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FTC Section 5 Statement: Less Guidance Than Meets the Eye

Steven J Cernak —  18 November 2022

[This post is a contribution to Truth on the Market‘s continuing digital symposium “FTC Rulemaking on Unfair Methods of Competition.” You can find other posts at the symposium page here. Truth on the Market also invites academics, practitioners, and other antitrust/regulation commentators to send us 1,500-4,000 word responses for potential inclusion in the symposium.]

On Nov. 10, the Federal Trade Commission (FTC) issued a new statement explaining how it will exercise its standalone FTC Act Section 5 authority. Despite the length of the statement and the accompanying commentaries from most of the commissioners, there is less guidance than one might expect from so many words. One thing is clear, however: Expect more antitrust enforcement from the FTC in ways we have not seen in years, if ever.

The FTC enforces the antitrust laws through Section 5’s prohibition of unfair methods of competition (UMC). Courts and commentators alike have long agreed that Section 5’s prohibition covers everything covered by the other antitrust laws, such as the Sherman and Clayton Act, plus something more.

How far that extra standalone authority extends has been a point of contention for decades. In the early 1980s, several appellate courts admonished the FTC for an expansive interpretation of that authority, leaving parties uncertain of which actions would be challenged. Or, as the 2nd U.S. Circuit Court of Appeals put it: “the Commission owes a duty to define the conditions under which conduct … would be unfair so that businesses will have an inkling as to what they can lawfully do rather than be left in a state of complete unpredictability.”

In recent decades, the FTC has interpreted its authority much more narrowly. In 2015, a bipartisan collection of commissioners approved a short statement saying that the FTC would interpret its standalone authority consistently with the consumer welfare standard of the other antitrust laws and use the well-known rule of reason to judge any actions. Last year, the Democratic majority of commissioners voted to rescind that 2015 statement. Last week’s statement is the replacement.

Antitrust Fun, Little Guidance

The 16 pages of guidance and the accompanying commentary from three commissioners—two Democrats in support, one Republican in opposition—can be a fun read for antitrust geeks. There is plenty of well-written antitrust history. I learned something. Also, there are arguments about old FTC and appellate court cases that I had not read in 30 years.

But that history lesson did not give as much guidance about future enforcement as it should have. Most of the seven pages the guidance spends on its historical review is dedicated to showing that the FTC’s standalone authority extends beyond the Sherman and Clayton Acts. But that contention is in little dispute.

The more helpful historical question for parties today is how this Commission plans to respond to appellate court cases such as Boise Cascade, OAG, and the above-cited Ethyl that criticized the old Commission for, to paraphrase the statement, insufficient facts of unfairness, oppressiveness, or negative effects on the market. Chair Lina Khan’s commentary does mention the “trifecta” of cases, describing them as cases where courts found that the Commission “had not met its factual or evidentiary burden.” What would have been more helpful is some “inkling” of what kinds of facts this Commission will rely on to avoid the same types of “stinging” losses suffered by those earlier Commissions. Instead, we get multiple references to the Commission as a body of experts with the unstated assumption that, in the future, at least three commissioners will offer enough facts of some kind to convince any appellate court.

After the history section, the statement offers plenty of words on what the FTC majority think will be a standalone violation. All of those words add up, however, to much less guidance than the very brief 2015 statement. That prior statement said that the FTC would use its Section 5 standalone authority to pursue a single goal—consumer welfare—and would use a well-known analytical method to pursue it: the rule of reason. While even that statement left some ambiguity for businesses, and freedom for the Commission, at least it pursued only one goal with an analysis used in decades worth of antitrust cases.

The new statement does not list one goal but instead several, namely that it will challenge conduct that is “coercive, exploitative, collusive, abusive, deceptive, predatory, or involve[s] the use of economic power of a similar nature … that negatively affect[s] competitive conditions [and thereby negatively affects] consumers, workers, or other market participants.”

But mathematically, you cannot maximize more than one variable. Nowhere in this statement is there any attempt to explain the analytical method to be used to balance pursuit of these different goals. What if a challenged action helps workers but harms consumers? What if an action helps workers at some competitors but not others? What if an action helps all competitors but harms workers at some of them? Merely combining all those goals into a single term, “competitive conditions,” does not provide any guidance as to how the FTC will balance all these named (and any unnamed) elements of “competitive conditions.” Again, there is an unstated assumption that three commissioners will expertly balance those competing goals.

Incomplete Lessons from the Past

The new statement does try to provide some guidance at the end of the document when it points to past cases that, perhaps, will be the types of cases that the Commission will now bring under Section 5. One such large category is actions that do not meet the standards for antitrust illegality now but, somehow, violate the “spirit of the antitrust laws.” The statement lists several examples.

To take one, what if a tying case does not meet the standards embodied in Jefferson Parish and its progeny? How will the Commission determine what the statement calls “de facto tying”? Which one or more of the elements expounded in Jefferson Parish will be eased? How? Will the same action by the same parties be subject to different substantive standards if a private plaintiff—or the U.S. Justice Department—is the plaintiff? If so, then parties wanting to avoid any antitrust challenge will need to default to the law of tying laid down by the then-current FTC, not by dozens of court cases over decades. And how will the FTC determine what violates the “spirit” of its own particular law of tying? Again, the unstated assumption is that the decisions of three expert commissioners will set the new law, at least until three new expert commissioners gain control.

Conclusion

To be (slightly) fairer to the new statement, it does confirm what has seemed obvious since the Biden administration started staffing the FTC: this Commission will more aggressively pursue antitrust challenges and will use any tool, including Section 5 standalone authority, to do it. Also, while the statement injects uncertainty into the thinking of businesses, which likely will lead to fewer and less-aggressive business actions, that result would be seen as a feature, not a bug, by the statement’s authors.

Finally, the statement does correctly point out that Section 5 was written at a time when Congress might have thought that the decisions of three expert commissioners would lead to “better” results for the economy, however defined, than decisions of dozens of juries and judges in dozens of cases. That Progressive Era confidence in the decisions of a few government-employed experts has not always worked out for the best, as some would claim from study of the Whiz Kids (Robert McNamara, not Robin Roberts) or recent pandemic policy.

Like it or not, the statement is another step toward a government of men (and women), not laws, and an economy dictated by a handful of experts in Washington, not millions of consumers across the country. Expect aggressive antitrust enforcement from the FTC in ways that many businesses and antitrust practitioners have only read about — about that, the new statement’s guidance is clear.

In Antitrust & Competition, Federal Trade Commission, FTC UMC Rulemaking, Section 5, Symposia, Truth on the Market , , , , ,
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FTC Rulemaking Under UMC Could Mean Return of the National Nanny

Steven J Cernak —  5 May 2022

[The 12th entry in our FTC UMC Rulemaking symposium is from guest contributor Steven J. Cernak, a partner in the antitrust and competition practice of BonaLaw in Detroit, Michigan. You can find other posts at the symposium page here. Truth on the Market also invites academics, practitioners, and other antitrust/regulation commentators to send us 1,500-4,000 word responses for potential inclusion in the symposium.]

The Federal Trade Commission (FTC) has been in the antitrust-enforcement business for more than 100 years. Its new leadership is considering some of the biggest changes ever in its enforcement methods. Instead of a detailed analysis of each case on its own merits, some FTC leaders now want its unelected bureaucrats to write competition rules for the entire economy under its power to stop unfair methods of competition. Such a move would be bad for competition and the economy—and for the FTC itself.

The FTC enforces the antitrust laws through its statutory authority to police unfair methods of competition (UMC). Like all antitrust challengers, the FTC now must conduct a detailed analysis of the specific actions of particular competitors. Whether the FTC decides to challenge actions initially in its own administrative courts or in federal courts, eventually it must convince independent judges that the challenged conduct really does harm competition. When finalized, those decisions set precedent. Future parties can argue their particular details are different or otherwise require a different outcome. As a result, the antitrust laws slowly evolve in ways understandable to all.

Some members of FTC’s new leadership have argued that the agency should skip the hard work of individual cases and instead issue blanket rules to cover competitive situations across the economy. Since taking over in the new administration, they have taken steps that seem to make it easier for the FTC to issue such broad competition rules. Doing so would be a mistake for several reasons.

First, it is far from clear that Congress gave the FTC the authority to issue such rules. Also, any such grant of quasi-legislative power to this independent agency might be unconstitutional. The FTC already gets to play prosecutor and judge in many cases. Becoming a legislature might be going too far. Other commentators, both in this symposium and elsewhere, have detailed those arguments. But however those arguments shake out, the FTC will need to take the time and resources to fight off the inevitable challenges.

But even if it can, the FTC should not. The case-by-case approach allows for detailed analysis, making it more likely to be correct. If there are any mistakes, they only affect those parties.

If it turns to competition rulemaking, how will the FTC gain the knowledge and develop the wisdom to develop rules that apply across large swaths of the economy for an unlimited time? Will it apply the same rules to companies with 8% and 80% market share? And to companies making software or automobiles or flying passengers across the country? And will it apply those rules today and next year, no matter the innovations that occur in between? The hubris to think that some all-knowing Washington wizards can get all that right, all the time, is staggering.

Yes, there are some general antitrust rules, like price-fixing agreements being illegal because they harm consumers. But those rules were developed by many lawyers, economists, judges, and witnesses through decades of case-by-case analyses and, even today, parties can argue to a court that they don’t apply to their particular facts. A one-size-fits-all rule won’t have even that flexibility.

For example, what if the FTC develops a rule based on, say, an investigation of toilet-bowl manufacturers that all price-fixing, even if the fixed price is reasonable, is automatically illegal. How would such a rigid rule handle, say, a joint license with a single price issued by competing music composers? Or could a single rule that anticipates the very different facts of Trenton Potteriesand Broadcast Musicbe written in a way that is both short enough to be understood but broad enough to anticipate all potential future facts? Perhaps the rule inspired by Trenton Potteries could be adjusted when the Broadcast Music facts become known. But then, that is just back to the detailed, case-by-case, analysis that we have now, except with the FTC rule-makers changing the rules rather than an independent judge.

Any new FTC rules could conflict with the court opinions generated by antitrust cases brought by the U.S. Justice Department’s (DOJ) Antitrust Division, state attorneys general, or private parties. For instance, the FTC and the Division generally divide up the industries that make up the economy based on expertise and experience. Should the competitive rules differ by enforcer? By industry?

As an example, consider, say, a hypothetical automatic-transmission company whose smallest products can be used in light-duty pickup trucks while the bulk of its product line is used in the largest heavy-duty trucks and equipment. Traditionally, the FTC has reviewed antitrust issues in the light-duty industry while the Division has taken heavy-duty. Should the antitrust rules affecting this hypothetical company’s light-duty sales be different than those affecting the heavy-duty sales based solely on the enforcer and not the applicable competitive facts?

Antitrust is a law-enforcement regime with rules that have changed slowly over decades through individual cases, as economic understandings have evolved. It could have been a regulatory regime, but elected officials did not make that choice. Antitrust could be changed now to a regulatory regime. Individual rules could be changed. Such monumental changes, however, should only be made by Congress, as is being debated now, not by three unelected FTC officials.

In the 1970s, the FTC overreached on rules about deceptive marketing and was slapped down by Congress, the courts, and the public. The Washington Post criticized it as “the national nanny.” Its reputation and authority suffered. We did not need a national nanny then. We don’t need one today, hectoring us to follow overbroad, ill-fitting rules designed by insulated “experts” and not subject to review.

The FTC has very important roles to play regarding understanding and protecting competition in the U.S. economy (before even getting to its crucial consumer-protection mission.) Even with potential increases in its budget, the FTC, like all of us, will have limited resources, time, expertise, and reputation. It should not squander any of that on an ill-fated, quixotic, and hubristic effort to tell everyone how to compete. Instead, the FTC should focus on what it does best: challenging the bad actions of bad actors and convincing a court that it got it right. That is how the FTC can best protect America’s consumers, as its (nicely redesigned) website proclaims.

In Administrative Law, Antitrust & Competition, Federal Trade Commission, FTC UMC Rulemaking, Regulation, Section 5, Symposia, Truth on the Market , , ,
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How Will the Application of Antitrust Law Change During the Coronavirus Crisis?

Steven J Cernak —  20 March 2020

[TOTM: The following is part of a blog series by TOTM guests and authors on the law, economics, and policy of the ongoing COVID-19 pandemic. The entire series of posts is available here.

This post is authored by Steve Cernak, (Partner, Bona Law).]

The antitrust laws have not been suspended during the current COVID-19 crisis. But based on questions received from clients plus others discussed with other practitioners, the changed economic conditions have raised some new questions and put a new slant on some old ones. 

Under antitrust law’s flexible rule of reason standard, courts and enforcers consider the competitive effect of most actions under current and expected economic conditions. Because those conditions have changed drastically, at least temporarily, perhaps the antitrust assessments of certain actions will be different. Also, in a crisis, good businesses consider new options and reconsider others that had been rejected under the old conditions. So antitrust practitioners and enforcers need to be prepared for new questions and reconsiderations of others under new facts. Here are some that might cross their desks.

Benchmarking

Benchmarking had its antitrust moment a few years ago as practitioners discovered and began to worry about this form of communication with competitors. Both before and since then, the comparison of processes and metrics to industry bests to determine where improvement efforts should be concentrated has not raised serious antitrust issues – if done properly. Appropriate topic choice and implementation, often involving counsel review and third-party collection, should stay the same during this crisis. Companies implementing new processes might be tempted to reach out to competitors to learn best practices. Any of those companies unfamiliar with the right way to benchmark should get up to speed. Counsel must be prepared to help clients quickly, but properly, benchmark some suddenly important activities, like methods for deep-cleaning workplaces.

Joint ventures

Joint ventures where competitors work together to accomplish a task that neither could alone, or accomplish it more efficiently, have always received a receptive antitrust review. Often, those joint efforts have been temporary. Properly structured ones have always required the companies to remain competitors outside the joint venture. Joint efforts among competitors that did not make sense before the crisis might make perfect sense during it. For instance, a company whose distribution warehouse has been shut down by a shelter in place order might be able to use a competitor’s distribution assets to continue to get goods to the market. 

Some joint ventures of competitors have received special antitrust assurances for decades. The National Cooperative Research and Production Act of 1993 was originally passed in 1984 to protect research joint ventures of competitors. It was later extended to certain joint production efforts and standard development organizations. The law confirms that certain joint ventures of competitors will be judged under the rule of reason. If the parties file a very short notice with the DOJ Antitrust Division and FTC, they also will receive favorable treatment regarding damages and attorney’s fees in any antitrust lawsuit. For example, competitors cooperating on the development of new virus treatments might be able to use NCRPA to protect joint research and even production of the cure. 

Mergers

Horizontal mergers that permanently combine the assets of two competitors are unlikely to be justified under the antitrust laws by small transitory blips in the economic landscape. A huge crisis, however, might be so large and create such long-lasting effects that certain mergers suddenly might make sense, both on business and antitrust grounds. That rationale was used during the most recent economic crisis to justify several large mergers of banks although other large industrial mergers considered at the same time were abandoned for various reasons. It is not yet clear if that reasoning is present in any industry now. 

Remote communication among competitors

On a much smaller but more immediate scale, the new forms of communication being used while so many of us are physically separated have raised questions about the usual antitrust advice regarding communication with competitors. Antitrust practitioners have long advised clients about how to prepare and conduct an in-person meeting of competitors, say at a trade association convention. That same advice would seem to apply if, with the in-person convention cancelled, the meeting will be held via Teams or Zoom. And don’t forget: The reminders that the same rules apply to the cocktail party at the bar after the meeting should also be given for the virtual version conducted via Remo.co. 

Pricing and brand Management

Since at least the time when the Dr. Miles Medical Co. was selling its “restorative nervine,” manufacturers have been concerned about how their products were resold by retailers. Antitrust law has provided manufacturers considerable freedom for some time to impose non-price restraints on retailers to protect brand reputations; however, manufacturers must consider and impose those restraints before a crisis hits. For instance, a “no sale for resale” provision in place before the crisis would give a manufacturer of hand sanitizer another tool to use now to try to prevent bulk sales of the product that will be immediately resold on the street. 

Federal antitrust law has provided manufacturers considerable freedom to impose maximum price restraints. Even the states whose laws prevent minimum price restraints do not seem as concerned about maximum ones. But again, if a manufacturer is concerned that some consumer will blame it, not just the retailer, for a sudden skyrocketing price for a product in short supply, some sort of restraints must be in place before the crisis. Certain platforms are invoking their standard policies to prevent such actions by resellers on their platforms. 

Regulatory hurdles

While antitrust law is focused on actions by private parties that might prevent markets from properly working to serve consumers, the same rationales apply to unnecessary government interference in the market. The current health crisis has turned the spotlight back on certificate of need laws, a form of “brother may I?” government regulation that can allow current competitors to stifle entry by new competitors. Similarly, regulations that have slowed the use of telemedicine have been at least temporarily waived. 

Conclusion

Solving the current health crisis and rebuilding the economy will take the best efforts of both our public institutions and private companies. Antitrust law as currently written and enforced can and should continue to play a role in aligning incentives so we need not rely on “the benevolence of the butcher” for our dinner and other necessities. Instead, proper application of antitrust law can allow companies to do their part to (reviving a slogan helpful in a prior national crisis) keep America rolling.

In Amazon, Antitrust & Competition, Antitrust Division, COVID-19, Federal Trade Commission, Justice Department, Platforms, The Law, Economics, and Policy of the COVID-19 Pandemic, Truth on the Market , , , , ,
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Cernak: Who Bears the Burden on Elimination of Double Marginalization in the Draft Vertical Merger Guidelines?

Steven J Cernak —  7 February 2020

[TOTM: The following is part of a symposium by TOTM guests and authors on the 2020 Vertical Merger Guidelines. The entire series of posts is available here.

This post is authored by Steven J. Cernak (Partner, Bona Law; Adjunct Professor, University of Michigan Law School and Western Michigan University Thomas M. Cooley Law School; former antitrust counsel, GM).] 

[Cernak: This paper represents the current views of the author alone and not necessarily the views of any past, present, or future employer or client.]

What should we make of Cmr. Chopra’s and Cmr. Slaughter’s dissents?

When I first heard that the FTC and DOJ Antitrust Division issued the draft Vertical Merger Guidelines late on Friday January 10, I did not rush out and review them to form an opinion, antitrust geek though I am. The issuance was not a surprise, given that the 1984 Guidelines were more than 35 years old and described as outdated by all observers, including those at an FTC hearing more than a year earlier. So I was surprised when I saw some pundits, especially on Twitter, immediately found the new draft controversial and I learned that two of the FTC Commissioners had not supported the release. Surely nobody was a big 1984 supporter other than fans of Orwell, Bowie, and Morris, right? 

Some of my confusion dissipated as I had a chance to read and analyze the draft guidelines and the accompanying statements of Commissioners Wilson, Slaughter, and Chopra. First, Commissioners Slaughter and Chopra only abstained from the decision to release the draft for public comment. In their statements, they explained their actions as necessary to register their disagreement with the terms of this particular draft but that they too joined the chorus calling for repudiation of the 1984 Guidelines. 

But some of my confusion remained as I went over Commissioner Chopra’s statement again. Instead of objections to particular provisions of the draft guidelines, the statement is more of a litany of complaints on all that is wrong with today’s economy and antitrust policy’s role in it. Those complaints are ones we have heard from Commissioner Chopra before. They certainly should be part of the general policy debate; however, they seem to go well beyond competitive issues that might be raised by vertical mergers and that should be part of a set of guidelines. 

As the first sentence and footnote of the draft guidelines make clear, the draft guidelines are meant to “outline the principal analytical techniques, practices and enforcement policy of … the Agencies” and “reflect the ongoing accumulation of experience at the Agencies.” They are written to provide some guidance to potential merging parties and their advisers as to how the Agencies are likely to analyze a merger and, so, provide some greater level of certainty. That does not mean that the guidelines are meant to capture the techniques of the Agencies in amber forever – or even 35 years. As that same first footnote makes clear, the guidelines may be revised to “reflect significant changes in enforcement policy…or to reflect new learning.” But guidelines designed to provide some clarity on how vertical mergers have been and will be reviewed are not the forum for a broad exchange of views on antitrust policy. Those comments are more helpful in FTC hearings, speeches, or enforcement actions that the Commissioners might participate in, not guidelines for practitioners. 

Commissioner Slaughter’s statement, on the other hand, stays focused on vertical mergers and the issues that she has with these draft guidelines. She and other early commentators raise at least some questions about the current draft that I hope will be addressed in the final version. For instance, the 1984 version of the guidelines included as potential anticompetitive effects from vertical mergers 1) regulatory evasion and 2) the creation of the need for potential entrants to enter at multiple stages of the market. As Commissioner Slaughter points out, the current draft guidelines drop those two and instead focus on 1) foreclosure; 2) raising rivals’ costs; and 3) the exchange of competitively sensitive information. 

Should we take the absence of the two 1984 harms as an indication that those types of harms are no longer important to the Agencies? Or that they have not been important in recent Agency action, and so did not make this draft, but would still be considered if the correct facts were found? Some other option? While the new guidelines would become too long and unwieldy if they recited and rejected all potential theories of harm, I join Commissioner Slaughter in thinking it would be helpful to include an explanation regarding these particular changes from the prior guidance. 

Who bears the burden on elimination of double marginalization?

Finally, both Commissioner Wilson’s and Commissioner Slaughter’s statements specifically request public comments regarding certain features of the draft guidelines’ handling of the elimination of double marginalization (“EDM”). While they raise good questions, I want to focus on a more fundamental question raised by the draft guidelines and a recent speech by Assistant Attorney General Makan Delrahim. 

The draft guidelines provide a concise, cogent description of EDM, the usual analysis of it during vertical mergers, and some special factors that might make it less likely to occur. Some commentators have pointed out that EDM gets its own section of the draft guidelines, signaling its importance. I think it even more significant, perhaps, that that separate section is placed in between the sections on unilateral and coordinated competitive effects. Does that placement signal that the analysis of EDM is part of the Agencies’ analysis of the overall predicted competitive effects of the merger? That hypothesis also is supported by this statement at the end of the EDM section: “The Agencies will not challenge a merger if the net effect of elimination of double marginalization means that the merger is unlikely to be anticompetitive in any relevant market.” 

Because the Agencies would have the ultimate burden of showing in court that the effect of the proposed merger “may be substantially to lessen competition, or tend to create a monopoly,” it seems to follow that the Agencies would have the burden to factor EDM into the rest of their competitive analysis to show what the potential overall net effect of the merger would be. 

Unfortunately, earlier in the EDM section of the draft guidelines, the Agencies state that they “generally rely on the parties to identify and demonstrate whether and how the merger eliminates double marginalization.” (emphasis added) Does that statement merely mean that the parties must cooperate with the Agencies and provide relevant information, as required on all points under Hart-Scott-Rodino? Or is it an attempt to shift to the parties the ultimate burden of proving this part of the competitive analysis? That is, is it a signal that, despite the separate section placed in the middle of the discussion of competitive effects analysis, the Agencies are skeptical of EDM and plan to treat it more like a defense as they treat certain cognizable efficiencies? 

That latter position is supported by comments by AAG Delrahim in a recent speech: “as the law requires for the advancement of any affirmative defense, the burden is on the parties in a vertical merger to put forward evidence to support and quantify EDM as a defense.” So is EDM a defense to an otherwise anticompetitive vertical merger or just part of the overall analysis of competitive effects? Before getting to the pertinent but more detailed questions posed by Commissioners Wilson and Slaughter, these draft guidelines would further their goal of providing clarity by answering that more basic EDM question. 

Despite those concerns, the draft guidelines seem consistent with the antitrust community’s consensus today on the proper analysis of vertical mergers. As such, they would seem to be consistent with how the Agencies evaluate such mergers today and so provide helpful guidance to parties considering such a merger. I hope the final version considers all the comments and remains helpful – and is released on a Monday so we can all more easily and intelligently start commenting. 

In Antitrust & Competition, Antitrust Division, Draft Joint Vertical Merger Guidelines: What’s in, what’s out — and do we need them anyway?, Exemptions, Federal Trade Commission, Justice Department, Market Definition, Merger Guidelines, Platforms, Truth on the Market, Twitter, Tying , , , , , , , , , ,
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“Politicization of Antitrust:” An Opportunity

Steven J Cernak —  30 December 2019

[TOTM: The following is the first in a series of posts by TOTM guests and authors on the politicization of antitrust. The entire series of posts is available here.]

This post is authored by Steven J. Cernak, Partner at Bona Law and Adjunct Professor, University of Michigan Law School and Western Michigan University Thomas M. Cooley Law School. This paper represents the current views of the author alone and not necessarily the views of any past, present or future employer or client.

When some antitrust practitioners hear “the politicization of antitrust,” they cringe while imagining, say, merger approval hanging on the size of the bribe or closeness of the connection with the right politician.  Even a more benign interpretation of the phrase “politicization of antitrust” might drive some antitrust technocrats up the wall:  “Why must the mainstream media and, heaven forbid, politicians start weighing in on what antitrust interpretations, policy and law should be?  Don’t they know that we have it all figured out and, if we decide it needs any tweaks, we’ll make those over drinks at the ABA Antitrust Section Spring Meeting?”

While I agree with the reaction to the cringe-worthy interpretation of “politicization,” I think members of the antitrust community should not be surprised or hostile to the second interpretation, that is, all the new attention from new people.  Such attention is not unusual historically; more importantly, it provides an opportunity to explain the benefits and limits of antitrust enforcement and the competitive process it is meant to protect. 

The Sherman Act itself, along with its state-level predecessors, was the product of a political reaction to perceived problems of the late 19th Century – hence all of today’s references to a “new gilded age” as echoes of the political arguments of 1890.  Since then, the Sherman Act has not been immutable.  The U.S. antitrust laws have changed – and new antitrust enforcers have even been added – when the political debates convinced enough that change was necessary.  Today’s political discussion could be surprising to so many members of the antitrust community because they were not even alive when the last major change was debated and passed. 

More generally, the U.S. political position on other government regulation of – or intervention or participation in – free markets has varied considerably over the years.  While controversial when they were passed, we now take Medicare and Medicaid for granted and debate “Medicare for all” – why shouldn’t an overhaul of the Sherman Act also be a legitimate political discussion?  The Interstate Commerce Commission might be gone and forgotten but at one time it garnered political support to regulate the most powerful industries of the late 19th and early 20th Century – why should a debate on new ways to regulate today’s powerful industries be out of the question? 

So today’s antitrust practitioners should avoid the temptation to proclaim an “end of history” and that all antitrust policy questions have been asked and answered and instead, as some of us have been suggesting since at least the last election cycle, join the political debate.  But now, for those of us who are generally supportive of the U.S. antitrust status quo, the question is how? 

Some have been pushing back on the supposed evidence that a change in antitrust or other governmental policies is necessary.  For instance, in late 2015 the White House Council of Economic Advisers published a paper on increased concentration in many industries which others have used as evidence of a failure of antitrust law to protect competition.  Josh Wright has used several platforms to point out that the industry measurement was too broad and the concentration level too low to be useful in these discussions.  Also, he reminded readers that concentration and levels of competition are different concepts that are not necessarily linked.  On questions surrounding inequality and stagnation of standards of living, Russ Roberts has produced a series of videos that try to explain why any such questions are difficult to answer with the easy numbers available and why, perhaps, it is not correct that “the rich got all the gains.” 

Others, like Dan Crane for instance, have advanced the debate by trying to get those commentators who are unhappy with the status quo to explain what they see as the problems and the proposed fixes.  While it might be too much to ask for unanimity among a diverse group of commentators, the debate might be more productive now that some more specific complaints and solutions have begun to emerge. 

Even if the problems are properly identified, we should not allow anyone to blithely assume that any – or any particular – increase in government oversight will solve it without creating different issues.  The Federal Trade Commission tackled this issue in its final hearing on Competition and Consumer Protection in the 21st Century with a panel on Frank Easterbrook’s seminal “Limits of Antitrust” paper.  I was fortunate enough to be on that panel and tried to summarize the ongoing importance of “Limits,” and advance the broader debate, by encouraging those who would change antitrust policy and increase supervision of the market to have appropriate “regulatory humility” (a term borrowed from former FTC Chairman Maureen Ohlhausen) about what can be accomplished.

I identified three varieties of humility present in “Limits” and pertinent here.  First, there is the humility to recognize that mastering anything as complex as an economy or any significant industry will require knowledge of innumerable items, some unseen or poorly understood, and so could be impossible.  Here, Easterbrook echoes Friedrich Hayek’s “Pretense of Knowledge” Nobel acceptance speech. 

Second, there is the humility to recognize that any judge or enforcer, like any other human being, is subject to her own biases and predilections, whether based on experience or the institutional framework within which she works.  While market participants might not be perfect, great thinkers from Madison to Kovacic have recognized that “men (or any agency leaders) are not angels” either.  As Thibault Schrepel has explained, it would be “romantic” to assume that any newly-empowered government enforcer will always act in the best interest of her constituents. 

Finally, there is the humility to recognize that humanity has been around a long time and faced a number of issues and that we might learn something from how our predecessors reacted to what appear to be similar issues in history.  Given my personal history and current interests, I have focused on events from the automotive industry; however, the story of the unassailable power (until it wasn’t) of A&P and how it spawned the Robinson-Patman Act, ably told by Tim Muris and Jonathan Neuchterlein, might be more pertinent here.  So challenging those advocating for big changes to explain why they are so confident this time around can be useful. 

But while all those avenues of argument can be effective in explaining why greater government intervention in the form of new antitrust policies might be worse than the status quo, we also must do a better job at explaining why antitrust and the market forces it protects are actually good for society.  If democratic capitalism really has “lengthened the life span, made the elimination of poverty and famine thinkable, enlarged the range of human choice” as claimed by Michael Novak in The Spirit of Democratic Capitalism, we should do more to spread that good news. 

Maybe we need to spend more time telling and retelling the “I, Pencil” or “It’s a Wonderful Loaf” stories about how well markets can and do work at coordinating the self-interested behavior of many to the benefit of even more.  Then we can illustrate the limited role of antitrust in that complex effort – say, punishing any collusion among the mills or bakers in those two stories to ensure the process works as beautifully and simply displayed.  For the first time in decades, politicians and real people, like the consumers whose welfare we are supposed to be protecting, are paying attention to our wonderful world of antitrust.  We should seize the opportunity to explain what we do and why it matters and discuss if any improvements can be made.

In Antitrust & Competition, Federal Trade Commission, Platforms, The Politicization of Antitrust, Truth on the Market , , , ,
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