Gov. Gavin Newsom has signed Assembly Bill 1776, the so-called COMPETE Act, making California the first state to add a general prohibition on anticompetitive conduct by individual firms to its principal antitrust statute. Newsom’s announcement casts the law as a way to help small businesses and stop large companies from “shutting out competition.”
The law launches a significant experiment in antitrust federalism—the division of antitrust authority between federal and state governments. It is also one that risks replacing economically disciplined analysis with political suspicion and litigation pressure. The likely result is less innovation, less investment, and more uncertainty for firms whose markets extend well beyond California.
The final enrolled text of AB 1776 adds Sections 16730 through 16732 to California’s Business and Professions Code and takes effect Jan. 1, 2027. The Legislature softened earlier versions by removing the provision allowing private parties to sue under the new prohibition, deleting the separate ban on “unreasonable restraints of trade,” and requiring plaintiffs to allege and prove “substantial market power” through direct or indirect evidence. Those changes deserve credit.
But that credit goes only so far. The statute declares federal antitrust interpretations “at most instructive,” directs courts to interpret California antitrust law liberally, and tells them to keep “maximizing” deterrence in mind. It covers monopolization, attempted monopolization, maintenance of a monopoly or monopsony—market power on the buying side—and conspiracies to monopolize or monopsonize. In effect, California has announced plans to enact a competing body of antitrust law with national significance.
Political Credit, Economic Costs
The statutory details matter. Section 16731(a) prohibits “every person” from monopolizing or monopsonizing, attempting either, maintaining a monopoly or monopsony, or combining or conspiring with another person to do so. Section 16731(c) requires substantial market power, but plaintiffs need not define the relevant market and establish the defendant’s share of it—the conventional approach. Direct evidence may suffice, and California courts must decide what counts as “substantial” power under a statute that deliberately distances itself from federal doctrine.
There is a small-business exemption, but it’s narrow. It covers only independently owned and operated California businesses with no more than 100 employees and no more than $10 million in average annual gross receipts. Medium-sized firms, national franchisees, and businesses headquartered elsewhere remain exposed.
Limiting enforcement to public officials removes one obvious danger—entrepreneurial private lawsuits seeking treble damages under the new section. Public enforcement nonetheless still carries its own potentially troublesome incentives. Attorneys general and district attorneys can earn political credit from a high-profile monopolization case, even when the theory is weak. The costs of a mistaken case—lost investment, delayed product launches, forgone integrations, and weaker competition—fall on scattered firms and consumers, making them hard to trace back to the enforcers. The instruction to “maximize deterrence” compounds this incentive problem.
Deterrence Without the Guardrails
Modern monopolization law grapples with a basic problem—vigorous competition and anticompetitive exclusion can look deceptively similar. A low price can be predatory or an efficient response to a rival. A refusal to deal can exclude competitors or protect investment and avoid subsidizing a free rider. A bundle can shut out a rival or lower distribution costs. An exclusive contract can entrench market power or encourage investments tailored to a particular business relationship. Courts must distinguish conduct that harms competition from conduct that benefits consumers and draws new competitors into the market. Aggressiveness alone tells them little.
Federal monopolization doctrine is imperfect, but it reflects decades of effort to manage the costs of getting that distinction wrong. As I and other Truth on the Market writers have emphasized, the error-cost framework weighs the expected costs of false positives (condemning beneficial conduct) against those of false negatives (allowing harmful conduct).
A false negative may let market power persist, but successful markets often attract entry and innovation. A false positive can suppress conduct that would otherwise lower prices or improve products, with benefits that may never return. Judge Frank Easterbrook’s classic analysis identified the institutional problem: Procompetitive conduct wrongly condemned has no constituency lobbying for its restoration.
Earlier COMPETE Act drafts would have expressly abolished federal safeguards for evaluating conduct. The final law stops short of that, but its structure still steers courts toward the open-ended inquiries those safeguards were designed to discipline. Federal precedent is now to be considered merely instructive, and California courts must interpret the law liberally. “Free and fair competition” and maximum deterrence take priority, with no clear commitment to consumer welfare or workable limits on enforcement.
Those instructions give enforcers more room to cast successful competition as suspect after the fact. The risk is especially acute in technology, labor, health care, and platform markets, where complex business models make competitive effects hard to assess.
Market Power Needs a Market
Supporters of AB 1776 portray market definition as an escape hatch that lets dominant firms avoid liability. That misses its economic purpose. Defining a market identifies the alternatives that constrain a firm. Without examining those substitutes, courts cannot assess market power, determine whether conduct plausibly excludes rivals, or distinguish harm to competition from a competitor’s disappointment.
Direct evidence can sometimes establish power without a formal market definition, but the phrase is no magic wand. Courts still need to compare prices, output, quality, innovation, entry, and consumers’ willingness to switch to alternatives.
The statute’s substantial-market-power requirement helps, but leaves key questions unanswered. Could temporary popularity, a successful product launch, leverage over a particular trading partner, or a naturally local employment relationship suffice? The law offers little guidance.
The danger is greatest in monopsony cases. Employers may negotiate better terms with suppliers, reorganize work, use software to coordinate logistics, or decline to pay a worker’s preferred wage. None of those facts alone establishes harm to competition. Treating bargaining power as an antitrust offense risks turning ordinary contracting disputes into government-managed labor policy.
The Golden State’s National Veto
State antitrust enforcement has genuine virtues. State attorneys general can uncover local cartels, represent consumers whose claims are too small to pursue individually, and share information with federal enforcers. States can also tailor enforcement to local conditions.
But unilateral conduct in modern markets rarely stays local. A national platform, pharmaceutical company, payment network, or manufacturer generally cannot run one business model in California and another everywhere else. California’s rule will put pressure on conduct nationwide.
My recent Truth on the Market discussion of the “veto stack” captures the problem. Federal clearance increasingly gets a firm through only the first gate. A coalition of states may then challenge the same conduct under a different standard, producing a succession of conflicting decisions. No settlement fully settles, no clearance fully clears, and the most aggressive jurisdiction gains leverage over national markets. The COMPETE Act compounds the problem by expressly declining to treat federal interpretations as conclusive.
States have room to depart from federal law on claims by indirect purchasers—buyers who purchase through intermediaries—who may sue, and on particular forms of coordinated conduct. Unilateral conduct poses a special challenge, however, because the business decisions, investment, and consumer effects commonly cross state lines. When California lowers the threshold for condemning product design, pricing, distribution, or employment practices, it exports its policy to businesses and consumers elsewhere.
Courts will face difficult questions under the dormant Commerce Clause, which limits state interference with interstate commerce, and implied preemption, which asks whether federal law implicitly displaces state law. But even if the statute survives judicial review, settlement pressure and compliance changes can impose substantial costs nationwide.
May the Best-Connected Firm Win
AB 1776’s political pitch is familiar. Big businesses have “crushed” competition, and small firms deserve a fair shot. But protecting competitors from better products, lower prices, more efficient logistics, or more attractive employment terms can keep inefficient firms afloat at consumers’ and workers’ expense. Antitrust turns on whether conduct harms welfare by impairing competition. A politically sympathetic competitor’s losses tell us little on their own.
That distinction matters because antitrust invites rent seeking—efforts to secure advantages through government intervention. Incumbents may seek rules that handicap disruptive entrants. Suppliers may cast a buyer’s efficiencies as monopsony. Labor groups may recast ordinary employment arrangements as exclusionary conduct, while local businesses seek shelter from national competitors. A broad unilateral-conduct law gives each group a legal vocabulary for asking government to tilt the playing field. The beneficiaries are concentrated and politically organized. Consumers, workers, entrepreneurs, and future entrants bear the scattered costs.
International Center for Law & Economics (ICLE) authors Eric Fruits, Brian Albrecht, Daniel Gilman, and Ben Sperry warned that AB 1776 could invite strategic litigation, drive settlements through defense costs, and pressure firms to raise prices, limit product integration, or change employment practices. Babette Boliek likewise described the earlier proposal as a return to “worthy men” antitrust—an approach that protects favored businesses at the expense of impartial rules governing competition.
The final amendments leave those concerns largely intact. Removing private suits narrows the pool of plaintiffs, but lobbying and political incentives remain. So does the pressure to settle uncertain cases to avoid years of discovery and reputational harm.
The statute’s design also creates a practical asymmetry. The state can impose the burdens of a complex case before demonstrating that a practice has raised prices or reduced output. An investigation can mean years of document production, depositions, work by economic experts, and disclosure of commercially sensitive plans. A large incumbent may be able to absorb that expense, while a growing firm might delay investment or abandon a transaction that no longer makes economic sense.
Meanwhile, smaller rivals may come to rely on political protection instead of innovation. A law advertised as helping entrepreneurs can end up favoring firms best equipped—and best connected—to navigate politicized enforcement.
A Softer Landing for a Bad Idea
The legislative history offers modest relief, in that earlier versions would have departed even further from federal monopolization law. They dispensed with conventional market definition and market-share thresholds, allowed private lawsuits, and expressly made several federal safeguards unnecessary. Those included recoupment in predatory-pricing cases (the prospect of recovering losses through later price increases), balancing effects across the markets a multisided platform serves, and the as-efficient-competitor principle, which asks whether conduct could exclude a rival as efficient as the defendant.
The final bill’s substantial-market-power requirement, limit to public enforcement, and deletion of the separate “unreasonable restraint” prohibition are also meaningful improvements, but they nonetheless leave substantial defects intact.
California courts must still develop a new body of law governing unilateral conduct, with federal interpretations serving only as guidance. The statute still commands liberal interpretation and maximum deterrence. It supplies no clear consumer-welfare rule, no safe harbor for conduct that increases output or quality, and no explicit protection for efficiencies that benefit participants in related markets.
The softer language may have eased passage and made the law harder to challenge politically. In the end, lawmakers trimmed the most dangerous provisions while leaving courts and enforcers broad discretion to fill in the rest.
Do as Washington Says, Not as California Does
The law also weakens the United States’ case for economically grounded antitrust abroad. U.S. officials and scholars regularly criticize European and other foreign regimes for approaches that prioritize precaution, regulation, or protectionism—presuming dominant firms owe rivals access, favoring small suppliers, or treating size and political influence as harms in themselves. The consumer-welfare standard offers a coherent alternative, tying enforcement to the competitive process and consumer outcomes.
California gives foreign regulators an easy rejoinder. They can cite its broad mandate, treatment of federal precedent as merely instructive, liberal-interpretation rule, and emphasis on maximum deterrence as evidence that the United States is loosening its own economic constraints on enforcement. California may call that state sovereignty, but overseas policymakers will see a U.S. jurisdiction embracing a more precautionary model. Washington will thus have a harder time challenging European theories of abuse, regulation of digital “gatekeepers”—platforms that control access to users—or industrial favoritism on economic grounds.
That credibility matters as antitrust rules shape trade and investment. A foreign government favoring national champions can point to California’s willingness to let officials second-guess successful firms with fewer constraints than federal courts impose. The immediate dispute may involve a platform or employer, but the lasting cost will be a weaker American case for rules that encourage entry, experimentation, and voluntary exchange. Fragmented domestic antitrust thereby gives foreign regulators more cover to treat competition policy as a license to manage the economy.
More Cases, Less Competition
California had better options. It could have funded investigative expertise, coordinated with the U.S. Department of Justice and Federal Trade Commission, and targeted demonstrable local harms. It could have tied state monopolization claims to the federal consumer-welfare framework while allowing California-specific remedies. Referring evidence to federal authorities and publishing clear enforcement guidelines would also have preserved room for state experimentation while respecting the need for national coherence.
Newsom’s signature commits California to a more uncertain path. Lawmakers softened the COMPETE Act, but it still invites officials to use antitrust to steer industries and redistribute economic advantages. The costs will emerge gradually: a startup loses financing because a partnership with an incumbent carries legal risk; a platform forgoes an efficient integration; a manufacturer raises prices to avoid predatory-pricing allegations; or an employer abandons a productivity-enhancing work arrangement. A national firm may redesign its practices across all 50 states because California’s rule costs too much to ignore.
More antitrust liability hardly guarantees more competition. Sound enforcement minimizes the combined costs of market power, mistaken intervention, administrative error, and rent seeking. The COMPETE Act moves in the opposite direction, making cases easier to bring and businesses harder to build.
California has made it easier to compete in court. Competing in the market just got harder.
