On July 24, as part of their newly-announced “Better Deal” campaign, congressional Democrats released an antitrust proposal (“Better Deal Antitrust Proposal” or BDAP) entitled “Cracking Down on Corporate Monopolies and the Abuse of Economic and Political Power.” Unfortunately, this antitrust tract is really an “Old Deal” screed that rehashes long-discredited ideas about “bigness is badness” and “corporate abuses,” untethered from serious economic analysis. (In spirit it echoes the proposal for a renewed emphasis on “fairness” in antitrust made by then Acting Assistant Attorney General Renata Hesse in 2016 – a recommendation that ran counter to sound economics, as I explained in a September 2016 Truth on the Market commentary.) Implementation of the BDAP’s recommendations would be a “worse deal” for American consumers and for American economic vitality and growth.
The BDAP’s Portrayal of the State of Antitrust Enforcement is Factually Inaccurate, and it Ignores the Real Problems of Crony Capitalism and Regulatory Overreach
The Better Deal Antitrust Proposal begins with the assertion that antitrust has failed in recent decades:
Over the past thirty years, growing corporate influence and consolidation has led to reductions in competition, choice for consumers, and bargaining power for workers. The extensive concentration of power in the hands of a few corporations hurts wages, undermines job growth, and threatens to squeeze out small businesses, suppliers, and new, innovative competitors. It means higher prices and less choice for the things the American people buy every day. . . [This is because] [o]ver the last thirty years, courts and permissive regulators have allowed large companies to get larger, resulting in higher prices and limited consumer choice in daily expenses such as travel, cable, and food and beverages. And because concentrated market power leads to concentrated political power, these companies deploy armies of lobbyists to increase their stranglehold on Washington. A Better Deal on competition means that we will revisit our antitrust laws to ensure that the economic freedom of all Americans—consumers, workers, and small businesses—come before big corporations that are getting even bigger.
This statement’s assertions are curious (not to mention problematic) in multiple respects.
First, since Democratic administrations have held the White House for sixteen of the past thirty years, the BDAP appears to acknowledge that Democratic presidents have overseen a failed antitrust policy.
Second, the broad claim that consumers have faced higher prices and limited consumer choice with regard to their daily expenses is baseless. Indeed, internet commerce and new business models have sharply reduced travel and entertainment costs for the bulk of American consumers, and new “high technology” products such as smartphones and electronic games have been characterized by dramatic improvements in innovation, enhanced variety, and relatively lower costs. Cable suppliers face vibrant competition from competitive satellite providers, fiberoptic cable suppliers (the major telcos such as Verizon), and new online methods for distributing content. Consumer price inflation has been extremely low in recent decades, compared to the high inflationary, less innovative environment of the 1960s and 1970s – decades when federal antitrust law was applied much more vigorously. Thus, the claim that weaker antitrust has denied consumers “economic freedom” is at war with the truth.
Third, the claim that recent decades have seen the creation of “concentrated market power,” safe from antitrust challenge, ignores the fact that, over the last three decades, apolitical government antitrust officials under both Democratic and Republican administrations have applied well-accepted economic tools (wielded by the scores of Ph.D. economists in the Justice Department and Federal Trade Commission) in enforcing the antitrust laws. Antitrust analysis has used economics to focus on inefficient business conduct that would maintain or increase market power, and large numbers of cartels have been prosecuted and questionable mergers (including a variety of major health care and communications industry mergers) have been successfully challenged. The alleged growth of “concentrated market power,” untouched by incompetent antitrust enforcers, is a myth. Furthermore, claims that mere corporate size and “aggregate concentration” are grounds for antitrust concern (“big is bad”) were decisively rejected by empirical economic research published in the 1970s, and are no more convincing today. (As I pointed out in a January 2017 blog posting at this site, recent research by highly respected economists debunks a few claims that federal antitrust enforcers have been “excessively tolerant” of late in analyzing proposed mergers.)
More interesting is the BDAP’s claim that “armies of [corporate] lobbyists” manage to “increase their stranglehold on Washington.” This is not an antitrust concern, however, but, rather, a complaint against crony capitalism and overregulation, which became an ever more serious problem under the Obama Administration. As I explained in my October 2016 critique of the American Antitrust Institute’s September 2008 National Competition Policy Report (a Report which is very similar in tone to the BDAP), the rapid growth of excessive regulation during the Obama years has diminished competition by creating new regulatory schemes that benefit entrenched and powerful firms (such as Dodd-Frank Act banking rules that impose excessive burdens on smaller banks). My critique emphasized that, “as Dodd-Frank and other regulatory programs illustrate, large government rulemaking schemes often are designed to favor large and wealthy well-connected rent-seekers at the expense of smaller and more dynamic competitors.” And, more generally, excessive regulatory burdens undermine the competitive process, by distorting business decisions in a manner that detracts from competition on the merits.
It follows that, if the BDAP really wanted to challenge “unfair” corporate advantages, it would seek to roll back excessive regulation (see my November 2012 article on Trump Administration competition policy). Indeed, the Trump Administration’s regulatory reform program (which features agency-specific regulatory reform task forces) seeks to do just that. Perhaps then the BDAP could be rewritten to focus on endorsing President Trump’s regulatory reform initiative, rather than emphasizing a meritless “big is bad” populist antitrust policy that was consigned to the enforcement dustbin decades ago.
The BDAP’s Specific Proposals Would Harm the Economy and Reduce Consumer Welfare
Unfortunately, the BDAP does more than wax nostalgic about old-time “big is bad” antitrust policy. It affirmatively recommends policy changes that would harm the economy.
First, the BDAP would require “a broader, longer-term view and strong presumptions that market concentration can result in anticompetitive conduct.” Specifically, it would create “new standards to limit large mergers that unfairly consolidate corporate power,” including “mergers [that] reduce wages, cut jobs, lower product quality, limit access to services, stifle innovation, or hinder the ability of small businesses and entrepreneurs to compete.” New standards would also “explicitly consider the ways in which control of consumer data can be used to stifle competition or jeopardize consumer privacy.”
Unlike current merger policy, which evaluates likely competitive effects, centered on price and quality, estimated in economically relevant markets, these new standards are open-ended. They could justify challenges based on such a wide variety of factors that they would incentivize direct competitors not to merge, even in cases where the proposed merged entity would prove more efficient and able to enhance quality or innovation. Certain less efficient competitors – say small businesses – could argue that they would be driven out of business, or that some jobs in the industry would disappear, in order to prompt government challenges. But such challenges would tend to undermine innovation and business improvements, and the inevitable redistribution of assets to higher-valued uses that is a key benefit of corporate reorganizations and acquisitions. (Mergers might focus instead, for example, on inefficient conglomerate acquisitions among companies in unrelated industries, which were incentivized by the overly strict 1960s rules that prohibited mergers among direct competitors.) Such a change would represent a retreat from economic common sense, and be at odds with consensus economically-sound merger enforcement guidance that U.S. enforcers have long recommended other countries adopt. Furthermore, questions of consumer data and privacy are more appropriately dealt with as consumer protection questions, which the Federal Trade Commission has handled successfully for years.
Second, the BDAP would require “frequent, independent [after-the-fact] reviews of mergers” and require regulators “to take corrective measures if they find abusive monopolistic conditions where previously approved [consent decree] measures fail to make good on their intended outcomes.”
While high profile mergers subject to significant divestiture or other remedial requirements have in appropriate circumstances included monitoring requirements, the tone of this recommendation is to require that far more mergers be subjected to detailed and ongoing post-acquisition reviews. The cost of such monitoring is substantial, however, and routine reliance on it (backed by the threat of additional enforcement actions based merely on changing economic conditions) could create excessive caution in the post-merger management of newly-consolidated enterprises. Indeed, potential merged parties might decide in close cases that this sort of oversight is not worth accepting, and therefore call off potentially efficient transactions that would have enhanced economic welfare. (The reality of enforcement error cost, and the possibility of misdiagnosis of post-merger competitive conditions, is not acknowledged by the BDAP.)
Third, a newly created “competition advocate” independent of the existing federal antitrust enforcers would be empowered to publicly recommend investigations, with the enforcers required to justify publicly why they chose not to pursue a particular recommended investigation. The advocate would ensure that antitrust enforcers are held “accountable,” assure that complaints about “market exploitation and anticompetitive conduct” are heard, and publish data on “concentration and abuses of economic power” with demographic breakdowns.
This third proposal is particularly egregious. It is at odds with the long tradition of prosecutorial discretion that has been enjoyed by the federal antitrust enforcers (and law enforcers in general). It would also empower a special interest intervenor to promote the complaints of interest groups that object to efficiency-seeking business conduct, thereby undermining the careful economic and legal analysis that is consistently employed by the expert antitrust agencies. The references to “concentration” and “economic power” clarify that the “advocate” would have an untrammeled ability to highlight non-economic objections to transactions raised by inefficient competitors, jealous rivals, or self-styled populists who object to excessive “bigness.” This would strike at the heart of our competitive process, which presumes that private parties will be allowed to fulfill their own goals, free from government micromanagement, absent indications of a clear and well-defined violation of law. In sum, the “competition advocate” is better viewed as a “special interest” advocate empowered to ignore normal legal constraints and unjustifiably interfere in business transactions. If empowered to operate freely, such an advocate (better viewed as an albatross) would undoubtedly chill a wide variety of business arrangements, to the detriment of consumers and economic innovation.
Finally, the BDAP refers to a variety of ills that are said to affect specific named industries, in particular airlines, cable/telecom, beer, food prices, and eyeglasses. Airlines are subject to a variety of capacity limitations (limitations on landing slots and the size/number of airports) and regulatory constraints (prohibitions on foreign entry or investment) that may affect competitive conditions, but airlines mergers are closely reviewed by the Justice Department. Cable and telecom companies face a variety of federal, state, and local regulations, and their mergers also are closely scrutinized. The BDAP’s reference to the proposed AT&T/Time Warner merger ignores the potential efficiencies of this “vertical” arrangement involving complementary assets (see my coauthored commentary here), and resorts to unsupported claims about wrongful “discrimination” by “behemoths” – issues that in any event are examined in antitrust merger reviews. Unsupported references to harm to competition and consumer choice are thrown out in the references to beer and agrochemical mergers, which also receive close economically-focused merger scrutiny under existing law. Concerns raised about the price of eyeglasses ignore the role of potentially anticompetitive regulation – that is, bad government – in harming consumer welfare in this sector. In short, the alleged competitive “problems” the BDAP raises with respect to particular industries are no more compelling than the rest of its analysis. The Justice Department and Federal Trade Commission are hard at work applying sound economics to these sectors. They should be left to do their jobs, and the BDAP’s industry-specific commentary (sadly, like the rest of its commentary) should be accorded no weight.
Congressional Democrats would be well-advised to ditch their efforts to resurrect the counterproductive antitrust policy from days of yore, and instead focus on real economic problems, such as excessive and inappropriate government regulation, as well as weak protection for U.S. intellectual property rights, here and abroad (see here, for example). Such a change in emphasis would redound to the benefit of American consumers and producers.