The United States is the birthplace of antitrust, starting with the enactment of the Sherman Antitrust Act in 1890. During the late 19th and early 20th century, cartels were common in Europe, while U.S. antitrust enforcers unraveled them. Only after World War II did European countries incrementally adopt competition law in various forms. Since that time, competition laws have been adopted virtually around the world.
Yet this U.S. export has been transformed into a vehicle that is sometimes used to protect competitors, rather than competition, and sometimes in a manner that protects domestic industry against foreign firms. In the European Union, competition enforcers have assessed a sequence of punitive multi-billion-dollar fines against mostly U.S.-based tech platforms, sometimes with the stated purpose of securing “digital sovereignty.” In China, “antimonopoly” regulators have targeted foreign innovators of key wireless technologies, sometimes with the stated purpose of securing geopolitical leadership in strategic markets, and generally applying competition law as part of top-down industrial policy.
In a historic reversal, certain portions of the U.S. policy community now laud the purportedly “proactive” approach of EU competition law as a model to fix the purportedly “broken” U.S. antitrust system.
This is a curious position.
The U.S. tech economy has flourished under the tailored and case-specific antitrust approach that had prevailed at least since the early 1980s. Since that time, agencies and courts have mostly favored the fact-intensive “rule of reason” and disfavored rigid presumptions that had once resulted in arbitrary decisions that sometimes protected inefficient incumbents. During that same period, Europe has operated under a competition-law regime that can bar a wider set of practices deemed to be “abuses of dominance” under a less-demanding standard of competitive harm. In 2023, this interventionist approach culminated in inflexible prohibitions being implemented as part of the EU’s Digital Markets Act, a regulatory apparatus that is currently applicable principally to U.S.-based digital platforms.
This natural experiment in antitrust regimes has produced a clear winner.
Since courts’ and agencies’ adoption of economically minded antitrust principles in the 1980s, the United States has birthed a string of new companies that have grown to become some of the world’s largest. “New economy” challengers unseated “old economy” incumbents: only one of the current “Magnificent Seven” firms was in the S&P 500 as of 1990, and only three of the current top 10 firms on the S&P 500 were in that ranking as of 2010.
Throughout this period, U.S. firms—from AOL through OpenAI—pioneered the digital transformation of the global economy. During that same period, Europe has failed to produce even a single tech company that is a market leader of comparable size, and almost none that appear to be on the horizon for the emergent AI revolution. Moreover, Europe’s legacy tech companies have largely fallen from prominence, leaving only a few key players in semiconductor design and equipment, along with a robust pharmaceutical sector.
While other factors have partially contributed to these divergent fortunes, the strong and ascendant record of U.S. innovation performance, and the weak and declining innovation performance in Europe, both support a strong presumption in favor of the lighter-touch U.S. antitrust regime. As illustrated by the recent “Draghi Report,” even some European policymakers have recognized the dead end to which antitrust overreach leads.
Nonetheless, proponents of antitrust “reform” laud the purportedly virtuous “Brussels effect” and seek to mimic the EU model by limiting use of the rule of reason, broadening the understanding of competitive harm, and expanding presumptively illegal categories of business practices. While U.S. courts have mostly resisted these efforts, even the mere threat of agency action based on unconventional theories of competitive harm can deter efficient transactions from taking place at all.
This is especially so in the merger-review context, given the leverage the antitrust agencies inherently enjoy in light of the timing sensitivity of an acquisition transaction. In one case, U.S. regulators even effectively relied on EU competition law against a U.S. company. In 2021, the Federal Trade Commission (FTC) challenged the acquisition by Illumina, the world’s leading genomics-equipment company, of Grail, an emerging diagnostics firm that Illumina had once spun off. After losing in the agency’s internal administrative tribunal, given the lack of compelling evidence of foreclosure risk, the FTC reportedly coordinated with EU regulators to pursue Illumina under the EU’s less-demanding standards of competitive harm. This is a backdoor mechanism to import a form of competition law that no U.S. court or legislature has adopted—a clear affront to the rule of law.
To be clear, it is always important to remain vigilant in policing competitive markets. Yet the toolbox for achieving this objective is already provided by the rich body of U.S. federal case law, which is anchored in decades of experience in implementing the aspirational language of the Sherman Act in a manner consistent with economic principles, evidentiary rigor, and the rule of law. A change of administration provides an opportunity for antitrust enforcers to return to this well-established body of law in applying antitrust law to the digital economy.
To varying degrees, the current leadership of the FTC and the U.S. Justice Department (DOJ) have adopted a “big is bad” approach toward digital markets; rejected or substantially qualified the consumer welfare standard; dismissed the costs of false-positive enforcement errors; and are currently pursuing sweeping breakup and other structural remedies that cannot be feasibly reversed.
As illustrated by the government’s failure to take steps to preserve Bell Labs when undoing AT&T’s monopoly in 1982 (an otherwise correct policy choice), antitrust intervention without guardrails can have adverse economic and national-security consequences that reverberate for decades. Moreover, detaching antitrust law from the consumer welfare standard, and viewing size as an inherent “antitrust bad” without considering offsetting positive effects on competition and innovation in the short and long-term, can result in enforcement actions that impede and distort, rather than support and facilitate, the competitive process.
This is not to say that digital markets do not raise significant antitrust concerns, given the natural tendency of these markets to converge on a small number of leading platforms (although the longevity of any such convergence can differ on a case-by-case basis).
Yet complex antitrust issues demand a scalpel, not a sledgehammer, while other important policy issues—especially, the weak enforcement of intellectual-property rights in digital environments—can be addressed most effectively through other bodies of law.
Digital antitrust poses a policy paradox that merits a nuanced approach. Regulators are right to express concern over concentration levels in digital markets and to scrutinize closely actions that incumbent platforms may take to impede entry. Yet it is often overlooked that scale and scope are necessary to achieve cost savings for consumers, as well as market access for smaller vendors that digital platforms can offer over brick-and-mortar marketplaces. Hence, far-reaching structural remedies must be assessed with special caution. Courts should demand robust evidence that no other less-interventionist solution would be effective.
Deciphering which business practices are undertaken to deter entry, and which are an integral part of the race to outperform competitors, requires the tailored approach that U.S. courts have developed for decades under the rule-of-reason approach that international regulatory consensus—supported by a growing body of scholars and commentators—now largely dismisses as misguided. The appropriate application of this balancing framework to digital markets is a work in progress that leaves much room for fact-informed debate and will unfold through case-by-case enforcement. A blanket approach that reflexively resists any increase in scale or scope—whether by acquisition, internal growth, or other means, or that imprudently reduces evidentiary thresholds—can result in outcomes that punish companies that have prevailed by delivering innovations that consumers and businesses prefer.
Seeking to break up some of the world’s largest corporations may make for great political theatre, but it risks betraying antitrust law’s interest in preserving the competitive process that has enriched the U.S. and global innovation economies.
