Search Results For RPM

“I’m not going to praise the Leegin decision”

Josh Wright —  30 June 2010

Compared to the nominations of Justices Alito, Roberts and Sotomayor, there has been little excitement for the antitrust community on the most recent Supreme Court nomination of Elena Kagan.  But there is something.   The WSJ Law Blog reports that while Kagan refused to “praise the Leegin decision.”   Legal Times reports that in response to Senator Kohl’s questions about recent Supreme Court antitrust activity, including Leegin Creative Leather Products v. PSKS and Bell Atlantic v. Twombly, Kagan offered some thoughts on the manner in which economic theory should be incorporated into antitrust doctrine:

“There’s some question, to be sure, about how new economic understandings should be incorporated into precedent,” she said. “On the one hand, it’s clear that antitrust law needs to take account of economic theory and economic understandings, but it needs to do so in a thoughtful way.”

Thoughtfully.  Can’t argue with that.  Well, I guess you can.  For example, one sensible reading of Leegin is precisely that it is a perfect example of how the Supreme Court can go about thoughtfully updating antitrust doctrine with new economic learning and empirical evidence and is thus worthy of the praise Kagan refuses.  In the RPM context, Leegin updated an area of the antitrust law that had become an economic backwater by reflecting more modern economic thinking (and by more modern, I mean, around for 20 years) about the economics of vertical restraints and RPM specifically.  Legal Times also reports that when “pressed by Kohl to give a view on the Leegin decision, Kagan said she would not “grade” the ruling and she did not elaborate on how the Court should determine a proper balance in antitrust cases.”  So, lukewarm on Leegin at best, and some recognition that economic learning should be incorporated into antitrust doctrine.

Thanks to Jan Rybnicek for the pointer.

In Antitrust & Competition, Economic Theory, Vertical Restraints
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Comments on Jonathan Baker's Preserving a Political Bargain

Josh Wright —  21 May 2010

I’ve recently finished reading Jonathan Baker’s Preserving a Political Bargain: The Political Economy of the Non-Interventionist Challenge to Monopolization Enforcement, forthcoming in the Antitrust Law Journal.

Baker’s central thesis in Preserving a Political Bargain builds on earlier work concerning competition policy as an implicit political bargain that was reached during the 1940s between the more extreme positions of laissez-faire on the one hand and regulation on the other.  The new piece tries to explain what Baker describes as the “non-interventionist” critique of monopolization enforcement within this framework.  The piece is motivated, at least in part, by the Section 2 Report debates.  Baker’s basic story is fairly straightforward.  Under Baker’s account, competition policy is the outcome of the political bargaining process described above.  The “competition policy bargain” was then successfully modified in the 1980s in response to the Chicago School critique.  According to Baker, during the 1970s and 80s, “the Supreme Court revised many if not most of aspects of antitrust law along the lines suggested by legal and economic commentators loosely associated with the University of Chicago,” though this revolution changed the antitrust laws “dramatically but not fundamentally” and reflected a “bipartisan consensus in favor of reforming antitrust rules to enhance the efficiency gains arising from competition policy.”

Baker applies his “political bargain” framework to argue that the “modern non-interventionist critique,” unlike the successful attempt to modify the “terms” of the bargain in the 1980s, is highly likely to fail.  Baker defines the non-interventionist critique as relying on a particular series of legal and economic arguments.  For example, Baker describes the economic arguments deployed by the non-interventionists as that “markets are self-correcting,” “monopoly fosters economic growth,” “there is a single monopoly profit,” “excluded fringe rivals may not matter competitively,” “courts cannot reliably identify monopolization,” and so on.  Animated by the Section 2 Hearings, Report, its withdrawal, and the subsequent controversy, Baker begins from the assumption the non-interventionists are trying to modify an existing bargain, since non-interventionists are “the primary source of recent criticism of monopolization standards.”  From there, Baker argues that this concerted effort to modify the competition bargain in favor of less intervention is unlikely to succeed because such an attempted modification is unlikely to mobilize broader political support in the current social environment.

Let me start by saying that I agree entirely with the ultimate conclusion in so far as I don’t think there is any doubt that, in the current environment,  it is unlikely that the implicit “policy bargain” will be modified in a way that makes it more difficult for monopolization plaintiffs.  I have much more trouble with the premise of the exercise, and on how one knows a deviation from the current policy bargain when he sees one, and so will focus my critique on those issues.

Baker paints the picture of a dramatic and fundamental attack by non-interventionists on monopolization enforcement.  My response to the premise of the paper was: “What non-interventionist effort to further relax monopolization standards?” To be sure, there are plenty of folks who have cautioned against expansive use of Section 2.  It strikes me that the fundamental weakness in Baker’s analysis is that his starting point – the “terms” of the current political bargain — derives from  assumptions that don’t seem to square with reality.    In other words, rather than envisioning the current debates around Section 2 as an assault by non-interventionists, there is a much more compelling case that it is the interventionists attempting to “deviate” from whatever implicit political bargain exists with respect to competition policy.  Christine Varney’s declaration that there is “no such thing as a false positive” – the presence of such being a seminal observation since The Limits of Antitrust (in 1984, no less) immediately leaps to mind.  I will turn to making the case that it is the interventionists making the offer for modification below.

But first note that Baker leaves out of his list of “economic arguments” against Section 2 both error costs and that there is little empirical evidence that aggressive monopolization enforcement generates consumer benefits.  This is, in my view, an important omission since Baker makes the point that all of the other economic arguments have attracted rebuttals.  If there has been a rebuttal of the argument that the empirical evidence suggests that instances of anticompetitive exclusive dealing, RPM, tying and vertical integration are quite rare, or an empirical demonstration that monopolization enforcement has generated consumer welfare gains bet of error and administrative costs, I’d like to see it.  Further, note that the original Chicago School argument, a la Director & Levi, against monopolization enforcement was not that anticompetitive exclusion was impossible, but rather that it was sufficiently rare in the world as an empirical matter as to be irrelevant to policy formation.  Baker ignores this empirical, evidence-based non-interventionist critique, which, for example, has been the core of the position taken by modern academic skeptics of monopolization enforcement like myself, Dan Crane, Tim Muris, Bruce Kobayashi, Luke Froeb, and David Evans.

What is the evidence that there is a non-interventionist attack on the current competition policy bargain as it exists with respect to monopolization? Not much.  The first is that the non-interventionists are the “source of criticism of recent monopolization standards.”  In parts of the paper, Baker equates the non-interventionists with business interests.  But under that formulation, there is not much evidence to support this proposition.  If anything, and as Baker readily acknowledges in a footnote, the headlines seem to tell a story of AMD, Google, Microsoft, Adobe and others expending resources to instigate antitrust enforcement against rivals not to restrict the scope of Section 2.

Baker cites more generally the recent monopolization controversy as driven by the non-interventionist attempt to deviate from the status quo.  But this part of the analysis reads to me as driven entirely by assertion that the competition policy preferences that Baker appears to prefer are in the “political bargain” and deeming opposition to those (interventionist) policies attempted “deviations.”  Perhaps this is a problem of hammers and nails.  Baker’s more interventionist than I and so sees obstacles between his ideal vision of antitrust law and reality as caused by non-interventionists.  But I’ve got a different hammer and see different nails.  For example, I read the Section 2 Report as largely (but not entirely) limited to a description of Section 2 law as it exists and the vigorously dissenting voices coming from the interventionist crowd.  As George Priest has put it:

It’s fair enough for a succeeding administration to reject policies of its predecessor. But the Justice Department report was not authored by John Yoo or Alberto Gonzales. It was the work of a year-long study that considered recommendations from 29 panels and 119 witnesses, most of them critical of the minimalist Chicago School approach to antitrust law. The report’s conclusions basically track Supreme Court law with modest extensions in areas where the Supreme Court has not ruled. Ms. Varney denounced the report in its entirety.

Finding the evidence lacking of some strong non-interventionist attempt to impose dramatic change on Section 2 that deviates from the current political bargain, I offer an alternative hypothesis: it is the interventionists that are attempting to deviate from the current political bargain and propose change.

For starters, I think that Baker and I would agree that there actually is a “stable” competition policy bargain with respect to monopolization that has drawn bipartisan over the last twenty years – at least in the courts.  Note that even restricting attention to decisions during the George W. Bush administration from 2004-08, the total vote count of these decisions was 86-9, with 7 of 11 decisions decided unanimously, and only Leegin attracted more than two votes of dissent (and more likely, as others have pointed out, for its implications with respect to abortion jurisprudence than anything to do with the antitrust analysis of vertical restraints!).  The monopolization-related decisions of the modern era, including Trinko, Linkline, Credit Suisse, and Brooke Group have all made lift more difficult for plaintiffs in one way or another.  But as I’ve written on this blog over and over again, the error-cost analysis embedded in these decisions is a key feature of modern Section 2 jurisprudence that is part of the current bargain.  So as I understand it, these decisions must be part of the current bargain.  It would be difficult, in fact, to find another area of law in which the Court has articulated principles with such overriding unanimity despite persistent attempts by some scholars to advocate for an alternate overarching legal framework.  I think there is a much more compelling story – and one backed by greater evidence than Baker’s narrative — to tell about the modern attempt of the interventionists to renegotiate terms.    Let’s discuss some of the evidence.

For starters, the strongly-toned dissents from the Section 2 Report from both Agencies after Hearings with witnesses and testimony from all possible sides of debate — even the parts that merely describe the law — suggest dissatisfaction with the terms of the modern bargain Baker describes and that are represented by the monopolization case law created over the past several decades by supermajority Supreme Court decisions.  It is AAG Varney who recently, as Baker acknowledges in the paper, minimized the importance of Trinko under Section 2 in favor of “tried and true” cases like Aspen Skiing.  This is, of course, to say nothing of AAG Varney’s endorsement of an antitrust policy free of error-cost considerations.

Further, it is the interventionists at the Federal Trade Commission that have turned to an expanded vision of Section 5 to evade the constraints imposed by Section 2.  In fact, the Commission has explicitly announced that it does not think that the constraints imposed on plaintiffs under Section 2 should apply to the antitrust agencies!  If this is not an attempt to deviate from the existing political bargain in an interventionist direction, I’m not sure what is.  Put another way, interventionists are currently attempting to re-write existing Section 2 law – the “political bargain” – through Section 5. Given the Complaint in Intel and promised use of Section 5 in broad circumstances previously covered under the Section 2 law envisioned under the “stable” bargain that Baker describes as generating bipartisan support from Democrats and Republicans, surely this is an attempt to deviate from the prior bargain.

It is the interventionists that have provided new economic arguments in favor of greater antitrust enforcement.  For example, the recent trend towards reliance on behavioral economics endorsed by the agencies emerges out of dissatisfaction with Chicago and Post-Chicago School theories that adopt rational actor models and, presumably, inability to get substantial traction in the federal courts from existing interventionist models provided by the Post-Chicago School.

The interventionist assault on the current implicit competition policy bargain goes further than the agencies though.  Congress currently has in front of it pending legislation to take out of the courts the development of a rule of reason standard for minimum RPM, a Twombly-repealer, legislation to make reverse payments in pharmaceutical patent settlements illegal, and legislation to regulate interchange fees.  Every one of these proposals represents an interventionist reaction attempting to overturn a judicial application of current competition law and suggest that perhaps the interventionists do not trust the courts to oversee the political bargain.

The premise of Baker’s analysis (that the non-interventionists are strongly challenging the current status quo) is either false to begin with or practically irrelevant in light of the much more important interventionist challenge.  Note again that Baker’s claim is that the non-interventionists would fail in any attempt to reduce the scope of monopolization enforcement because they will not be able to generate more broad political support in the current environment.  No doubt that is true.  But what about the interventionists chances for success?  Baker’s analysis provides a very interesting lens to analysis evaluate questions like whether the interventionists will be successful in renegotiating the terms of the competition policy bargain.  At the moment, though things may be changing, they seem to have greater political support.  I think the most interesting conflict arising out of Baker’s interesting conception of competition between stakeholders in antitrust policy is that it illuminates what might be a battle for supremacy in governing the bargain between agencies and courts.  As Baker notes, the courts have been a critical part of establishing the terms of the bargain and adjudicating attempts to “re-negotiate” by private plaintiffs and agencies over time.  Recently, interventionists have attempted to shift antitrust (and consumer protection) enforcement away from courts and towards administrative agencies, such as with Section 5 and the proposed CFPA.   To me, these present more important and interesting policy questions than whether non-interventionists will be successful in further shrinking Section 2 law.  I believe that the prediction emerging from Baker’s model depends on what happens with the political environment in the next few years.

My prediction, for what its worth, is that the current policy bargain will certainly hold together in the courts.  The remarkable strength of the current Section 2 status quo is held together by a combination of the intuitive appeal of price theory for generalist judges relative to more interventionist Post-Chicago and Behavioral economic alternatives, the relative explanatory power of the so-called Chicago School theories relative to contenders.  Nothing there has changed.  I have less of a sense about the impact of Congressional changes, judicial nominations, and the rise of the EU as monopolization enforcer have on monopolization in the US.

In Antitrust & Competition, Error Costs, European Union, Exclusive Dealing, Facebook, Federal Trade Commission, Health Care, Intellectual Property, International, Justice Department, Patent, Pharmaceuticals, Platforms, Regulation, Section 5, Tying, Vertical Restraints , , , , , , , , , , , , ,
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Antitrust and Congress

Thom Lambert —  22 September 2010

Last Thursday and Friday, I attended a conference at Case Western Law School on the Roberts Court’s business law decisions. I presented a paper on the Court’s antitrust decisions. (The paper, described here, is now available on SSRN.) Adam Pritchard, Matt Bodie, and Brian Fitzpatrick presented papers considering the Court’s treatment of, respectively, securities law, labor and employment law, and pleading standards.

My presentation happened to follow Adam’s, and the contrast was pretty striking. Adam explained that the Roberts Court does not appear all that interested in the substance of the securities laws or the policy implications of its securities holdings. Rather, Adam contended, the justices’ focus in the securities law decisions has been on methods of statutory interpretation and the relationship of the judiciary to the administrative state — with little concern at all for the securities-specific results that will follow from adopting one particular interpretation over another. In antitrust, by contrast, the Court has been concerned almost exclusively with results and policy implications, and it has paid almost no attention to the antitrust statutes themselves or to congressional intent. (The dissent in Leegin asserted a congressional intent argument, but mainly as an afterthought, and the majority brushed it off.)

The reason for this difference in approaches is pretty apparent. The securities laws are long and detailed and have been supplemented with gobs of regulations. They prescribe rules that purport to specify, ex ante, what is and is not allowed. The antitrust laws, by contrast, are short, employ vague and undefined terms (e.g., the Sherman Act fails to define such key terms as “monopolize” or “restraint of trade” … though it does helpfully define “person”?!), and posit standards whose precise contours are fleshed out ex post, as courts evaluate conduct that has already occurred. There are no antitrust textualists. Indeed, because the Sherman Act prohibits every “contract … in restraint of trade” and because every executory contract restrains trade (i.e., the promisor restrains himself from any trades inconsistent with the promised performance), a textualist approach would generate absurdity by prohibiting all executory contracts. The Court therefore can’t ignore outcomes and policy disputes and focus solely on statutory interpretation in resolving antitrust matters. It must grapple with the policy questions. And it has almost always done so, consistently interpreting the Sherman Act as an implicit delegation of authority to craft a quasi-common law of competition, a common law that evolves as our understanding of the competitive effects of business practices grows. (I’m not suggesting, of course, that the Court has always gotten the policy questions right; merely that it has consistently and explicitly grappled with policy in deciding antitrust matters.)

This raises questions about Congress’s role in the antitrust enterprise. During my Case presentation, one discussant contrasted the “interpretivist” approach of the Roberts Court’s securities cases with the more free-wheeling, “policy-focused” approach in the antitrust cases and asked, in essence (albeit more artfully), where the Court gets off usurping all these policy questions for itself.  The obvious answer, of course, is that it has no choice; the antitrust statutes are just too short and vague to support a textualist approach and really must be read as an implicit delegation to craft a quasi-common law of competition.  The implication of the discussant’s comment, though, was that Congress should play a more active role in determining the contours of antitrust prohibitions and that the Court (and courts generally) should afford greater deference to its policy judgments.

I’d have to disagree.   First, Congress lacks the knowledge to specify ex ante how most business practices should be evaluated from a competitive standpoint.  That implies that a standards approach, rather than a rules approach, will be optimal for antitrust.  Any standards approach, though, will require antitrust tribunals to make on-the-spot policy judgments, evaluating challenged conduct in light of time- and space-specific factors — and in light of ever-evolving economic insights — of which Congress simply cannot be aware at the time it promulgates the law.  The law already follows this “Hayekian” approach; appropriately, I believe. 

Second, greater congressional intervention in antitrust would likely benefit groups of competitors (small businesses, etc.) at the expense of consumers.  The former are discrete and insular, are easily organized, and consistently do well in the political process.  Widely dispersed consumers, by contrast, have no effective lobby in Congress.  This situation encourages rules that provide concentrated benefits to the politically adept (small businesses), while diffusing their costs broadly among consumers.  The small business groups, recipients of concentrated benefits, have both the incentive and the means to seek rules that favor them; individual consumers, among whom the costs of those rules are diffused (so that each consumer is harmed just a little bit), lack the incentive to invest heavily in opposing the rules.  Given this concentrated benefits/diffused costs dynamic, greater legislative involvement in particular antitrust matters would likely result in rules that concentrate their benefits on small businesses and spread their costs on consumers throughout the economy, even when the total (dispersed) costs of the rules exceed their total (concentrated) benefits.  When Congress has crafted more targeted, precise antitrust prohibitions, they’ve usually hurt consumers and helped small businesses (see, e.g., the Robinson-Patman Act).  Indeed, there’s good reason to believe that the Sherman Act itself was initially protectionist in design, though the Court corrected that problem by putting a pro-consumer gloss on the statute’s broad prohibitions.

Putting aside whether Congress should intervene more in antitrust matters, what if it does do so?  Members of the current Congress, for example, have introduced bills and held hearings on legislative repeals of Leegin and Twombly.  What if those (or similar) bills are enacted? 

Josh and his co-author, Judd Stone, provide an excellent answer to this question in their recent article on American Needle.  They observe that the justices grappled during oral argument with the most appropriate means of weeding out meritless antitrust claims based on “agreements” among entities whose combination would not seem to harm consumers by reducing the centers of economic decisionmaking in a market. Ultimately, the Court decided it could cut back on the scope of Copperweld‘s intraenterprise immunity doctrine because it had an alternative screening mechanism: Twombly‘s requirement that plaintiffs allege a “plausible” conspiracy.  Josh and Judd contend that a legislative repeal of Twombly would lead courts to make other doctrinal adjustments in an attempt to provide means for screening out meritless lawsuits.  They explain:

Antitrust has seen this pattern play out before … . [T]he massive proliferation of private actions … inspired much of the error-cost protections not only ensconced in the consumer harm requirements of Section 2 but narrowing Section 2’s scope altogether. … [Repealing Twombly] is a strategic maneuver that will favor plaintiffs in only the very shortest of temporal horizons — before the antitrust ‘‘system’’ of rules reacts accordingly.

I think that’s right.  The courts have long been the guardians of the antitrust enterprise.  Since the late-1970s, they have done an admirable job of crafting a rational, coherent common law of competition.  (Again, I’m not saying the system is perfect — see, e.g., the quasi-per se rule against tying — but it’s generally pretty sensible.)  The courts are also well-aware that they have access to numerous safety valves that can eliminate meritless claims.  A legislative repeal of Leegin, for instance, would undoubtedly reinvigorate Colgate, Monsanto, and Business Electronics, which created hurdles to (meritless) RPM claims by making it difficult to plead and prove a vertical “agreement” to maintain resale prices. 

In the end, greater congressional involvement in crafting antitrust rules would probably have negative effects on consumer welfare and would likely lead courts to create or strengthen various screening mechanisms to avoid unwarranted liability.  Such a judicial response would simply add complexity to an already complicated body of law.  Let’s hope Congress stays its hand and lets the courts continue to serve as the guardians of competition law.

In Antitrust & Competition, Apple, Platforms, Regulation, Tying ,
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Antitrust under President Obama: "I will direct my administration to reinvigorate antitrust enforcement"

Josh Wright —  5 November 2008

Danny Sokol makes some predictions about Post-Obama antitrust, and about my disappointment in what he perceives to be the likely direction of antitrust policy in the Obama administration:

1. increased challenges of mergers and monopolization cases, especially at DOJ

2. more consumer protection work at the FTC with a push to more expansive consumer rights

3. less language by US enforcers internationally about “convergence” and more on “harmonization”

4. a move away from cartels as the supreme evil of antitrust to more holistic approach that elevates unilateral conduct (if I am right, Josh Wright must be beside himself in terms of what this means under an error/cost framework)

Interesting. Though I agree with 1, 3, and 4 more than 2. I think the right place to start if we’re going to predict what an Obama antitrust regime will look like is what the President-elect has said he will do. There are other sources as well. Many have made much, far too much in my view, of Obama’s ties to the Chicago School, the Harvard School via Professor Elhauge who is an advisor, or behavioral economics via Cass Sunstein. But that seems like a reasonable place to start. So, here’s Obama’s Policy Statement on Antitrust to the American Antitrust Institute, which I’ve commented on previously.

Let’s start with what Obama says he’s going to do:

  1. Bring more cases. “Regrettably, the current administration has what may be the weakest record of antitrust enforcement of any administration in the last half century. Between 1996 and 2000, the FTC and DOJ together challenged on average more than 70 mergers per year on the grounds that they would harm consumer welfare. In contrast, between 2001 and 2006, the FTC and DOJ on average only challenged 33. And in seven years, the Bush Justice Department has not brought a single monopolization case. The consequences of lax enforcement for consumers are clear.”
  2. Aggressive enforcement against international cartels. “My administration will take aggressive action to curb the growth of international cartels”
  3. Prosecute Against Pharmaceutical Settlements that Prevent Generic Entry. “An Obama administration will ensure that the law effectively prevents anticompetitive agreements that artificially retard the entry of generic pharmaceuticals onto the market, while preserving the incentives to innovate that drive firms to invent life-saving
    medications.”
  4. Prevent Insurance and Drug Companies from “Abusing Monopoly Power.” “My administration will also ensure that insurance and drug companies are not abusing their monopoly power through unjustified price increases – whether on premiums for the insured or on malpractice insurance rates for physicians.”
  5. Relatedly, Introduce legislation to repeal the antitrust exemption for malpractice insurance with respect to price-fixing claims. “I have introduced legislation in the Senate that would repeal the longstanding antitrust exemption for medical malpractice insurance. This narrow bill would do so only for the most egregious cases of price fixing, bid rigging, and market allocation. As president, I will sign this bill into law.”
  6. Competition Advocacy in the U.S. and Internationally. “My administration will strengthen the antitrust authorities’ competition advocacy programs to ensure that special interests do not use regulation to insulate themselves from the competitive process. Finally, my administration will strengthen competition advocacy in the international community as well as domestically. It will take steps to ensure that antitrust law is not
    used as a tool to interfere with robust competition or undermine efficiency to the detriment of US consumers and businesses. It will do so by improving the administration of those laws in the US and by working with foreign governments to change unsound competition laws and to avoid needless duplication and conflict in multinational
    enforcement of those laws.

Two of these proposals are specific and easy to evaluate: prosecuting patent settlements that prevent generic entry and legislation to repeal the antitrust exemption for medical malpractice insurance. The fourth, standing alone, doesn’t make much sense. I’m not sure whether this is referring to prosecuting monopolists for charging monopoly prices (which he cannot do under current law) or something else. The next sentence in the statement is refers to this exemption bill, so perhaps that is what he is referring to. The statement about patent settlements in the pharmaceutical industry, however, could signal a major change to the extent that the FTC/DOJ rift on patent settlements disappears.

Numbers 1 and 6 are less specific: bring more cases and strengthen competition advocacy programs. Without particulars on competition advocacy, a program that is strongly supported by the current Chairman, I’m not sure if there is anything to evaluate here.

I’ve criticized the idea that merely bringing more cases strengthens or reinvigorates antitrust enforcement in any meaningful sense or from a consumer welfare perspective. I don’t think it does without a clear showing that the marginal case is going to improve consumer welfare. That may or may not be the case at current levels of enforcement. I’m not sure. But I haven’t seen any compelling evidence that this is true. As I’ve noted previously:

As a general matter, I do not find “more is better” arguments (see, e.g., here) causally linking agency activity to the quality of antitrust policy to be very persuasive. All of these claims should be taken with a grain of salt or two. It is one thing to make observations about trends in public antitrust enforcement over time….

All of this can be quite productive in terms of generating dialogue concerning potential improvements in antitrust policy. However, it is quite another thing to assert that such data are capable of establishing a causal link between enforcement activity level and the “quality” of antitrust enforcement and/or consumer welfare. I should be incredibly clear here: I do not read Baker & Shapiro to be claiming to have demonstrated such a link empirically (though it is clear from the article that they believe more enforcement would be a good thing) and am not making this point in response to their article. Rather, I am responding to appeals to evidence on activity levels alone to suggest that “more” or “less” enforcement would bring about positive changes for consumers. Maybe such a link would be useful if we were talking about dramatic changes in the rate of enforcement (say, abruptly plummeting to zero or increasing tenfold).

But one should be very cautious about making inferences about consumer welfare from small changes in aggregate enforcement data or anecdotal evidence from a handful of cases. I offer this word of caution in the spirit of the current season when these types of claims are quite popular with the politicians and journalists: while it may be true that the most active antitrust agency is the most influential for a number of reasons, there is simply no theoretical or empirical basis to suggest that the most active agency produces the greatest benefits for consumers.

And let’s not forget that “more antitrust enforcement” depends on what type of enforcement actions we are talking about. That brings me back to Danny Sokol’s point about the mix of cases in an Obama regime shifting away from cartels and toward monopolization on the margin. I suspect he is right in some sense. But we should note that a movement toward monopolization cases, where we know the least about the likely consumer welfare consequences of particular forms of single firm conduct, the marginal case is less likely to have a positive impact for consumers.

All of that said, let me take a stab at some predictions about antitrust in the Obama regime:

  1. Monopolization Enforcement will Increase, but Moderately. There will be a prominent monopolization case or two filed during the first four years. I don’t think we’ll see much of a shift toward monopolization cases.  So, I’m not quite “beside myself” about what this means in terms of the error-cost framework which I believe should guide antitrust policy decisions.   But I’m not optimistic either.  While the FTC or DOJ might want to bring these cases, current law makes single firm conduct cases (especially those involving pricing conduct, e.g. Intel) extremely difficult to win. And whatever impact Obama does have on the antitrust enforcement agencies, I suspect that loss aversion is relatively stable across political administrations. So, look for a few big name monopolization suits in prominent industries: health care, pharmaceuticals, microprocessors. I suspect that Post-Chicagoans hoping that the Obama administration is their chance to pursue a lot of monopolization cases are going to be a little bit disappointed.
  2. Reverse Payments. This is relatively low hanging fruit. The inter-agency tensions concerning the right approach to reverse payment settlements is going to go away with the new DOJ. The agencies will join together and successfully petition the Supreme Court to grant cert and apply per se/ inherently suspect analysis to patent settlements that delay generic entry. This, to some extent, overlaps with my first prediction. So let me note that I predict at least one, but probably not more than two, major monopolization suits excluding reverse payment cases.
  3. Competition Policy Advocacy. Nothing will change. Except perhaps, as Danny Sokol predicts, there will be much more talk about harmonization and much less about convergence. I do wonder how aggressive competition policy advocacy under the Obama administration will be against international antitrust efforts against U.S. firms that have been occasionally criticized as protectionist.
  4. Minimum RPM is Per Se Illegal Again. Dr. Miles was dead, but will come back to life via proposed federal legislation sponsored by Senators Clinton, Kohl and Biden. Empirical economists everywhere will be disappointed as the opportunity to exploit state variation in the legal status of RPM to identify its competitive consequences will disappear.
  5. Increased Merger Activity. Again, this is what President Obama said about his plans for antitrust enforcement if elected and I have no reason to believe it is not true. Whether this is good or bad for consumers depends a great deal on case selection and, even more so, the mix of mergers presented to the agencies during the next four years. Given that economic conditions have changed substantially, there is no doubt that the mix of cases will be substantially different than those under the second term of G.W. Bush. This will be interesting to watch.
  6. Patent Holdup. This one involves conjecture on my part and does not derive specifically from anything in the Obama statement. But I would be willing to bet that President Obama will strongly support both the FTC patent holdup agenda, as well as using the antitrust laws and FTC Act Section 5 to pursue cases like N-Data. I suspect we are likely to see an expansion of the patent holdup / conduct before SSO enforcement agenda. For my views on this subject (along with co-author Bruce Kobayashi, see here). This point also ties into the likely monopolization agenda. I think one might observe the expansion in monopolization enforcement linked to cases involving patent holdup and/or other forms of so-called “regulatory gaming,” e.g. pharmaceutical settlements and product hopping cases. The advantage of these cases is that they circumvent the problem of case law that makes it very difficult to win traditional pricing / discounting cases and that they usually involve big-name industries and firms.
  7. Network Neutrality legislation. I’m going to count this as an antitrust issue.

Those are my thoughts. My personal views on these are that 4, 5 and 7 are likely to make consumers worse off. Collectively, 1, 2 and 6 each depend on the types of cases that are brought. While I have less strong views about a more aggressive agenda pursuing some patent settlements, I think an expansion of the patent holdup enforcement agenda as represented by N-Data would harm consumers as well. I also believe monopolization enforcement under Section 2 in pricing cases involving loyalty or bundled discounts are not likely to improve consumer welfare — though I suspect these are not winners in federal court. I don’t suspect 3 will change much, and so I don’t suspect there will be any large changes on the margin here. One question I have is whether the Obama administration will prioritize competition research and development and take an economic and empirical approach to addressing current unknowns? That remains to be seen. The FTC Microeconomics conference and FTC at 100 events, I think, have been and will be productive endeavors in this area and ones that I hope will continue over the next four years.

In Antitrust & Competition, Cartels, Federal Trade Commission, Health Care, Intellectual Property, Justice Department, Patent, Pharmaceuticals, Section 5 , , , ,
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Hello Chairman Leibowitz; Goodbye Chairman Kovacic

Josh Wright —  27 February 2009

Here’s the press release. Congratulations to Chairman-to-be Leibowitz.

I also note that this marks the end of Chairman’s Kovacic’s reign at the Commission. On a personal note, I had the pleasure of working for the Chairman during my stint as the FTC Scholar in Residence and consider myself extremely fortunate to have had the opportunity. There is simply nobody that has given as much thought to the question of how competition policy enforcement institutions should be designed to achieve their objectives. Don’t believe me? Read this.  I hope one that I believe that the Chairman’s quest to make the Commission the “thinking man’s competition agency” will be viewed as amongst his most important contributions. The FTC at 100 program and self-study, the series of conferences on important competition policy issues ranging from RPM to the appropriate scope and application of Section 5, and the new FTC & Northwestern University Microeconomics Conference are among the projects that have Chairman Kovacic’s signature on them.

Congratulations to Chairman and soon to be Commissioner Kovacic for a job well done.

In Announcements, Federal Trade Commission, Section 5
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Majoras Responds to Conyers Regarding Leegin

Thom Lambert —  8 March 2007

There’s just so much paper going back and forth on Leegin that it’s hard to keep up.

In addition to various briefs and commentaries and Commissioner Harbour’s de facto brief (also discussed here), there has been some interesting correspondence between Rep. Conyers, Chair of the House Committee on the Judiciary, and Deborah Platt Majoras, Chair of the FTC.

Back in January, Rep. Conyers wrote to Chairman Majoras and Assistant Attorney General Thomas Barnett, head of DOJ’s antitrust division, “to request the Department’s and Commission’s views” on RPM in general and the Leegin case in particular. Based on Rep. Conyers’ leading questions, it was pretty clear where he stood on Leegin. (e.g., “Given Congress’ active involvement in the RPM issue…in unequivocal support of the Dr. Miles line of cases — would you agree that the Supreme Court should defer to Congress on this issue?”)

Chairman Majoras has responded. The crux of her response is the eminently sensible point that RPM is a “mixed bag” competitively — i.e., it can sometimes be anti-competitive and sometimes pro-competitive — and that rule of reason treatment is therefore appropriate.

Specifically, Chairman Majoras addresses:

The relevance of the 1975 Consumer Goods Pricing Act. The 1937 statute repealed by the 1975 Act effectively permitted states to provide per se legality for RPM schemes. In repealing the Act, Congress again subjected RPM to antitrust scrutiny, but it did not mandate a particular standard to govern such scrutiny. Instead, it contemplated that the standard would evolve with judicial understanding of the practice.

The fact that the DOJ and FTC testified in favor of the 1975 Act. The agencies testified in favor of the 1975 Act because they believed — and still believe — that exemptions and immunities from the antitrust laws (the practical result of the “fair trade” laws authorized by the federal statute repealed by the 1975 Act) are disfavored. They believed RPM should be subject to antitrust scrutiny, but they did not necessarily think it should be subject to the per se rule. Moreover, to the extent their 1975 testimony “failed to recognize potential procompetitive and proconsumer justifications for RPM,” it “did not reflect the subsequent experience and economic analysis that has developed during the last thirty-plus years.”

The FTC’s 2000 enforcement action against the recording industry’s use of minimum advertised prices for the sale of CDs. Sure — some schemes restricting competition over resale prices can be anticompetitive. With regard to this particular scheme, “[t]he Commission examined the circumstances under the rule of reason and concluded that it had reason to believe that the practices were anticompetitive.” Overruling Dr. Miles would not prevent courts and regulators from condemning RPM schemes that, upon investigation, appear to be anticompetitive on balance. But “whether an RPM agreement is anticompetitive or procompetitive depends on the particular facts of the case.”

Academic commentary suggesting that RPM is more dangerous than vertical non-price restraints. The evidence here is unclear. Indeed, economists who have weighed in on the case “observed that nonprice vertical restraints, such as exclusive territories, can more completely restrict intrabrand competition than does RPM.” That’s because, “[w]hile exclusive territorial restrictions can eliminate virtually all intrabrand competition, RPM permits retailers to engage in intrabrand competition on factors other than price, leaving multiple sellers of the brand in the same geographic market to engage in interbrand competition.” (Internal quotation and alteration omitted.) Bottom line: RPM, like vertical non-price restraints, is a mixed bag and should be evaluated as such — that is, subject to the rule of reason.

***

All in all, a succinct and persuasive response to some of the leading arguments against overruling Dr. Miles.

In Antitrust & Competition, Antitrust Division, Exemptions, Federal Trade Commission, Justice Department, Law & Economics, Regulation, Truth on the Market, Vertical Restraints
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Baker on the Dueling Bush Administration Antitrust Agencies

Josh Wright —  15 September 2008

Jonathan Baker (American) has a column at The New Republic focusing on a different aspect of the FTC vs. DOJ scuffles over antitrust policy. Baker claims that the DOJ is engaging in what he describes as “deregulatory radicalism that allows monopolies to spin out of control,” while he is largely supportive of FTC policies. Baker sees the growing rift between the agencies as one of ideologies — one mainstream and one radical:

This anti-enforcement stance has no recent precedent, except perhaps at the same agency during Reagan’s second term. In fact, the other U.S. antitrust agency, the Federal Trade Commission (FTC), has been noticeably at odds with Justice–even though both are run by Bush appointees. This interagency clash pits mainstream conservative defenders of traditional competition against radical non-interventionist advocates of broad marketplace rights for big business–and it proves that in competition policy, as elsewhere, the Bush administration has gone sadly astray.

Contrary to my recent post taking the FTC to task for appearing to abandon the economic roots of modern antitrust analysis in the recent Section 2 Report Statement from Commissioners Rosch, Harbour & Leibowitz (but not the Chairman), Baker says its the FTC who has got it right and the DOJ who consistently pushes misguided non-interventionist policies. The evidence? Baker lists the Microsoft settlement, the DOJ’s decision not to challenge Whirlpool/Maytag, more lenient merger enforcement, Justice advocating that the Supreme Court adopt legal rules that favor defendants in monopoly cases, and of course, the spat over the recent Section 2 Report.

This sounds like a long list of things DOJ gotten wrong. But one should be careful in antitrust analysis not to conflate activity level with quality of enforcement in terms of consume welfare or some other quality metric. Let’s look at the evidence a bit more carefully with an eye toward distinguishing between claims that the DOJ is a less “active” agency from claims that they less vigorously pursue consumer interests.

  • The Whirlpool/Maytag merger. Baker claims DOJ should have challenged and the failure to do so harms consumers. This claim seems directly relevant to the claim that DOJ’s approach to antitrust has harmed consumers, though it is disputed (see, e.g., here and here).
  • The Microsoft settlement. The claim is that is that the settlement was weaker than necessary to solve the competitive problem. I’m not sure if there is any evidence that the consent decree helped consumers or if the alternative offered at the district court level (splitting the company) would have done any better. Reasonable minds can differ about the strength of the Microsoft settlement, and for that matter, whether liability was appropriate. I don’t give the settlement much weight in terms of whether DOJ policies have harmed consumers.
  • More lenient merger policy. There may be arguments that commentators do not like some decisions not to enforce here and there (see Whirlpool above). But this is true of all agencies in all administrations. I’m quite sure Baker and others could find mergers during the Clinton administration that he didn’t think should be challenged, but were. But anecdotal evidence about specific mergers aside, I’m not sure there is much in the way of compelling evidence that an the “marginal” merger is anticompetitive such that we can make statements about systematic underdeterrence in merger policy.
  • I’ve covered the Section 2 Report scuffle elsewhere. Needless to say, Baker and I see the Report a bit differently and I take quite the opposite view of the Report.  I think the Report espouses generally sensible antitrust policy on monopolization.  I have some areas of disagreement, but it is generally sensitive to what I perceive to be the weight and balance of economic theory and evidence.  I believe the FTC Statement by the three Commissioners belies a desire to move antitrust policy to its pre-economic era.
  • Lastly, the amicus briefs in Supreme Court cases.  This puzzles me as evidence in favor of a lax DOJ that favors monopolist interests over consumers.  Which of the Supreme Court cases does Baker think the DOJ got wrong on behalf of consumers?  Leegin?  Weyerhaeuser?  Twombly?  The assumption that favoring the defendant’s position is anti-consumer defies much of modern economic learning so I presume that Baker means that the DOJ actually had some of these positions wrong.  But the Supreme Court agreed with all of them and by a good margin (except for Leegin, though most economists thought the per se rule was inappropriate for min RPM).  So, I’m left curious as to what Baker had in mind here.

In any event, read Baker’s article.  While I disagree on the characterization of the DOJ as “deregulatory radicals” and on the description of the quality of evidence supporting that description, it is a thought provoking and important column.

In Antitrust & Competition, Economic Theory, Federal Trade Commission, Justice Department
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