck of late by the level of activity surrounding antitrust exemptions: health care, insurance, beer and wine wholesalers, retail merchants for the purpose of negotiate interchange fees, newspapers, agricultural cooperatives, and sports leagues.  Throw in the high-stakes games being played between rivals to influence the decision-making processes of competition agencies in the US and abroad (and of course, private suits in the US), and it would appear that the insights of public choice for understanding antitrust has never been more important.  Or maybe not.  Consider the following 1982 NY Times article I found discussing the major push for antitrust exemptions in the early 1980s.  There are, of course, earlier examples.  But this one struck me as having some interesting parallels with current times:

WASHINGTON CHAIRMAN James C. Miller 3d’s booming voice could be heard far down the corridor as he delivered a mock pep talk to his top Federal Trade Commission aides. The final legislative battles against the roving bands of lobbyists in ”white coats and stethoscopes” now deployed throughout Capitol Hill will be muddy and hard, he told his troops, but victory over the nation’s doctors could nevertheless be theirs.

The fiercely contested issue of whether doctors and other statelicensed professionals should be given immunity from increasingly energetic F.T.C. regulation, however, is only the most visible of a half dozen similar efforts by business and trade groups to carve out special niches of antitrust immunity. …

In addition to the beer wholesalers and the fight over F.T.C. immunity for professionals such as doctors, the bills now before Congress involve the following:

* The National Football League, which is seeking a Federal antitrust exemption similar to the one long enjoyed by major league baseball.

* Agricultural cooperatives, which want existing antitrust exemptions broadened so the F.T.C. would have to get permission from the Secretary of Agriculture to prosecute anticompetitive behavior.

* The maritime industry, which seeks expanded immunities to allow carriers to pool revenues, share cargoes, cut overcapacity and control access to ports.

* Credit unions, which want exemption from F.T.C. regulation, to put them on the same footing with banks and savings and loan associations.

Most of these initiatives involve exemption only from the commission. The industries fighting against F.T.C. jurisdiction would still be subject to general antitrust attack by the Justice Department which shares enforcement of the Clayton and Sherman antitrust acts with the commission. Moreover, some industries, such as banks, are highly regulated by other Federal or state agencies that watch for anticompetitive behavior.

Still, some analysts see a disturbing trend in the various attempts to win immunities. ”The antitrust law is certainly gray at the margin,” said Mr. Miller, noting that recent shifts in its ”intellectual underpinnings” are a large factor in the host of efforts to escape F.T.C. scrutiny. The changed antitrust climate is probably best reflected in the Administration’s more relaxed attitude toward conglomerate and vertical mergers, where companies are not direct market competitors. This has led some to conclude that the attitude might affect requests for specific immunities from the F.T.C.

While I often support a reduction in scope of the antitrust laws supported by a cost-benefit analysis that incorporates the cost of Type I and II errors, these types of arguments apply very well for Section 2 and exclusionary behavior more broadly, but not with respect to cartel activity.  I find plain vanilla exemptions that would immunize hard core cartel activity quite troubling.  In sum, I support the conclusions on this point of the Antitrust Modernization Committee Report and Recommendation:

Statutory immunities from the antitrust laws should be disfavored. They should be granted rarely, and only where, and for so long as, a clear case has been made that the conduct in question would subject the actors to antitrust liability and is necessary to satisfy a specific societal goal that trumps the benefit of a free market to consumers and the U.S. economy in general.

But, of course, there is nothing new about rent-seeking behavior.  Perhaps despite the flurry of exemption talk in current times, nothing has changed.  The closing line of the nearly thirty year old NY Times piece appropriately ends with a thought from one of most prominent public choice economists (then at the FTC):

And Robert D. Tollison, director of the F.T.C.’s bureau of economics, said that he thought this private financial muscle was threatening the adequate policing of anticompetitive behavior.

”At some point,” he argued, ”that tide’s got to stop.”

Maybe not.  Then again, how many of these attempts will be successful?

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