Archives For vertical restraints

[This post adapts elements of “Should ASEAN Antitrust Laws Emulate European Competition Policy?”, published in the Singapore Economic Review (2021). Open access working paper here.]

U.S. and European competition laws diverge in numerous ways that have important real-world effects. Understanding these differences is vital, particularly as lawmakers in the United States, and the rest of the world, consider adopting a more “European” approach to competition.

In broad terms, the European approach is more centralized and political. The European Commission’s Directorate General for Competition (DG Comp) has significant de facto discretion over how the law is enforced. This contrasts with the common law approach of the United States, in which courts elaborate upon open-ended statutes through an iterative process of case law. In other words, the European system was built from the top down, while U.S. antitrust relies on a bottom-up approach, derived from arguments made by litigants (including the government antitrust agencies) and defendants (usually businesses).

This procedural divergence has significant ramifications for substantive law. European competition law includes more provisions akin to de facto regulation. This is notably the case for the “abuse of dominance” standard, in which a “dominant” business can be prosecuted for “abusing” its position by charging high prices or refusing to deal with competitors. By contrast, the U.S. system places more emphasis on actual consumer outcomes, rather than the nature or “fairness” of an underlying practice.

The American system thus affords firms more leeway to exclude their rivals, so long as this entails superior benefits for consumers. This may make the U.S. system more hospitable to innovation, since there is no built-in regulation of conduct for innovators who acquire a successful market position fairly and through normal competition.

In this post, we discuss some key differences between the two systems—including in areas like predatory pricing and refusals to deal—as well as the discretionary power the European Commission enjoys under the European model.

Exploitative Abuses

U.S. antitrust is, by and large, unconcerned with companies charging what some might consider “excessive” prices. The late Associate Justice Antonin Scalia, writing for the Supreme Court majority in the 2003 case Verizon v. Trinko, observed that:

The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system. The opportunity to charge monopoly prices—at least for a short period—is what attracts “business acumen” in the first place; it induces risk taking that produces innovation and economic growth.

This contrasts with European competition-law cases, where firms may be found to have infringed competition law because they charged excessive prices. As the European Court of Justice (ECJ) held in 1978’s United Brands case: “In this case charging a price which is excessive because it has no reasonable relation to the economic value of the product supplied would be such an abuse.”

While United Brands was the EU’s foundational case for excessive pricing, and the European Commission reiterated that these allegedly exploitative abuses were possible when it published its guidance paper on abuse of dominance cases in 2009, the commission had for some time demonstrated apparent disinterest in bringing such cases. In recent years, however, both the European Commission and some national authorities have shown renewed interest in excessive-pricing cases, most notably in the pharmaceutical sector.

European competition law also penalizes so-called “margin squeeze” abuses, in which a dominant upstream supplier charges a price to distributors that is too high for them to compete effectively with that same dominant firm downstream:

[I]t is for the referring court to examine, in essence, whether the pricing practice introduced by TeliaSonera is unfair in so far as it squeezes the margins of its competitors on the retail market for broadband connection services to end users. (Konkurrensverket v TeliaSonera Sverige, 2011)

As Scalia observed in Trinko, forcing firms to charge prices that are below a market’s natural equilibrium affects firms’ incentives to enter markets, notably with innovative products and more efficient means of production. But the problem is not just one of market entry and innovation.  Also relevant is the degree to which competition authorities are competent to determine the “right” prices or margins.

As Friedrich Hayek demonstrated in his influential 1945 essay The Use of Knowledge in Society, economic agents use information gleaned from prices to guide their business decisions. It is this distributed activity of thousands or millions of economic actors that enables markets to put resources to their most valuable uses, thereby leading to more efficient societies. By comparison, the efforts of central regulators to set prices and margins is necessarily inferior; there is simply no reasonable way for competition regulators to make such judgments in a consistent and reliable manner.

Given the substantial risk that investigations into purportedly excessive prices will deter market entry, such investigations should be circumscribed. But the court’s precedents, with their myopic focus on ex post prices, do not impose such constraints on the commission. The temptation to “correct” high prices—especially in the politically contentious pharmaceutical industry—may thus induce economically unjustified and ultimately deleterious intervention.

Predatory Pricing

A second important area of divergence concerns predatory-pricing cases. U.S. antitrust law subjects allegations of predatory pricing to two strict conditions:

  1. Monopolists must charge prices that are below some measure of their incremental costs; and
  2. There must be a realistic prospect that they will able to recoup these initial losses.

In laying out its approach to predatory pricing, the U.S. Supreme Court has identified the risk of false positives and the clear cost of such errors to consumers. It thus has particularly stressed the importance of the recoupment requirement. As the court found in 1993’s Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., without recoupment, “predatory pricing produces lower aggregate prices in the market, and consumer welfare is enhanced.”

Accordingly, U.S. authorities must prove that there are constraints that prevent rival firms from entering the market after the predation scheme, or that the scheme itself would effectively foreclose rivals from entering the market in the first place. Otherwise, the predator would be undercut by competitors as soon as it attempts to recoup its losses by charging supra-competitive prices.

Without the strong likelihood that a monopolist will be able to recoup lost revenue from underpricing, the overwhelming weight of economic evidence (to say nothing of simple logic) is that predatory pricing is not a rational business strategy. Thus, apparent cases of predatory pricing are most likely not, in fact, predatory; deterring or punishing them would actually harm consumers.

By contrast, the EU employs a more expansive legal standard to define predatory pricing, and almost certainly risks injuring consumers as a result. Authorities must prove only that a company has charged a price below its average variable cost, in which case its behavior is presumed to be predatory. Even when a firm charges prices that are between its average variable and average total cost, it can be found guilty of predatory pricing if authorities show that its behavior was part of a plan to eliminate a competitor. Most significantly, in neither case is it necessary for authorities to show that the scheme would allow the monopolist to recoup its losses.

[I]t does not follow from the case‑law of the Court that proof of the possibility of recoupment of losses suffered by the application, by an undertaking in a dominant position, of prices lower than a certain level of costs constitutes a necessary precondition to establishing that such a pricing policy is abusive. (France Télécom v Commission, 2009).

This aspect of the legal standard has no basis in economic theory or evidence—not even in the “strategic” economic theory that arguably challenges the dominant Chicago School understanding of predatory pricing. Indeed, strategic predatory pricing still requires some form of recoupment, and the refutation of any convincing business justification offered in response. For example, ​​in a 2017 piece for the Antitrust Law Journal, Steven Salop lays out the “raising rivals’ costs” analysis of predation and notes that recoupment still occurs, just at the same time as predation:

[T]he anticompetitive conditional pricing practice does not involve discrete predatory and recoupment periods, as in the case of classical predatory pricing. Instead, the recoupment occurs simultaneously with the conduct. This is because the monopolist is able to maintain its current monopoly power through the exclusionary conduct.

The case of predatory pricing illustrates a crucial distinction between European and American competition law. The recoupment requirement embodied in American antitrust law serves to differentiate aggressive pricing behavior that improves consumer welfare—because it leads to overall price decreases—from predatory pricing that reduces welfare with higher prices. It is, in other words, entirely focused on the welfare of consumers.

The European approach, by contrast, reflects structuralist considerations far removed from a concern for consumer welfare. Its underlying fear is that dominant companies could use aggressive pricing to engender more concentrated markets. It is simply presumed that these more concentrated markets are invariably detrimental to consumers. Both the Tetra Pak and France Télécom cases offer clear illustrations of the ECJ’s reasoning on this point:

[I]t would not be appropriate, in the circumstances of the present case, to require in addition proof that Tetra Pak had a realistic chance of recouping its losses. It must be possible to penalize predatory pricing whenever there is a risk that competitors will be eliminated… The aim pursued, which is to maintain undistorted competition, rules out waiting until such a strategy leads to the actual elimination of competitors. (Tetra Pak v Commission, 1996).

Similarly:

[T]he lack of any possibility of recoupment of losses is not sufficient to prevent the undertaking concerned reinforcing its dominant position, in particular, following the withdrawal from the market of one or a number of its competitors, so that the degree of competition existing on the market, already weakened precisely because of the presence of the undertaking concerned, is further reduced and customers suffer loss as a result of the limitation of the choices available to them.  (France Télécom v Commission, 2009).

In short, the European approach leaves less room to analyze the concrete effects of a given pricing scheme, leaving it more prone to false positives than the U.S. standard explicated in the Brooke Group decision. Worse still, the European approach ignores not only the benefits that consumers may derive from lower prices, but also the chilling effect that broad predatory pricing standards may exert on firms that would otherwise seek to use aggressive pricing schemes to attract consumers.

Refusals to Deal

U.S. and EU antitrust law also differ greatly when it comes to refusals to deal. While the United States has limited the ability of either enforcement authorities or rivals to bring such cases, EU competition law sets a far lower threshold for liability.

As Justice Scalia wrote in Trinko:

Aspen Skiing is at or near the outer boundary of §2 liability. The Court there found significance in the defendant’s decision to cease participation in a cooperative venture. The unilateral termination of a voluntary (and thus presumably profitable) course of dealing suggested a willingness to forsake short-term profits to achieve an anticompetitive end. (Verizon v Trinko, 2003.)

This highlights two key features of American antitrust law with regard to refusals to deal. To start, U.S. antitrust law generally does not apply the “essential facilities” doctrine. Accordingly, in the absence of exceptional facts, upstream monopolists are rarely required to supply their product to downstream rivals, even if that supply is “essential” for effective competition in the downstream market. Moreover, as Justice Scalia observed in Trinko, the Aspen Skiing case appears to concern only those limited instances where a firm’s refusal to deal stems from the termination of a preexisting and profitable business relationship.

While even this is not likely the economically appropriate limitation on liability, its impetus—ensuring that liability is found only in situations where procompetitive explanations for the challenged conduct are unlikely—is completely appropriate for a regime concerned with minimizing the cost to consumers of erroneous enforcement decisions.

As in most areas of antitrust policy, EU competition law is much more interventionist. Refusals to deal are a central theme of EU enforcement efforts, and there is a relatively low threshold for liability.

In theory, for a refusal to deal to infringe EU competition law, it must meet a set of fairly stringent conditions: the input must be indispensable, the refusal must eliminate all competition in the downstream market, and there must not be objective reasons that justify the refusal. Moreover, if the refusal to deal involves intellectual property, it must also prevent the appearance of a new good.

In practice, however, all of these conditions have been relaxed significantly by EU courts and the commission’s decisional practice. This is best evidenced by the lower court’s Microsoft ruling where, as John Vickers notes:

[T]he Court found easily in favor of the Commission on the IMS Health criteria, which it interpreted surprisingly elastically, and without relying on the special factors emphasized by the Commission. For example, to meet the “new product” condition it was unnecessary to identify a particular new product… thwarted by the refusal to supply but sufficient merely to show limitation of technical development in terms of less incentive for competitors to innovate.

EU competition law thus shows far less concern for its potential chilling effect on firms’ investments than does U.S. antitrust law.

Vertical Restraints

There are vast differences between U.S. and EU competition law relating to vertical restraints—that is, contractual restraints between firms that operate at different levels of the production process.

On the one hand, since the Supreme Court’s Leegin ruling in 2006, even price-related vertical restraints (such as resale price maintenance (RPM), under which a manufacturer can stipulate the prices at which retailers must sell its products) are assessed under the rule of reason in the United States. Some commentators have gone so far as to say that, in practice, U.S. case law on RPM almost amounts to per se legality.

Conversely, EU competition law treats RPM as severely as it treats cartels. Both RPM and cartels are considered to be restrictions of competition “by object”—the EU’s equivalent of a per se prohibition. This severe treatment also applies to non-price vertical restraints that tend to partition the European internal market.

Furthermore, in the Consten and Grundig ruling, the ECJ rejected the consequentialist, and economically grounded, principle that inter-brand competition is the appropriate framework to assess vertical restraints:

Although competition between producers is generally more noticeable than that between distributors of products of the same make, it does not thereby follow that an agreement tending to restrict the latter kind of competition should escape the prohibition of Article 85(1) merely because it might increase the former. (Consten SARL & Grundig-Verkaufs-GMBH v. Commission of the European Economic Community, 1966).

This treatment of vertical restrictions flies in the face of longstanding mainstream economic analysis of the subject. As Patrick Rey and Jean Tirole conclude:

Another major contribution of the earlier literature on vertical restraints is to have shown that per se illegality of such restraints has no economic foundations.

Unlike the EU, the U.S. Supreme Court in Leegin took account of the weight of the economic literature, and changed its approach to RPM to ensure that the law no longer simply precluded its arguable consumer benefits, writing: “Though each side of the debate can find sources to support its position, it suffices to say here that economics literature is replete with procompetitive justifications for a manufacturer’s use of resale price maintenance.” Further, the court found that the prior approach to resale price maintenance restraints “hinders competition and consumer welfare because manufacturers are forced to engage in second-best alternatives and because consumers are required to shoulder the increased expense of the inferior practices.”

The EU’s continued per se treatment of RPM, by contrast, strongly reflects its “precautionary principle” approach to antitrust. European regulators and courts readily condemn conduct that could conceivably injure consumers, even where such injury is, according to the best economic understanding, exceedingly unlikely. The U.S. approach, which rests on likelihood rather than mere possibility, is far less likely to condemn beneficial conduct erroneously.

Political Discretion in European Competition Law

EU competition law lacks a coherent analytical framework like that found in U.S. law’s reliance on the consumer welfare standard. The EU process is driven by a number of laterally equivalent—and sometimes mutually exclusive—goals, including industrial policy and the perceived need to counteract foreign state ownership and subsidies. Such a wide array of conflicting aims produces lack of clarity for firms seeking to conduct business. Moreover, the discretion that attends this fluid arrangement of goals yields an even larger problem.

The Microsoft case illustrates this problem well. In Microsoft, the commission could have chosen to base its decision on various potential objectives. It notably chose to base its findings on the fact that Microsoft’s behavior reduced “consumer choice.”

The commission, in fact, discounted arguments that economic efficiency may lead to consumer welfare gains, because it determined “consumer choice” among media players was more important:

Another argument relating to reduced transaction costs consists in saying that the economies made by a tied sale of two products saves resources otherwise spent for maintaining a separate distribution system for the second product. These economies would then be passed on to customers who could save costs related to a second purchasing act, including selection and installation of the product. Irrespective of the accuracy of the assumption that distributive efficiency gains are necessarily passed on to consumers, such savings cannot possibly outweigh the distortion of competition in this case. This is because distribution costs in software licensing are insignificant; a copy of a software programme can be duplicated and distributed at no substantial effort. In contrast, the importance of consumer choice and innovation regarding applications such as media players is high. (Commission Decision No. COMP. 37792 (Microsoft)).

It may be true that tying the products in question was unnecessary. But merely dismissing this decision because distribution costs are near-zero is hardly an analytically satisfactory response. There are many more costs involved in creating and distributing complementary software than those associated with hosting and downloading. The commission also simply asserts that consumer choice among some arbitrary number of competing products is necessarily a benefit. This, too, is not necessarily true, and the decision’s implication that any marginal increase in choice is more valuable than any gains from product design or innovation is analytically incoherent.

The Court of First Instance was only too happy to give the commission a pass in its breezy analysis; it saw no objection to these findings. With little substantive reasoning to support its findings, the court fully endorsed the commission’s assessment:

As the Commission correctly observes (see paragraph 1130 above), by such an argument Microsoft is in fact claiming that the integration of Windows Media Player in Windows and the marketing of Windows in that form alone lead to the de facto standardisation of the Windows Media Player platform, which has beneficial effects on the market. Although, generally, standardisation may effectively present certain advantages, it cannot be allowed to be imposed unilaterally by an undertaking in a dominant position by means of tying.

The Court further notes that it cannot be ruled out that third parties will not want the de facto standardisation advocated by Microsoft but will prefer it if different platforms continue to compete, on the ground that that will stimulate innovation between the various platforms. (Microsoft Corp. v Commission, 2007)

Pointing to these conflicting effects of Microsoft’s bundling decision, without weighing either, is a weak basis to uphold the commission’s decision that consumer choice outweighs the benefits of standardization. Moreover, actions undertaken by other firms to enhance consumer choice at the expense of standardization are, on these terms, potentially just as problematic. The dividing line becomes solely which theory the commission prefers to pursue.

What such a practice does is vest the commission with immense discretionary power. Any given case sets up a “heads, I win; tails, you lose” situation in which defendants are easily outflanked by a commission that can change the rules of its analysis as it sees fit. Defendants can play only the cards that they are dealt. Accordingly, Microsoft could not successfully challenge a conclusion that its behavior harmed consumers’ choice by arguing that it improved consumer welfare, on net.

By selecting, in this instance, “consumer choice” as the standard to be judged, the commission was able to evade the constraints that might have been imposed by a more robust welfare standard. Thus, the commission can essentially pick and choose the objectives that best serve its interests in each case. This vastly enlarges the scope of potential antitrust liability, while also substantially decreasing the ability of firms to predict when their behavior may be viewed as problematic. It leads to what, in U.S. courts, would be regarded as an untenable risk of false positives that chill innovative behavior and create nearly unwinnable battles for targeted firms.

Advocates of legislative action to “reform” antitrust law have already pointed to the U.S. District Court for the District of Columbia’s dismissal of the state attorneys general’s case and the “conditional” dismissal of the Federal Trade Commission’s case against Facebook as evidence that federal antitrust case law is lax and demands correction. In fact, the court’s decisions support the opposite implication. 

The Risks of Antitrust by Anecdote

The failure of a well-resourced federal regulator, and more than 45 state attorney-general offices, to avoid dismissal at an early stage of the litigation testifies to the dangers posed by a conclusory approach toward antitrust enforcement that seeks to unravel acquisitions consummated almost a decade ago without even demonstrating the factual predicates to support consideration of such far-reaching interventions. The dangers to the rule of law are self-evident. Irrespective of one’s views on the appropriate direction of antitrust law, this shortcut approach would substitute prosecutorial fiat, ideological predilection, and popular sentiment for decades of case law and agency guidelines grounded in the rigorous consideration of potential evidence of competitive harm. 

The paucity of empirical support for the exceptional remedial action sought by the FTC is notable. As the district court observed, there was little systematic effort made to define the economically relevant market or provide objective evidence of market power, beyond the assertion that Facebook has a market share of “in excess of 60%.” Remarkably, the denominator behind that 60%-plus assertion is not precisely defined, since the FTC’s brief does not supply any clear metric by which to measure market share. As the court pointed out, this is a nontrivial task in multi-sided environments in which one side of the potentially relevant market delivers services to users at no charge.  

While the point may seem uncontroversial, it is important to re-appreciate why insisting on a rigorous demonstration of market power is critical to preserving a coherent body of law that provides the market with a basis for reasonably anticipating the likelihood of antitrust intervention. At least since the late 1970s, courts have recognized that “big is not always bad” and can often yield cost savings that ultimately redound to consumers’ benefit. That is: firm size and consumer welfare do not stand in inherent opposition. If courts were to abandon safeguards against suits that cannot sufficiently define the relevant market and plausibly show market power, antitrust litigation could easily be used as a tool to punish successful firms that prevail over competitors simply by being more efficient. In other words: antitrust law could become a tool to preserve competitor welfare at the expense of consumer welfare.

The Specter of No-Fault Antitrust Liability

The absence of any specific demonstration of market power suggests deficient lawyering or the inability to gather supporting evidence. Giving the FTC litigation team the benefit of the doubt, the latter becomes the stronger possibility. If that is the case, this implies an effort to persuade courts to adopt a de facto rule of per se illegality for any firm that achieves a certain market share. (The same concept lies behind legislative proposals to bar acquisitions for firms that cross a certain revenue or market capitalization threshold.) Effectively, any firm that reached a certain size would operate under the presumption that it has market power and has secured or maintained such power due to anticompetitive practices, rather than business prowess. This would effectively convert leading digital platforms into quasi-public utilities subject to continuous regulatory intervention. Such an approach runs counter to antitrust law’s mission to preserve, rather than displace, private ordering by market forces.  

Even at the high-water point of post-World War II antitrust zealotry (a period that ultimately ended in economic malaise), proposals to adopt a rule of no-fault liability for alleged monopolization were rejected. This was for good reason. Any such rule would likely injure consumers by precluding them from enjoying the cost savings that result from the “sweet spot” scenario in which the scale and scope economies of large firms are combined with sufficiently competitive conditions to yield reduced prices and increased convenience for consumers. Additionally, any such rule would eliminate incumbents’ incentives to work harder to offer consumers reduced prices and increased convenience, since any market share preserved or acquired as a result would simply invite antitrust scrutiny as a reward.

Remembering Why Market Power Matters

To be clear, this is not to say that “Big Tech” does not deserve close antitrust scrutiny, does not wield market power in certain segments, or has not potentially engaged in anticompetitive practices.  The fundamental point is that assertions of market power and anticompetitive conduct must be demonstrated, rather than being assumed or “proved” based largely on suggestive anecdotes.  

Perhaps market power will be shown sufficiently in Facebook’s case if the FTC elects to respond to the court’s invitation to resubmit its brief with a plausible definition of the relevant market and indication of market power at this stage of the litigation. If that threshold is satisfied, then thorough consideration of the allegedly anticompetitive effect of Facebook’s WhatsApp and Instagram acquisitions may be merited. However, given the policy interest in preserving the market’s confidence in relying on the merger-review process under the Hart-Scott-Rodino Act, the burden of proof on the government should be appropriately enhanced to reflect the significant time that has elapsed since regulatory decisions not to intervene in those transactions.  

It would once have seemed mundane to reiterate that market power must be reasonably demonstrated to support a monopolization claim that could lead to a major divestiture remedy. Given the populist thinking that now leads much of the legislative and regulatory discussion on antitrust policy, it is imperative to reiterate the rationale behind this elementary principle. 

This principle reflects the fact that, outside collusion scenarios, antitrust law is typically engaged in a complex exercise to balance the advantages of scale against the risks of anticompetitive conduct. At its best, antitrust law weighs competing facts in a good faith effort to assess the net competitive harm posed by a particular practice. While this exercise can be challenging in digital markets that naturally converge upon a handful of leading platforms or multi-dimensional markets that can have offsetting pro- and anti-competitive effects, these are not reasons to treat such an exercise as an anachronistic nuisance. Antitrust cases are inherently challenging and proposed reforms to make them easier to win are likely to endanger, rather than preserve, competitive markets.

PHOTO: C-Span

Lina Khan’s appointment as chair of the Federal Trade Commission (FTC) is a remarkable accomplishment. At 32 years old, she is the youngest chair ever. Her longstanding criticisms of the Consumer Welfare Standard and alignment with the neo-Brandeisean school of thought make her appointment a significant achievement for proponents of those viewpoints. 

Her appointment also comes as House Democrats are preparing to mark up five bills designed to regulate Big Tech and, in the process, vastly expand the FTC’s powers. This expansion may combine with Khan’s appointment in ways that lawmakers considering the bills have not yet considered.

This is a critical time for the FTC. It has lost a number of high-profile lawsuits and is preparing to expand its rulemaking powers to regulate things like employment contracts and businesses’ use of data. Khan has also argued in favor of additional rulemaking powers around “unfair methods of competition.”

As things stand, the FTC under Khan’s leadership is likely to push for more extensive regulatory powers, akin to those held by the Federal Communications Commission (FCC). But these expansions would be trivial compared to what is proposed by many of the bills currently being prepared for a June 23 mark-up in the House Judiciary Committee. 

The flagship bill—Rep. David Cicilline’s (D-R.I.) American Innovation and Choice Online Act—is described as a platform “non-discrimination” bill. I have already discussed what the real-world effects of this bill would likely be. Briefly, it would restrict platforms’ ability to offer richer, more integrated services at all, since those integrations could be challenged as “discrimination” at the cost of would-be competitors’ offerings. Things like free shipping on Amazon Prime, pre-installed apps on iPhones, or even including links to Gmail and Google Calendar at the top of a Google Search page could be precluded under the bill’s terms; in each case, there is a potential competitor being undermined. 

In fact, the bill’s scope is so broad that some have argued that the FTC simply would not challenge “innocuous self-preferencing” like, say, Apple pre-installing Apple Music on iPhones. Economist Hal Singer has defended the proposals on the grounds that, “Due to limited resources, not all platform integration will be challenged.” 

But this shifts the focus to the FTC itself, and implies that it would have potentially enormous discretionary power under these proposals to enforce the law selectively. 

Companies found guilty of breaching the bill’s terms would be liable for civil penalties of up to 15 percent of annual U.S. revenue, a potentially significant sum. And though the Supreme Court recently ruled unanimously against the FTC’s powers to levy civil fines unilaterally—which the FTC opposed vociferously, and may get restored by other means—there are two scenarios through which it could end up getting extraordinarily extensive control over the platforms covered by the bill.

The first course is through selective enforcement. What Singer above describes as a positive—the fact that enforcers would just let “benign” violations of the law be—would mean that the FTC itself would have tremendous scope to choose which cases it brings, and might do so for idiosyncratic, politicized reasons.

This approach is common in countries with weak rule of law. Anti-corruption laws are frequently used to punish opponents of the regime in China, who probably are also corrupt, but are prosecuted because they have challenged the regime in some way. Hong Kong’s National Security law has also been used to target peaceful protestors and critical media thanks to its vague and overly broad drafting. 

Obviously, that’s far more sinister than what we’re talking about here. But these examples highlight how excessively broad laws applied at the enforcer’s discretion give broad powers to the enforcer to penalize defendants for other, unrelated things. Or, to quote Jay-Z: “Am I under arrest or should I guess some more? / ‘Well, you was doing 55 in a 54.’

The second path would be to use these powers as leverage to get broad consent decrees to govern the conduct of covered platforms. These occur when a lawsuit is settled, with the defendant company agreeing to change its business practices under supervision of the plaintiff agency (in this case, the FTC). The Cambridge Analytica lawsuit ended this way, with Facebook agreeing to change its data-sharing practices under the supervision of the FTC. 

This path would mean the FTC creating bespoke, open-ended regulation for each covered platform. Like the first path, this could create significant scope for discretionary decision-making by the FTC and potentially allow FTC officials to impose their own, non-economic goals on these firms. And it would require costly monitoring of each firm subject to bespoke regulation to ensure that no breaches of that regulation occurred.

Khan, as a critic of the Consumer Welfare Standard, believes that antitrust ought to be used to pursue non-economic objectives, including “the dispersion of political and economic control.” She, and the FTC under her, may wish to use this discretionary power to prosecute firms that she feels are hurting society for unrelated reasons, such as because of political stances they have (or have not) taken.

Khan’s fellow commissioner, Rebecca Kelly Slaughter, has argued that antitrust should be “antiracist”; that “as long as Black-owned businesses and Black consumers are systematically underrepresented and disadvantaged, we know our markets are not fair”; and that the FTC should consider using its existing rulemaking powers to address racist practices. These may be desirable goals, but their application would require contentious value judgements that lawmakers may not want the FTC to make.

Khan herself has been less explicit about the goals she has in mind, but has given some hints. In her essay “The Ideological Roots of America’s Market Power Problem”, Khan highlights approvingly former Associate Justice William O. Douglas’s account of:

“economic power as inextricably political. Power in industry is the power to steer outcomes. It grants outsized control to a few, subjecting the public to unaccountable private power—and thereby threatening democratic order. The account also offers a positive vision of how economic power should be organized (decentralized and dispersed), a recognition that forms of economic power are not inevitable and instead can be restructured.” [italics added]

Though I have focused on Cicilline’s flagship bill, others grant significant new powers to the FTC, as well. The data portability and interoperability bill doesn’t actually define what “data” is; it leaves it to the FTC to “define the term ‘data’ for the purpose of implementing and enforcing this Act.” And, as I’ve written elsewhere, data interoperability needs significant ongoing regulatory oversight to work at all, a responsibility that this bill also hands to the FTC. Even a move as apparently narrow as data portability will involve a significant expansion of the FTC’s powers and give it a greater role as an ongoing economic regulator.

It is concerning enough that this legislative package would prohibit conduct that is good for consumers, and that actually increases the competition faced by Big Tech firms. Congress should understand that it also gives extensive discretionary powers to an agency intent on using them to pursue broad, political goals. If Khan’s appointment as chair was a surprise, what her FTC does with the new powers given to her by Congress should not be.

In its June 21 opinion in NCAA v. Alston, a unanimous U.S. Supreme Court affirmed the 9th U.S. Circuit Court of Appeals and thereby upheld a district court injunction finding unlawful certain National Collegiate Athletic Association (NCAA) rules limiting the education-related benefits schools may make available to student athletes. The decision will come as no surprise to antitrust lawyers who heard the oral argument; the NCAA was portrayed as a monopsony cartel whose rules undermined competition by restricting compensation paid to athletes.

Alas, however, Alston demonstrates that seemingly “good facts” (including an apparently Scrooge-like defendant) can make very bad law. While superficially appearing to be a relatively straightforward application of Sherman Act rule of reason principles, the decision fails to come to grips with the relationship of the restraints before it to the successful provision of the NCAA’s joint venture product – amateur intercollegiate sports. What’s worse, Associate Justice Brett Kavanaugh’s concurring opinion further muddies the court’s murky jurisprudential waters by signaling his view that the NCAA’s remaining compensation rules are anticompetitive and could be struck down in an appropriate case (“it is not clear how the NCAA can defend its remaining compensation rules”). Prospective plaintiffs may be expected to take the hint.

The Court’s Flawed Analysis

I previously commented on this then-pending case a few months ago:

In sum, the claim that antitrust may properly be applied to combat the alleged “exploitation” of college athletes by NCAA compensation regulations does not stand up to scrutiny. The NCAA’s rules that define the scope of amateurism may be imperfect, but there is no reason to think that empowering federal judges to second guess and reformulate NCAA athletic compensation rules would yield a more socially beneficial (let alone optimal) outcome. (Believing that the federal judiciary can optimally reengineer core NCAA amateurism rules is a prime example of the Nirvana fallacy at work.)  Furthermore, a Supreme Court decision affirming the 9th Circuit could do broad mischief by undermining case law that has accorded joint venturers substantial latitude to design the core features of their collective enterprise without judicial second-guessing.

Unfortunately, my concerns about a Supreme Court affirmance of the 9th Circuit were realized. Associate Justice Neil Gorsuch’s opinion for the court in Alston manifests a blinkered approach to the NCAA “monopsony” joint venture. To be sure, it cites and briefly discusses key Supreme Court joint venture holdings, including 2006’s Texaco v. Dagher. Nonetheless, it gives short shrift to the efficiency-based considerations that counsel presumptive deference to joint venture design rules that are key to the nature of a joint venture’s product.  

As a legal matter, the court felt obliged to defer to key district court findings not contested by the NCAA—including that the NCAA enjoys “monopsony power” in the student athlete labor market, and that the NCAA’s restrictions in fact decrease student athlete compensation “below the competitive level.”

However, even conceding these points, the court could have, but did not, take note of and assess the role of the restrictions under review in helping engender the enormous consumer benefits the NCAA confers upon consumers of its collegiate sports product. There is good reason to view those restrictions as an effort by the NCAA to address a negative externality that could diminish the attractiveness of the NCAA’s product for ultimate consumers, a result that would in turn reduce inter-brand competition.

As the amicus brief by antitrust economists (“Antitrust Economists Brief”) pointed out:

[T]he NCAA’s consistent and growing popularity reflects a product—”amateur sports” played by students and identified with the academic tradition—that continues to generate enormous consumer interest. Moreover, it appears without dispute that the NCAA, while in control of the design of its own athletic products, has preserved their integrity as amateur sports, notwithstanding the commercial success of some of them, particularly Division I basketball and Football Subdivision football. . . . Over many years, the NCAA has continually adjusted its eligibility and participation rules to prevent colleges from pursuing their own interests—which certainly can involve “pay to play”—in ways that would conflict with the procompetitive aims of the collaboration. In this sense, the NCAA’s amateurism rules are a classic example of addressing negative externalities and free riding that often are inherent or arise in the collaboration context.

The use of contractual restrictions (vertical restraints) to counteract free riding and other negative externalities generated in manufacturer-distributor interactions are well-recognized by antitrust courts. Although the restraints at issue in NCAA (and many other joint venture situations) are horizontal in nature, not vertical, they may be just as important as other nonstandard contracts in aligning the incentives of member institutions to best satisfy ultimate consumers. Satisfying consumers, in turn, enhances inter-brand competition between the NCAA’s product and other rival forms of entertainment, including professional sports offerings.

Alan Meese made a similar point in a recent paper (discussing a possible analytical framework for the court’s then-imminent Alston analysis):

[U]nchecked bidding for the services of student athletes could result in a market failure and suboptimal product quality, proof that the restraint reduces student athlete compensation below what an unbridled market would produce should not itself establish a prima facie case. Such evidence would instead be equally consistent with a conclusion that the restraint eliminates this market failure and restores compensation to optimal levels.

The court’s failure to address the externality justification was compounded by its handling of the rule of reason. First, in rejecting a truncated rule of reason with an initial presumption that the NCAA’s restraints involving student compensation are procompetitive, the court accepted that the NCAA’s monopsony power showed that its restraints “can (and in fact do) harm competition.” This assertion ignored the efficiency justification discussed above. As the Antitrust Economists’ Brief emphasized: 

[A]cting more like regulators, the lower courts treated the NCAA’s basic product design as inherently anticompetitive [so did the Supreme Court], pushing forward with a full rule of reason that sent the parties into a morass of inquiries that were not (and were never intended to be) structured to scrutinize basic product design decisions and their hypothetical alternatives. Because that inquiry was unrestrained and untethered to any input or output restraint, the application of the rule of reason in this case necessarily devolved into a quasi-regulatory inquiry, which antitrust law eschews.

Having decided that a “full” rule of reason analysis is appropriate, the Supreme Court, in effect, imposed a “least restrictive means” test on the restrictions under review, while purporting not to do so. (“We agree with the NCAA’s premise that antitrust law does not require businesses to use anything like the least restrictive means of achieving legitimate business purposes.”) The court concluded that “it was only after finding the NCAA’s restraints ‘patently and inexplicably stricter than is necessary’ to achieve the procompetitive benefits the league had demonstrated that the district court proceeded to declare a violation of the Sherman Act.” Effectively, however, this statement deferred to the lower court’s second-guessing of the means employed by the NCAA to preserve consumer demand, which the lower court did without any empirical basis.

The Supreme Court also approved the district court’s rejection of the NCAA’s view of what amateurism requires. It stressed the district court’s findings that “the NCAA’s rules and restrictions on compensation have shifted markedly over time” (seemingly a reasonable reaction to changes in market conditions) and that the NCAA developed the restrictions at issue without any reference to “considerations of consumer demand” (a de facto regulatory mandate directed at the NCAA). The Supreme Court inexplicably dubbed these lower court actions “a straightforward application of the rule of reason.” These actions seem more like blind deference to rather arbitrary judicial second-guessing of the expert party with the greatest interest in satisfying consumer demand.

The Supreme Court ended its misbegotten commentary on “less restrictive alternatives” by first claiming that it agreed that “antitrust courts must give wide berth to business judgments before finding liability.” The court asserted that the district court honored this and other principles of judicial humility because it enjoined restraints on education-related benefits “only after finding that relaxing these restrictions would not blur the distinction between college and professional sports and thus impair demand – and only finding that this course represented a significantly (not marginally) less restrictive means of achieving the same procompetitive benefits as the NCAA’s current rules.” This lower court finding once again was not based on an empirical analysis of procompetitive benefits under different sets of rules. It was little more than the personal opinion of a judge, who lacked the NCAA’s knowledge of relevant markets and expertise. That the Supreme Court accepted it as an exercise in restrained judicial analysis is well nigh inexplicable.

The Antitrust Economists’ Brief, unlike the Supreme Court, enunciated the correct approach to judicial rewriting of core NCAA joint venture rules:

The institutions that are members of the NCAA want to offer a particular type of athletic product—an amateur athletic product that they believe is consonant with their primary academic missions. By doing so, as th[e] [Supreme] Court has [previously] recognized [in its 1984 NCAA v. Board of Regents decision], they create a differentiated offering that widens consumer choice and enhances opportunities for student-athletes. NCAA, 468 U.S. at 102. These same institutions have drawn lines that they believe balance their desire to foster intercollegiate athletic competition with their overarching academic missions. Both the district court and the Ninth Circuit have now said that they may not do so, unless they draw those lines differently. Yet neither the district court nor the Ninth Circuit determined that the lines drawn reduce the output of intercollegiate athletics or ascertained whether their judicially-created lines would expand that output. That is not the function of antitrust courts, but of legislatures.                                                                                                   

Other Harms the Court Failed to Consider                    

Finally, the court failed to consider other harms that stem from a presumptive suspicion of NCAA restrictions on athletic compensation in general. The elimination of compensation rules should favor large well-funded athletic programs over others, potentially undermining “competitive balance” among schools. (Think of an NCAA March Madness tournament where “Cinderella stories” are eliminated, as virtually all the talented players have been snapped up by big name schools.) It could also, through the reallocation of income to “big name big sports” athletes who command a bidding premium, potentially reduce funding support for “minor college sports” that provide opportunities to a wide variety of student-athletes. This would disadvantage those athletes, undermine the future of “minor” sports, and quite possibly contribute to consumer disillusionment and unhappiness (think of the millions of parents of “minor sports” athletes).

What’s more, the existing rules allow many promising but non-superstar athletes to develop their skills over time, enhancing their ability to eventually compete at the professional level. (This may even be the case for some superstars, who may obtain greater long-term financial rewards by refining their talents and showcasing their skills for a year or two in college.) In addition, the current rules climate allows many student athletes who do not turn professional to develop personal connections that serve them well in their professional and personal lives, including connections derived from the “brand” of their university. (Think of wealthy and well-connected alumni who are ardent fans of their colleges’ athletic programs.) In a world without NCAA amateurism rules, the value of these experiences and connections could wither, to the detriment of athletes and consumers alike. (Consistent with my conclusion, economists Richard McKenzie and Dwight Lee have argued against the proposition that “college athletes are materially ‘underpaid’ and are ‘exploited’”.)   

This “parade of horribles” might appear unlikely in the short term. Nevertheless, in the course of time, the inability of the NCAA to control the attributes of its product, due to a changed legal climate, make it all too real. This is especially the case in light of Justice Kavanaugh’s strong warning that other NCAA compensation restrictions are likely indefensible. (As he bluntly put it, venerable college sports “traditions alone cannot justify the NCAA’s decision to build a massive money-raising enterprise on the backs of student athletes who are not fairly compensated. . . . The NCAA is not above the law.”)

Conclusion

The Supreme Court’s misguided Alston decision fails to weigh the powerful efficiency justifications for the NCAA’s amateurism rules. This holding virtually invites other lower courts to ignore efficiencies and to second guess decisions that go to the heart of the NCAA’s joint venture product offering. The end result is likely to reduce consumer welfare and, quite possibly, the welfare of many student athletes as well. One would hope that Congress, if it chooses to address NCAA rules, will keep these dangers well in mind. A statutory change not directed solely at the NCAA, creating a rebuttable presumption of legality for restraints that go to the heart of a lawful joint venture, may merit serious consideration.   

Democratic leadership of the House Judiciary Committee have leaked the approach they plan to take to revise U.S. antitrust law and enforcement, with a particular focus on digital platforms. 

Broadly speaking, the bills would: raise fees for larger mergers and increase appropriations to the FTC and DOJ; require data portability and interoperability; declare that large platforms can’t own businesses that compete with other businesses that use the platform; effectively ban large platforms from making any acquisitions; and generally declare that large platforms cannot preference their own products or services. 

All of these are ideas that have been discussed before. They are very much in line with the EU’s approach to competition, which places more regulation-like burdens on big businesses, and which is introducing a Digital Markets Act that mirrors the Democrats’ proposals. Some Republicans are reportedly supportive of the proposals, which is surprising since they mean giving broad, discretionary powers to antitrust authorities that are controlled by Democrats who take an expansive view of antitrust enforcement as a way to achieve their other social and political goals. The proposals may also be unpopular with consumers if, for example, they would mean that popular features like integrating Maps into relevant Google Search results becomes prohibited.

The multi-bill approach here suggests that the committee is trying to throw as much at the wall as possible to see what sticks. It may reflect a lack of confidence among the proposers in their ability to get their proposals through wholesale, especially given that Amy Klobuchar’s CALERA bill in the Senate creates an alternative that, while still highly interventionist, does not create ex ante regulation of the Internet the same way these proposals do.

In general, the bills are misguided for three main reasons. 

One, they seek to make digital platforms into narrow conduits for other firms to operate on, ignoring the value created by platforms curating their own services by, for example, creating quality controls on entry (as Apple does on its App Store) or by integrating their services with related products (like, say, Google adding events from Gmail to users’ Google Calendars). 

Two, they ignore the procompetitive effects of digital platforms extending into each other’s markets and competing with each other there, in ways that often lead to far more intense competition—and better outcomes for consumers—than if the only firms that could compete with the incumbent platform were small startups.

Three, they ignore the importance of incentives for innovation. Platforms invest in new and better products when they can make money from doing so, and limiting their ability to do that means weakened incentives to innovate. Startups and their founders and investors are driven, in part, by the prospect of being acquired, often by the platforms themselves. Making those acquisitions more difficult, or even impossible, means removing one of the key ways startup founders can exit their firms, and hence one of the key rewards and incentives for starting an innovative new business. 

For more, our “Joint Submission of Antitrust Economists, Legal Scholars, and Practitioners” set out why many of the House Democrats’ assumptions about the state of the economy and antitrust enforcement were mistaken. And my post, “Buck’s “Third Way”: A Different Road to the Same Destination”, argued that House Republicans like Ken Buck were misguided in believing they could support some of the proposals and avoid the massive regulatory oversight that they said they rejected.

Platform Anti-Monopoly Act 

The flagship bill, introduced by Antitrust Subcommittee Chairman David Cicilline (D-R.I.), establishes a definition of “covered platform” used by several of the other bills. The measures would apply to platforms with at least 500,000 U.S.-based users, a market capitalization of more than $600 billion, and that is deemed a “critical trading partner” with the ability to restrict or impede the access that a “dependent business” has to its users or customers.

Cicilline’s bill would bar these covered platforms from being able to promote their own products and services over the products and services of competitors who use the platform. It also defines a number of other practices that would be regarded as discriminatory, including: 

  • Restricting or impeding “dependent businesses” from being able to access the platform or its software on the same terms as the platform’s own lines of business;
  • Conditioning access or status on purchasing other products or services from the platform; 
  • Using user data to support the platform’s own products in ways not extended to competitors; 
  • Restricting the platform’s commercial users from using or accessing data generated on the platform from their own customers;
  • Restricting platform users from uninstalling software pre-installed on the platform;
  • Restricting platform users from providing links to facilitate business off of the platform;
  • Preferencing the platform’s own products or services in search results or rankings;
  • Interfering with how a dependent business prices its products; 
  • Impeding a dependent business’ users from connecting to services or products that compete with those offered by the platform; and
  • Retaliating against users who raise concerns with law enforcement about potential violations of the act.

On a basic level, these would prohibit lots of behavior that is benign and that can improve the quality of digital services for users. Apple pre-installing a Weather app on the iPhone would, for example, run afoul of these rules, and the rules as proposed could prohibit iPhones from coming with pre-installed apps at all. Instead, users would have to manually download each app themselves, if indeed Apple was allowed to include the App Store itself pre-installed on the iPhone, given that this competes with other would-be app stores.

Apart from the obvious reduction in the quality of services and convenience for users that this would involve, this kind of conduct (known as “self-preferencing”) is usually procompetitive. For example, self-preferencing allows platforms to compete with one another by using their strength in one market to enter a different one; Google’s Shopping results in the Search page increase the competition that Amazon faces, because it presents consumers with a convenient alternative when they’re shopping online for products. Similarly, Amazon’s purchase of the video-game streaming service Twitch, and the self-preferencing it does to encourage Amazon customers to use Twitch and support content creators on that platform, strengthens the competition that rivals like YouTube face. 

It also helps innovation, because it gives firms a reason to invest in services that would otherwise be unprofitable for them. Google invests in Android, and gives much of it away for free, because it can bundle Google Search into the OS, and make money from that. If Google could not self-preference Google Search on Android, the open source business model simply wouldn’t work—it wouldn’t be able to make money from Android, and would have to charge for it in other ways that may be less profitable and hence give it less reason to invest in the operating system. 

This behavior can also increase innovation by the competitors of these companies, both by prompting them to improve their products (as, for example, Google Android did with Microsoft’s mobile operating system offerings) and by growing the size of the customer base for products of this kind. For example, video games published by console manufacturers (like Nintendo’s Zelda and Mario games) are often blockbusters that grow the overall size of the user base for the consoles, increasing demand for third-party titles as well.

For more, check out “Against the Vertical Discrimination Presumption” by Geoffrey Manne and Dirk Auer’s piece “On the Origin of Platforms: An Evolutionary Perspective”.

Ending Platform Monopolies Act 

Sponsored by Rep. Pramila Jayapal (D-Wash.), this bill would make it illegal for covered platforms to control lines of business that pose “irreconcilable conflicts of interest,” enforced through civil litigation powers granted to the Federal Trade Commission (FTC) and the U.S. Justice Department (DOJ).

Specifically, the bill targets lines of business that create “a substantial incentive” for the platform to advantage its own products or services over those of competitors that use the platform, or to exclude or disadvantage competing businesses from using the platform. The FTC and DOJ could potentially order that platforms divest lines of business that violate the act.

This targets similar conduct as the previous bill, but involves the forced separation of different lines of business. It also appears to go even further, seemingly implying that companies like Google could not even develop services like Google Maps or Chrome because their existence would create such “substantial incentives” to self-preference them over the products of their competitors. 

Apart from the straightforward loss of innovation and product developments this would involve, requiring every tech company to be narrowly focused on a single line of business would substantially entrench Big Tech incumbents, because it would make it impossible for them to extend into adjacent markets to compete with one another. For example, Apple could not develop a search engine to compete with Google under these rules, and Amazon would be forced to sell its video-streaming services that compete with Netflix and Youtube.

For more, check out Geoffrey Manne’s written testimony to the House Antitrust Subcommittee and “Platform Self-Preferencing Can Be Good for Consumers and Even Competitors” by Geoffrey and me. 

Platform Competition and Opportunity Act

Introduced by Rep. Hakeem Jeffries (D-N.Y.), this bill would bar covered platforms from making essentially any acquisitions at all. To be excluded from the ban on acquisitions, the platform would have to present “clear and convincing evidence” that the acquired business does not compete with the platform for any product or service, does not pose a potential competitive threat to the platform, and would not in any way enhance or help maintain the acquiring platform’s market position. 

The two main ways that founders and investors can make a return on a successful startup are to float the company at IPO or to be acquired by another business. The latter of these, acquisitions, is extremely important. Between 2008 and 2019, 90 percent of U.S. start-up exits happened through acquisition. In a recent survey, half of current startup executives said they aimed to be acquired. One study found that countries that made it easier for firms to be taken over saw a 40-50 percent increase in VC activity, and that U.S. states that made acquisitions harder saw a 27 percent decrease in VC investment deals

So this proposal would probably reduce investment in U.S. startups, since it makes it more difficult for them to be acquired. It would therefore reduce innovation as a result. It would also reduce inter-platform competition by banning deals that allow firms to move into new markets, like the acquisition of Beats that helped Apple to build a Spotify competitor, or the deals that helped Google, Microsoft, and Amazon build cloud-computing services that all compete with each other. It could also reduce competition faced by old industries, by preventing tech companies from buying firms that enable it to move into new markets—like Amazon’s acquisitions of health-care companies that it has used to build a health-care offering. Even Walmart’s acquisition of Jet.com, which it has used to build an Amazon competitor, could have been banned under this law if Walmart had had a higher market cap at the time.

For more, check out Dirk Auer’s piece “Facebook and the Pros and Cons of Ex Post Merger Reviews” and my piece “Cracking down on mergers would leave us all worse off”. 

ACCESS Act

The Augmenting Compatibility and Competition by Enabling Service Switching (ACCESS) Act, sponsored by Rep. Mary Gay Scanlon (D-Pa.), would establish data portability and interoperability requirements for platforms. 

Under terms of the legislation, covered platforms would be required to allow third parties to transfer data to their users or, with the user’s consent, to a competing business. It also would require platforms to facilitate compatible and interoperable communications with competing businesses. The law directs the FTC to establish technical committees to promulgate the standards for portability and interoperability. 

Data portability and interoperability involve trade-offs in terms of security and usability, and overseeing them can be extremely costly and difficult. In security terms, interoperability requirements prevent companies from using closed systems to protect users from hostile third parties. Mandatory openness means increasing—sometimes, substantially so—the risk of data breaches and leaks. In practice, that could mean users’ private messages or photos being leaked more frequently, or activity on a social media page that a user considers to be “their” private data, but that “belongs” to another user under the terms of use, can be exported and publicized as such. 

It can also make digital services more buggy and unreliable, by requiring that they are built in a more “open” way that may be more prone to unanticipated software mismatches. A good example is that of Windows vs iOS; Windows is far more interoperable with third-party software than iOS is, but tends to be less stable as a result, and users often prefer the closed, stable system. 

Interoperability requirements also entail ongoing regulatory oversight, to make sure data is being provided to third parties reliably. It’s difficult to build an app around another company’s data without assurance that the data will be available when users want it. For a requirement as broad as this bill’s, that could mean setting up quite a large new de facto regulator. 

In the UK, Open Banking (an interoperability requirement imposed on British retail banks) has suffered from significant service outages, and targets a level of uptime that many developers complain is too low for them to build products around. Nor has Open Banking yet led to any obvious competition benefits.

For more, check out Gus Hurwitz’s piece “Portable Social Media Aren’t Like Portable Phone Numbers” and my piece “Why Data Interoperability Is Harder Than It Looks: The Open Banking Experience”.

Merger Filing Fee Modernization Act

A bill that mirrors language in the Endless Frontier Act recently passed by the U.S. Senate, would significantly raise filing fees for the largest mergers. Rather than the current cap of $280,000 for mergers valued at more than $500 million, the bill—sponsored by Rep. Joe Neguse (D-Colo.)–the new schedule would assess fees of $2.25 million for mergers valued at more than $5 billion; $800,000 for those valued at between $2 billion and $5 billion; and $400,000 for those between $1 billion and $2 billion.

Smaller mergers would actually see their filing fees cut: from $280,000 to $250,000 for those between $500 million and $1 billion; from $125,000 to $100,000 for those between $161.5 million and $500 million; and from $45,000 to $30,000 for those less than $161.5 million. 

In addition, the bill would appropriate $418 million to the FTC and $252 million to the DOJ’s Antitrust Division for Fiscal Year 2022. Most people in the antitrust world are generally supportive of more funding for the FTC and DOJ, although whether this is actually good or not depends both on how it’s spent at those places. 

It’s hard to object if it goes towards deepening the agencies’ capacities and knowledge, by hiring and retaining higher quality staff with salaries that are more competitive with those offered by the private sector, and on greater efforts to study the effects of the antitrust laws and past cases on the economy. If it goes toward broadening the activities of the agencies, by doing more and enabling them to pursue a more aggressive enforcement agenda, and supporting whatever of the above proposals make it into law, then it could be very harmful. 

For more, check out my post “Buck’s “Third Way”: A Different Road to the Same Destination” and Thom Lambert’s post “Bad Blood at the FTC”.

Bad Blood at the FTC

Thom Lambert —  9 June 2021

John Carreyrou’s marvelous book Bad Blood chronicles the rise and fall of Theranos, the one-time Silicon Valley darling that was revealed to be a house of cards.[1] Theranos’s Svengali-like founder, Elizabeth Holmes, convinced scores of savvy business people (mainly older men) that her company was developing a machine that could detect all manner of maladies from a small quantity of a patient’s blood. Turns out it was a fraud. 

I had a couple of recurring thoughts as I read Bad Blood. First, I kept thinking about how Holmes’s fraud might impair future medical innovation. Something like Theranos’s machine would eventually be developed, I figured, but Holmes’s fraud would likely set things back by making investors leery of blood-based, multi-disease diagnostics.

I also had a thought about the causes of Theranos’s spectacular failure. A key problem, it seemed, was that the company tried to do too many things at once: develop diagnostic technologies, design an elegant machine (Holmes was obsessed with Steve Jobs and insisted that Theranos’s machine resemble a sleek Apple device), market the product, obtain regulatory approval, scale the operation by getting Theranos machines in retail chains like Safeway and Walgreens, and secure third-party payment from insurers.

A thought that didn’t occur to me while reading Bad Blood was that a multi-disease blood diagnostic system would soon be developed but would be delayed, or possibly even precluded from getting to market, by an antitrust enforcement action based on things the developers did to avoid the very problems that doomed Theranos. 

Sadly, that’s where we are with the Federal Trade Commission’s misguided challenge to the merger of Illumina and Grail.

Founded in 1998, San Diego-based Illumina is a leading provider of products used in genetic sequencing and genomic analysis. Illumina produces “next generation sequencing” (NGS) platforms that are used for a wide array of applications (genetic tests, etc.) developed by itself and other companies.

In 2015, Illumina founded Grail for the purpose of developing a blood test that could detect cancer in asymptomatic individuals—the “holy grail” of cancer diagnosis. Given the superior efficacy and lower cost of treatments for early- versus late-stage cancers, success by Grail could save millions of lives and billions of dollars.

Illumina created Grail as a separate entity in which it initially held a controlling interest (having provided the bulk of Grail’s $100 million Series A funding). Legally separating Grail in this fashion, rather than running it as an Illumina division, offered a number of benefits. It limited Illumina’s liability for Grail’s activities, enabling Grail to take greater risks. It mitigated the Theranos problem of managers’ being distracted by too many tasks: Grail managers could concentrate exclusively on developing a viable cancer-screening test, while Illumina’s management continued focusing on that company’s core business. It made it easier for Grail to attract talented managers, who would rather come in as corporate officers than as division heads. (Indeed, Grail landed Jeff Huber, a high-profile Google executive, as its initial CEO.) Structuring Grail as a majority-owned subsidiary also allowed Illumina to attract outside capital, with the prospect of raising more money in the future by selling new Grail stock to investors.

In 2017, Grail did exactly that, issuing new shares to investors in exchange for $1 billion. While this capital infusion enabled the company to move forward with its promising technologies, the creation of new shares meant that Illumina no longer held a controlling interest in the firm. Its ownership interest dipped below 20 percent and now stands at about 14.5 percent of Grail’s voting shares.  

Setting up Grail so as to facilitate outside capital formation and attract top managers who could focus single-mindedly on product development has paid off. Grail has now developed a blood test that, when processed on Illumina’s NGS platform, can accurately detect a number of cancers in asymptomatic individuals. Grail predicts that this “liquid biopsy,” called Galleri, will eventually be able to detect up to 50 cancers before physical symptoms manifest. Grail is also developing other blood-based cancer tests, including one that confirms cancer diagnoses in patients suspected to have cancer and another designed to detect cancer recurrence in patients who have undergone treatment.

Grail now faces a host of new challenges. In addition to continuing to develop its tests, Grail needs to:  

  • Engage in widespread testing of its cancer-detection products on up to 50 different cancers;
  • Process and present the information from its extensive testing in formats that will be acceptable to regulators;
  • Navigate the pre-market regulatory approval process in different countries across the globe;
  • Secure commitments from third-party payors (governments and private insurers) to provide coverage for its tests;
  • Develop means of manufacturing its products at scale;
  • Create and implement measures to ensure compliance with FDA’s Quality System Regulation (QSR), which governs virtually all aspects of medical device production (design, testing, production, process controls, quality assurance, labeling, packaging, handling, storage, distribution, installation, servicing, and shipping); and
  • Market its tests to hospitals and health-care professionals.

These steps are all required to secure widespread use of Grail’s tests. And, importantly, such widespread use will actually improve the quality of the tests. Grail’s tests analyze the DNA in a patient’s blood to look for methylation patterns that are known to be associated with cancer. In essence, the tests work by comparing the methylation patterns in a test subject’s DNA against a database of genomic data collected from large clinical studies. With enough comparison data, the tests can indicate not only the presence of cancer but also where in the body the cancer signal is coming from. And because Grail’s tests use machine learning to hone their algorithms in response to new data collected from test usage, the greater the use of Grail’s tests, the more accurate, sensitive, and comprehensive they become.     

To assist with the various tasks needed to achieve speedy and widespread use of its tests, Grail decided to reunite with Illumina. In September 2020, the companies entered a merger agreement under which Illumina would acquire the 85.5 percent of Grail voting shares it does not already own for cash and stock worth $7.1 billion and additional contingent payments of $1.2 billion to Grail’s non-Illumina shareholders.

Recombining with Illumina will allow Grail—which has appropriately focused heretofore solely on product development—to accomplish the tasks now required to get its tests to market. Illumina has substantial laboratory capacity that Grail can access to complete the testing needed to refine its products and establish their effectiveness. As the leading global producer of NGS platforms, Illumina has unparalleled experience in navigating the regulatory process for NGS-related products, producing and marketing those products at scale, and maintaining compliance with complex regulations like FDA’s QSR. With nearly 3,000 international employees located in 26 countries, it has obtained regulatory authorizations for NGS-based tests in more than 50 jurisdictions around the world.  It also has long-standing relationships with third-party payors, health systems, and laboratory customers. Grail, by contrast, has never obtained FDA approval for any products, has never manufactured NGS-based tests at scale, has only a fledgling regulatory affairs team, and has far less extensive contacts with potential payors and customers. By remaining focused on its key objective (unlike Theranos), Grail has achieved product-development success. Recombining with Illumina will now enable it, expeditiously and efficiently, to deploy its products across the globe, generating user data that will help improve the products going forward.

In addition to these benefits, the combination of Illumina and Grail will eliminate a problem that occurs when producers of complementary products each operate in markets that are not fully competitive: double marginalization. When sellers of products that are used together each possess some market power due to a lack of competition, their uncoordinated pricing decisions may result in less surplus for each of them and for consumers of their products. Combining so that they can coordinate pricing will leave them and their customers better off.

Unlike a producer participating in a competitive market, a producer that faces little competition can enhance its profits by raising its price above its incremental cost.[2] But there are limits on its ability to do so. As the well-known monopoly pricing model shows, even a monopolist has a “profit-maximizing price” beyond which any incremental price increase would lose money.[3] Raising price above that level would hurt both consumers and the monopolist.

When consumers are deciding whether to purchase products that must be used together, they assess the final price of the overall bundle. This means that when two sellers of complementary products both have market power, there is an above-cost, profit-maximizing combined price for their products. If the complement sellers individually raise their prices so that the combined price exceeds that level, they will reduce their own aggregate welfare and that of their customers.

This unfortunate situation is likely to occur when market power-possessing complement producers are separate companies that cannot coordinate their pricing. In setting its individual price, each separate firm will attempt to capture as much surplus for itself as possible. This will cause the combined price to rise above the profit-maximizing level. If they could unite, the complement sellers would coordinate their prices so that the combined price was lower and the sellers’ aggregate profits higher.

Here, Grail and Illumina provide complementary products (cancer-detection tests and the NGS platforms on which they are processed), and each faces little competition. If they price separately, their aggregate prices are likely to exceed the profit-maximizing combined price for the cancer test and NGS platform access. If they combine into a single firm, that firm would maximize its profits by lowering prices so that the aggregate test/platform price is the profit-maximizing combined price.  This would obviously benefit consumers.

In light of the social benefits the Grail/Illumina merger offers—speeding up and lowering the cost of getting Grail’s test approved and deployed at scale, enabling improvement of the test with more extensive user data, eliminating double marginalization—one might expect policymakers to cheer the companies’ recombination. The FTC, however, is trying to block it.  In late March, the commission brought an action claiming that the merger would violate Section 7 of the Clayton Act by substantially reducing competition in a line of commerce.

The FTC’s theory is that recombining Illumina and Grail will impair competition in the market for “multi-cancer early detection” (MCED) tests. The commission asserts that the combined company would have both the opportunity and the motivation to injure rival producers of MCED tests.

The opportunity to do so would stem from the fact that MCED tests must be processed on NGS platforms, which are produced exclusively by Illumina. Illumina could charge Grail’s rivals or their customers higher prices for access to its NGS platforms (or perhaps deny access altogether) and could withhold the technical assistance rivals would need to secure both regulatory approval of their tests and coverage by third-party payors.

But why would Illumina take this tack, given that it would be giving up profits on transactions with producers and users of other MCED tests? The commission asserts that the losses a combined Illumina/Grail would suffer in the NGS platform market would be more than offset by gains stemming from reduced competition in the MCED test market. Thus, the combined company would have a motive, as well as an opportunity, to cause anticompetitive harm.

There are multiple problems with the FTC’s theory. As an initial matter, the market the commission claims will be impaired doesn’t exist. There is no MCED test market for the simple reason that there are no commercializable MCED tests. If allowed to proceed, the Illumina/Grail merger may create such a market by facilitating the approval and deployment of the first MCED test. At present, however, there is no such market, and the chances of one ever emerging will be diminished if the FTC succeeds in blocking the recombination of Illumina and Grail.

Because there is no existing market for MCED tests, the FTC’s claim that a combined Illumina/Grail would have a motivation to injure MCED rivals—potential consumers of Illumina’s NGS platforms—is rank speculation. The commission has no idea what profits Illumina would earn from NGS platform sales related to MCED tests, what profits Grail would earn on its own MCED tests, and how the total profits of the combined company would be affected by impairing opportunities for rival MCED test producers.

In the only relevant market that does exist—the cancer-detection market—there can be no question about the competitive effect of an Illumina/Grail merger: It would enhance competition by speeding the creation of a far superior offering that promises to save lives and substantially reduce health-care costs. 

There is yet another problem with the FTC’s theory of anticompetitive harm. The commission’s concern that a recombined Illumina/Grail would foreclose Grail’s rivals from essential NGS platforms and needed technical assistance is obviated by Illumina’s commitments. Specifically, Illumina has irrevocably offered current and prospective oncology customers 12-year contract terms that would guarantee them the same access to Illumina’s sequencing products that they now enjoy, with no price increase. Indeed, the offered terms obligate Illumina not only to refrain from raising prices but also to lower them by at least 43% by 2025 and to provide regulatory and technical assistance requested by Grail’s potential rivals. Illumina’s continued compliance with its firm offer will be subject to regular audits by an independent auditor.

In the end, then, the FTC’s challenge to the Illumina/Grail merger is unjustified. The initial separation of Grail from Illumina encouraged the managerial focus and capital accumulation needed for successful test development. Recombining the two firms will now expedite and lower the costs of the regulatory approval and commercialization processes, permitting Grail’s tests to be widely used, which will enhance their quality. Bringing Grail’s tests and Illumina’s NGS platforms within a single company will also benefit consumers by eliminating double marginalization. Any foreclosure concerns are entirely speculative and are obviated by Illumina’s contractual commitments.

In light of all these considerations, one wonders why the FTC challenged this merger (and on a 4-0 vote) in the first place. Perhaps it was the populist forces from left and right that are pressuring the commission to generally be more aggressive in policing mergers. Some members of the commission may also worry, legitimately, that if they don’t act aggressively on a vertical merger, Congress will amend the antitrust laws in a deleterious fashion. But the commission has picked a poor target. This particular merger promises tremendous benefit and threatens little harm. The FTC should drop its challenge and encourage its European counterparts to do the same. 


[1] If you don’t have time for Carreyrou’s book (and you should make time if you can), HBO’s Theranos documentary is pretty solid.

[2] This ability is market power.  In a perfectly competitive market, any firm that charges an above-cost price will lose sales to rivals, who will vie for business by lowering their prices down to the level of their cost.

[3] Under the model, this is the price that emerges at the output level where the producer’s marginal revenue equals its marginal cost.

Image by Gerd Altmann from Pixabay

AT&T’s $102 billion acquisition of Time Warner in 2019 will go down in M&A history as an exceptionally ill-advised transaction, resulting in the loss of tens of billions of dollars of shareholder value. It should also go down in history as an exceptional ill-chosen target of antitrust intervention.  The U.S. Department of Justice, with support from many academic and policy commentators, asserted with confidence that the vertical combination of these content and distribution powerhouses would result in an entity that could exercise market power to the detriment of competitors and consumers.

The chorus of condemnation continued with vigor even after the DOJ’s loss in court and AT&T’s consummation of the transaction. With AT&T’s May 17 announcement that it will unwind the two-year-old acquisition and therefore abandon its strategy to integrate content and distribution, it is clear these predictions of impending market dominance were unfounded. 

This widely shared overstatement of antitrust risk derives from a simple but fundamental error: regulators and commentators were looking at the wrong market.  

The DOJ’s Antitrust Case against the Transaction

The business case for the AT&T/Time Warner transaction was straightforward: it promised to generate synergies by combining a leading provider of wireless, broadband, and satellite television services with a leading supplier of video content. The DOJ’s antitrust case against the transaction was similarly straightforward: the combined entity would have the ability to foreclose “must have” content from other “pay TV” (cable and satellite television) distributors, resulting in adverse competitive effects. 

This foreclosure strategy was expected to take two principal forms. First, AT&T could temporarily withhold (or threaten to withhold) content from rival distributors absent payment of a higher carriage fee, which would then translate into higher fees for subscribers. Second, AT&T could permanently withhold content from rival distributors, who would then lose subscribers to AT&T’s DirectTV satellite television service, further enhancing AT&T’s market power. 

Many commentators, both in the trade press and significant portions of the scholarly community, characterized the transaction as posing a high-risk threat to competitive conditions in the pay TV market. These assertions reflected the view that the new entity would exercise a bottleneck position over video-content distribution in the pay TV market and would exercise that power to impose one-sided terms to the detriment of content distributors and consumers. 

Notwithstanding this bevy of endorsements, the DOJ’s case was rejected by the district court and the decision was upheld by the D.C. appellate court. The district judge concluded that the DOJ had failed to show that the combined entity would exercise any credible threat to withhold “must have” content from distributors. A key reason: the lost carriage fees AT&T would incur if it did withhold content were so high, and the migration of subscribers from rival pay TV services so speculative, that it would represent an obviously irrational business strategy. In short: no sophisticated business party would ever take AT&T’s foreclosure threat seriously, in which case the DOJ’s predictions of market power were insufficiently compelling to justify the use of government power to block the transaction.

The Fundamental Flaws in the DOJ’s Antitrust Case

The logical and factual infirmities of the DOJ’s foreclosure hypothesis have been extensively and ably covered elsewhere and I will not repeat that analysis. Following up on my previous TOTM commentary on the transaction, I would like to emphasize the point that the DOJ’s case against the transaction was flawed from the outset for two more fundamental reasons. 

False Assumption #1

The assumption that the combined entity could withhold so-called “must have” content to cause significant and lasting competitive injury to rival distributors flies in the face of market realities.  Content is an abundant, renewable, and mobile resource. There are few entry barriers to the content industry: a commercially promising idea will likely attract capital, which will in turn secure the necessary equipment and personnel for production purposes. Any rival distributor can access a rich menu of valuable content from a plethora of sources, both domestically and worldwide, each of which can provide new content, as required. Even if the combined entity held a license to distribute purportedly “must have” content, that content would be up for sale (more precisely, re-licensing) to the highest bidder as soon as the applicable contract term expired. This is not mere theorizing: it is a widely recognized feature of the entertainment industry.

False Assumption #2

Even assuming the combined entity could wield a portfolio of “must have” content to secure a dominant position in the pay TV market and raise content acquisition costs for rival pay TV services, it still would lack any meaningful pricing power in the relevant consumer market. The reason: significant portions of the viewing population do not want any pay TV or only want dramatically “slimmed-down” packages. Instead, viewers increasingly consume content primarily through video-streaming services—a market in which platforms such as Amazon and Netflix already enjoyed leading positions at the time of the transaction. Hence, even accepting the DOJ’s theory that the combined entity could somehow monopolize the pay TV market consisting of cable and satellite television services, the theory still fails to show any reasonable expectation of anticompetitive effects in the broader and economically relevant market comprising pay TV and streaming services.  Any attempt to exercise pricing power in the pay TV market would be economically self-defeating, since it would likely prompt a significant portion of consumers to switch to (or start to only use) streaming services.

The Antitrust Case for the Transaction

When properly situated within the market that was actually being targeted in the AT&T/Time Warner acquisition, the combined entity posed little credible threat of exercising pricing power. To the contrary, the combined entity was best understood as an entrant that sought to challenge the two pioneer entities—Amazon and Netflix—in the “over the top” content market.

Each of these incumbent platforms individually had (and have) multi-billion-dollar content production budgets that rival or exceed the budgets of major Hollywood studios and enjoy worldwide subscriber bases numbering in the hundreds of millions. If that’s not enough, AT&T was not the only entity that observed the displacement of pay TV by streaming services, as illustrated by the roughly concurrent entry of Disney’s Disney+ service, Apple’s Apple TV+ service, Comcast NBCUniversal’s Peacock service, and others. Both the existing and new competitors are formidable entities operating in a market with formidable capital requirements. In 2019, Netflix, Amazon, and Apple TV expended approximately $15 billion, $6 billion, and again, $6 billion, respectively, on content; by contrast, HBO Max, AT&T’s streaming service, expended approximately $3.5 billion. 

In short, the combined entity faced stiff competition from existing and reasonably anticipated competitors, requiring several billions of dollars on “content spend” to even stay in the running. Far from being able to exercise pricing power in an imaginary market defined by DOJ litigators for strategic purposes, the AT&T/Time Warner entity faced the challenge of merely surviving in a real-world market populated by several exceptionally well-financed competitors. At best, the combined entity “threatened” to deliver incremental competitive benefits by adding a robust new platform to the video-streaming market; at worst, it would fail in this objective and cause no incremental competitive harm. As it turns out, the latter appears to be the case.

The Enduring Virtues of Antitrust Prudence

AT&T’s M&A fiasco has important lessons for broader antitrust debates about the evidentiary standards that should be applied by courts and agencies when assessing alleged antitrust violations, in general, and vertical restraints, in particular.  

Among some scholars, regulators, and legislators, it has become increasingly received wisdom that prevailing evidentiary standards, as reflected in federal case law and agency guidelines, are excessively demanding, and have purportedly induced chronic underenforcement. It has been widely asserted that the courts’ and regulators’ focus on avoiding “false positives” and the associated costs of disrupting innocuous or beneficial business practices has resulted in an overly cautious enforcement posture, especially with respect to mergers and vertical restraints.

In fact, these views were expressed by some commentators in endorsing the antitrust case against the AT&T/Time-Warner transaction. Some legislators have gone further and argued for substantial amendments to the antitrust law to provide enforcers and courts with greater latitude to block or re-engineer combinations that would not pose sufficiently demonstrated competitive risks under current statutory or case law.

The swift downfall of the AT&T/Time-Warner transaction casts great doubt on this critique and accompanying policy proposals. It was precisely the district court’s rigorous application of those “overly” demanding evidentiary standards that avoided what would have been a clear false-positive error. The failure of the “blockbuster” combination to achieve not only market dominance, but even reasonably successful entry, validates the wisdom of retaining those standards.

The fundamental mismatch between the widely supported antitrust case against the transaction and the widely overlooked business realities of the economically relevant consumer market illustrates the ease with which largely theoretical and decontextualized economic models of competitive harm can lead to enforcement actions that lack any reasonable basis in fact.   

In the battle of ideas, it is quite useful to be able to brandish clear and concise debating points in support of a proposition, backed by solid analysis. Toward that end, in a recent primer about antitrust law published by the Mercatus Center, I advance four reasons to reject neo-Brandeisian critiques of the consensus (at least, until very recently) consumer welfare-centric approach to antitrust enforcement. My four points, drawn from the primer (with citations deleted and hyperlinks added) are as follows:

First, the underlying assumptions of rising concentration and declining competition on which the neo-Brandeisian critique is largely based (and which are reflected in the introductory legislative findings of the Competition and Antitrust Law Enforcement Reform Act [of 2021, introduced by Senator Klobuchar on February 4, lack merit]. Chapter 6 of the 2020 Economic Report of the President, dealing with competition policy, summarizes research debunking those assumptions. To begin with, it shows that studies complaining that competition is in decline are fatally flawed. Studies such as one in 2016 by the Council of Economic Advisers rely on overbroad market definitions that say nothing about competition in specific markets, let alone across the entire economy. Indeed, in 2018, professor Carl Shapiro, chief DOJ antitrust economist in the Obama administration, admitted that a key summary chart in the 2016 study “is not informative regarding overall trends in concentration in well-defined relevant markets that are used by antitrust economists to assess market power, much less trends in concentration in the U.S. economy.” Furthermore, as the 2020 report points out, other literature claiming that competition is in decline rests on a problematic assumption that increases in concentration (even assuming such increases exist) beget softer competition. Problems with this assumption have been understood since at least the 1970s. The most fundamental problem is that there are alternative explanations (such as exploitation of scale economies) for why a market might demonstrate both high concentration and high markups—explanations that are still consistent with procompetitive behavior by firms. (In a related vein, research by other prominent economists has exposed flaws in studies that purport to show a weakening of merger enforcement standards in recent years.) Finally, the 2020 report notes that the real solution to perceived economic problems may be less government, not more: “As historic regulatory reform across American industries has shown, cutting government-imposed barriers to innovation leads to increased competition, strong economic growth, and a revitalized private sector.”

Second, quite apart from the flawed premises that inform the neo-Brandeisian critique, specific neo-Brandeisian reforms appear highly problematic on economic grounds. Breakups of dominant firms or near prohibitions on dominant firm acquisitions would sacrifice major economies of scale and potential efficiencies of integration, harming consumers without offering any proof that the new market structures in reshaped industries would yield consumer or producer benefits. Furthermore, a requirement that merging parties prove a negative (that the merger will not harm competition) would limit the ability of entrepreneurs and market makers to act on information about misused or underutilized assets through the merger process. This limitation would reduce economic efficiency. After-the-fact studies indicating that a large percentage of mergers do not add wealth and do not otherwise succeed as much as projected miss this point entirely. They ignore what the world would be like if mergers were much more difficult to enter into: a world where there would be lower efficiency and dynamic economic growth because there would be less incentive to seek out market-improving opportunities.

Third, one aspect of the neo-Brandeisian approach to antitrust policy is at odds with fundamental notions of fair notice of wrongdoing and equal treatment under neutral principles, notions that are central to the rule of law. In particular, the neo-Brandeisian call for considering a multiplicity of new factors such as fairness, labor, and the environment when enforcing policy is troublesome. There is no neutral principle for assigning weights to such divergent interests, and (even if weights could be assigned) there are no economic tools for accurately measuring how a transaction under review would affect those interests. It follows that abandoning antitrust law’s consumer-welfare standard in favor of an ill-defined multifactor approach would spawn confusion in the private sector and promote arbitrariness in enforcement decisions, undermining the transparency that is a key aspect of the rule of law. Whereas concerns other than consumer welfare may of course be validly considered in setting public policy, they are best dealt with under other statutory schemes, not under antitrust law.

Fourth, and finally, neo-Brandeisian antitrust proposals are not a solution to widely expressed concerns that big companies in general, and large digital platforms in particular, are undermining free speech by censoring content of which they disapprove. Antitrust law is designed to prevent businesses from creating impediments to market competition that reduce economic welfare; it is not well-suited to policing companies’ determinations regarding speech. To the extent that policymakers wish to address speech censorship on large platforms, they should consider other regulatory institutions that would be better suited to the task (such as communications law), while keeping in mind First Amendment limitations on the ability of government to control private speech.

In light of these four points, the primer concludes that the neo-Brandeisian-inspired antitrust “reform” proposals being considered by Congress should be rejected:

[E]fforts to totally reshape antitrust policy into a quasi-regulatory system that arbitrarily blocks and disincentivizes (1) welfare-enhancing mergers and (2) an array of actions by dominant firms are highly troubling. Such interventionist proposals ignore the lack of evidence of serious competitive problems in the American economy and appear arbitrary compared to the existing consumer-welfare-centric antitrust enforcement regime. To use a metaphor, Congress and public officials should avoid a drastic new antitrust cure for an anticompetitive disease that can be handled effectively with existing antitrust medications.

Let us hope that the serious harm associated with neo-Brandeisian legislative “deformation” (a more apt term than reformation) of the antitrust laws is given a full legislative airing before Congress acts.

The writing is on the wall for Big Tech: regulation is coming. At least, that is what the House Judiciary Committee’s report into competition in digital markets would like us to believe. 

The Subcommittee’s Majority members, led by Rhode Island’s Rep. David Cicilline, are calling for a complete overhaul of America’s antitrust and regulatory apparatus. This would notably entail a break up of America’s largest tech firms, by prohibiting them from operating digital platforms and competing on them at the same time. Unfortunately, the report ignores the tremendous costs that such proposals would impose upon consumers and companies alike. 

For several years now, there has been growing pushback against the perceived “unfairness” of America’s tech industry: of large tech platforms favoring their own products at the expense of entrepreneurs who use their platforms; of incumbents acquiring startups to quash competition; of platforms overcharging  companies like Epic Games, Spotify, and the media, just because they can; and of tech companies that spy on their users and use that data to sell them things they don’t need. 

But this portrayal of America’s tech industry obscures an inconvenient possibility: supposing that these perceived ills even occur, there is every chance that the House’s reforms would merely exacerbate the status quo. The House report gives short shrift to this eventuality, but it should not.

Over the last decade, the tech sector has been the crown jewel of America’s economy. And while firms like Amazon, Google, Facebook, and Apple, may have grown at a blistering pace, countless others have flourished in their wake.

Google and Apple’s app stores have given rise to a booming mobile software industry. Platforms like Youtube and Instagram have created new venues for advertisers and ushered in a new generation of entrepreneurs including influencers, podcasters, and marketing experts. Social media platforms like Facebook and Twitter have disintermediated the production of news media, allowing ever more people to share their ideas with the rest of the world (mostly for better, and sometimes for worse). Amazon has opened up new markets for thousands of retailers, some of which are now going public. The recent $3.4 billion Snowflake IPO may have been the biggest public offering of a tech firm no one has heard of.

The trillion dollar question is whether it is possible to regulate this thriving industry without stifling its unparalleled dynamism. If Rep. Cicilline’s House report is anything to go by, the answer is a resounding no.

Acquisition by a Big Tech firm is one way for startups to rapidly scale and reach a wider audience, while allowing early investors to make a quick exit. Self-preferencing can enable platforms to tailor their services to the needs and desires of users (Apple and Google’s pre-installed app suites are arguably what drive users to opt for their devices). Excluding bad apples from a platform is essential to gain users’ trust and build a strong reputation. Finally, in the online retail space, copying rival products via house brands provides consumers with competitively priced goods and helps new distributors enter the market. 

All of these practices would either be heavily scrutinized or outright banned under the Subcommittee ’s proposed reforms. Beyond its direct impact on the quality of online goods and services, this huge shift would threaten the climate of permissionless innovation that has arguably been key to Silicon Valley’s success. 

More fundamentally, these reforms would mostly protect certain privileged rivals at the expense of the wider industry. Take Apple’s App Store: Epic Games and others have complained about the 30% Commission charged by Apple for in-app purchases (as is standard throughout the industry). Yet, as things stand, roughly 80% of apps pay no commission at all. Tackling this 30% commission — for instance by allowing developers to bypass Apple’s in-app payment processing — would almost certainly result in larger fees for small developers. In short, regulation could significantly impede smaller firms.

Fortunately, there is another way. For decades, antitrust law — guided by the judge-made consumer welfare standard — has been the cornerstone of economic policy in the US. During that time, America built a tech industry that is the envy of the world. This should give pause to would-be reformers. There is a real chance overbearing regulation will permanently hamper America’s tech industry. With competition from China more intense than ever, it is a risk that the US cannot afford to take.

With the passing of Justice Ruth Bader Ginsburg, many have already noted her impact on the law as an advocate for gender equality and women’s rights, her importance as a role model for women, and her civility. Indeed, a key piece of her legacy is that she was a jurist in the classic sense of the word: she believed in using coherent legal reasoning to reach a result. And that meant Justice Ginsburg’s decisions sometimes cut against partisan political expectations. 

This is clearly demonstrated in our little corner of the law: RBG frequently voted in the majority on antitrust cases in a manner that—to populist leftwing observers—would be surprising. Moreover, she authored an important case on price discrimination that likewise cuts against the expectation of populist antitrust critics and demonstrates her nuanced jurisprudence.

RBG’s record on the Court shows a respect for the evolving nature of antitrust law

In the absence of written opinions of her own, it is difficult to discern what was actually in Justice Ginsburg’s mind as she encountered antitrust issues. But, her voting record represents at least a willingness to approach antitrust in an apolitical manner. 

Over the last several decades, Justice Ginsburg joined the Supreme Court majority in many cases dealing with a wide variety of antitrust issues, including the duty to deal doctrine, vertical restraints, joint ventures, and mergers. In many of these cases, RBG aligned herself with judgments of the type that the antitrust populists criticize.

The following are major consumer welfare standard cases that helped shape the current state of antitrust law in which she joined the majority or issued a concurrence: 

  • Verizon Commc’ns Inc. v. Law Offices of Curtis Trinko, LLP, 540 U.S. 398 (2004) (unanimous opinion heightening the standard for finding a duty to deal)
  • Pacific Bell Tel. Co v. linkLine Commc’ns, Inc.,  555 U.S. 438 (2009) (Justice Ginsburg joined the concurrence finding there was no “price squeeze” but suggesting the predatory pricing claim should be remanded)
  • Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc., 549 U.S. 312 (2007) (unanimous opinion finding predatory buying claims are still subject to the dangerous probability of recoupment test from Brooke Group)
  • Apple, Inc. v. Robert Pepper, 139 S.Ct. 1514 (2019) (part of majority written by Justice Kavanaugh finding that iPhone owners were direct purchasers under Illinois Brick that may sue Apple for alleged monopolization)
  • State Oil Co. v. Khan, 522 U.S. 3 (1997) (unanimous opinion overturning per se treatment of vertical maximum price fixing under Albrecht and applying rule of reason standard)
  • Texaco Inc. v. Dagher, 547 U.S. 1 (2006) (unanimous opinion finding it is not per se illegal under §1 of the Sherman Act for a lawful, economically integrated joint venture to set the prices at which it sells its products)
  • Illinois Tool Works Inc. v. Independent Ink, Inc., 547 U.S. 28 (2006) (unanimous opinion finding a patent does not necessarily confer market power upon the patentee, in all cases involving a tying arrangement, the plaintiff must prove that the defendant has market power in the tying product)
  • U.S. v. Baker Hughes, Inc., 908 F. 2d 981 (D.C. Cir. 1990) (unanimous opinion written by then-Judge Clarence Thomas while both were on the D.C. Circuit of Appeals finding against the government’s argument that the defendant in a Section 7 merger challenge can rebut a prima facie case only by a clear showing that entry into the market by competitors would be quick and effective)

Even where she joined the dissent in antitrust cases, she did so within the ambit of the consumer welfare standard. Thus, while she was part of the dissent in cases like Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007), Bell Atlantic Corp v. Twombly, 550 U.S. 544 (2007), and Ohio v. American Express Co., 138 S.Ct. 2274 (2018), she still left a legacy of supporting modern antitrust jurisprudence. In those cases, RBG simply  had a different vision for how best to optimize consumer welfare. 

Justice Ginsburg’s Volvo Opinion

The 2006 decision Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc. was one of the few antitrust decisions authored by RBG and shows her appreciation for the consumer welfare standard. In particular, Justice Ginsburg affirmed the notion that antitrust law is designed to protect competition not competitors—a lesson that, as of late, needs to be refreshed. 

Volvo, a 7-2 decision, dealt with the Robinson-Patman Act’s prohibition on price discimination. Reeder-Simco, a retail car dealer that sold Volvos, alleged that Volvo Inc. was violating the Robinson-Patman Act by selling cars to them at different prices than to other Volvo dealers.

The Robinson-Patman Act is frequently cited by antitrust populists as a way to return antitrust law to its former glory. A main argument of Lina Khan’s Amazon’s Antitrust Paradox was that the Chicago School had distorted the law on vertical restraints generally, and price discrimination in particular. One source of this distortion in Khan’s opinion has been the Supreme Court’s mishandling of the Robinson-Patman Act.

Yet, in Volvo we see Justice Ginsburg wrestling with the Robinson-Patman Act in a way to give effect to the law as written, which may run counter to some of the contemporary populist impulse to revise the Court’s interpretation of antitrust laws. Justice Ginsburg, citing Brown & Williamson, first noted that: 

Mindful of the purposes of the Act and of the antitrust laws generally, we have explained that Robinson-Patman does not “ban all price differences charged to different purchasers of commodities of like grade and quality.”

Instead, the Robinson-Patman Act was aimed at a particular class of harms that Congress believed existed when large chain-stores were able to exert something like monopsony buying power. Moreover, Justice Ginsburg noted, the Act “proscribes ‘price discrimination only to the extent that it threatens to injure competition’[.]”

Under the Act, plaintiffs needed to demonstrate evidence of Volvo Inc. systematically treating plaintiffs as “disfavored” purchasers as against another set of “favored” purchasers. Instead, all plaintiffs could produce was anecdotal and inconsistent evidence of Volvo Inc. disfavoring them. Thus, the plaintiffs— and theoretically other similarly situated Volvo dealers— were in fact harmed in a sense by Volvo Inc. Yet, Justice Ginsburg was unwilling to rewrite the Act on Congress’s behalf to incorporate new harms later discovered (a fact which would not earn her accolades in populist circles these days). 

Instead, Justice Ginsburg wrote that:

Interbrand competition, our opinions affirm, is the “primary concern of antitrust law.”… The Robinson-Patman Act signals no large departure from that main concern. Even if the Act’s text could be construed in the manner urged by [plaintiffs], we would resist interpretation geared more to the protection of existing competitors than to the stimulation of competition. In the case before us, there is no evidence that any favored purchaser possesses market power, the allegedly favored purchasers are dealers with little resemblance to large independent department stores or chain operations, and the supplier’s selective price discounting fosters competition among suppliers of different brands… By declining to extend Robinson-Patman’s governance to such cases, we continue to construe the Act “consistently with broader policies of the antitrust laws.” Brooke Group, 509 U.S., at 220… (cautioning against Robinson-Patman constructions that “extend beyond the prohibitions of the Act and, in doing so, help give rise to a price uniformity and rigidity in open conflict with the purposes of other antitrust legislation”).

Thus, interested in the soundness of her jurisprudence in the face of a well-developed body of antitrust law, Justice Ginsburg chose to continue to develop that body of law rather than engage in judicial policymaking in favor of a sympathetic plaintiff. 

It must surely be tempting for a justice on the Court to adopt less principled approaches to the law in any given case, and it is equally as impressive that Justice Ginsburg consistently stuck to her principles. We can only hope her successor takes note of Justice Ginsburg’s example.

Apple’s legal team will be relieved that “you reap what you sow” is just a proverb. After a long-running antitrust battle against Qualcomm unsurprisingly ended in failure, Apple now faces antitrust accusations of its own (most notably from Epic Games). Somewhat paradoxically, this turn of events might cause Apple to see its previous defeat in a new light. Indeed, the well-established antitrust principles that scuppered Apple’s challenge against Qualcomm will now be the rock upon which it builds its legal defense.

But while Apple’s reversal of fortunes might seem anecdotal, it neatly illustrates a fundamental – and often overlooked – principle of antitrust policy: Antitrust law is about maximizing consumer welfare. Accordingly, the allocation of surplus between two companies is only incidentally relevant to antitrust proceedings, and it certainly is not a goal in and of itself. In other words, antitrust law is not about protecting David from Goliath.

Jockeying over the distribution of surplus

Or at least that is the theory. In practice, however, most antitrust cases are but small parts of much wider battles where corporations use courts and regulators in order to jockey for market position and/or tilt the distribution of surplus in their favor. The Microsoft competition suits brought by the DOJ and the European commission (in the EU and US) partly originated from complaints, and lobbying, by Sun Microsystems, Novell, and Netscape. Likewise, the European Commission’s case against Google was prompted by accusations from Microsoft and Oracle, among others. The European Intel case was initiated following a complaint by AMD. The list goes on.

The last couple of years have witnessed a proliferation of antitrust suits that are emblematic of this type of power tussle. For instance, Apple has been notoriously industrious in using the court system to lower the royalties that it pays to Qualcomm for LTE chips. One of the focal points of Apple’s discontent was Qualcomm’s policy of basing royalties on the end-price of devices (Qualcomm charged iPhone manufacturers a 5% royalty rate on their handset sales – and Apple received further rebates):

“The whole idea of a percentage of the cost of the phone didn’t make sense to us,” [Apple COO Jeff Williams] said. “It struck at our very core of fairness. At the time we were making something really really different.”

This pricing dispute not only gave rise to high-profile court cases, it also led Apple to lobby Standard Developing Organizations (“SDOs”) in a partly successful attempt to make them amend their patent policies, so as to prevent this type of pricing. 

However, in a highly ironic turn of events, Apple now finds itself on the receiving end of strikingly similar allegations. At issue is the 30% commission that Apple charges for in app purchases on the iPhone and iPad. These “high” commissions led several companies to lodge complaints with competition authorities (Spotify and Facebook, in the EU) and file antitrust suits against Apple (Epic Games, in the US).

Of course, these complaints are couched in more sophisticated, and antitrust-relevant, reasoning. But that doesn’t alter the fact that these disputes are ultimately driven by firms trying to tilt the allocation of surplus in their favor (for a more detailed explanation, see Apple and Qualcomm).

Pushback from courts: The Qualcomm case

Against this backdrop, a string of recent cases sends a clear message to would-be plaintiffs: antitrust courts will not be drawn into rent allocation disputes that have no bearing on consumer welfare. 

The best example of this judicial trend is Qualcomm’s victory before the United States Court of Appeal for the 9th Circuit. The case centered on the royalties that Qualcomm charged to OEMs for its Standard Essential Patents (SEPs). Both the district court and the FTC found that Qualcomm had deployed a series of tactics (rebates, refusals to deal, etc) that enabled it to circumvent its FRAND pledges. 

However, the Court of Appeal was not convinced. It failed to find any consumer harm, or recognizable antitrust infringement. Instead, it held that the dispute at hand was essentially a matter of contract law:

To the extent Qualcomm has breached any of its FRAND commitments, a conclusion we need not and do not reach, the remedy for such a breach lies in contract and patent law. 

This is not surprising. From the outset, numerous critics pointed that the case lied well beyond the narrow confines of antitrust law. The scathing dissenting statement written by Commissioner Maureen Olhaussen is revealing:

[I]n the Commission’s 2-1 decision to sue Qualcomm, I face an extraordinary situation: an enforcement action based on a flawed legal theory (including a standalone Section 5 count) that lacks economic and evidentiary support, that was brought on the eve of a new presidential administration, and that, by its mere issuance, will undermine U.S. intellectual property rights in Asia and worldwide. These extreme circumstances compel me to voice my objections. 

In reaching its conclusion, the Court notably rejected the notion that SEP royalties should be systematically based upon the “Smallest Saleable Patent Practicing Unit” (or SSPPU):

Even if we accept that the modem chip in a cellphone is the cellphone’s SSPPU, the district court’s analysis is still fundamentally flawed. No court has held that the SSPPU concept is a per se rule for “reasonable royalty” calculations; instead, the concept is used as a tool in jury cases to minimize potential jury confusion when the jury is weighing complex expert testimony about patent damages.

Similarly, it saw no objection to Qualcomm licensing its technology at the OEM level (rather than the component level):

Qualcomm’s rationale for “switching” to OEM-level licensing was not “to sacrifice short-term benefits in order to obtain higher profits in the long run from the exclusion of competition,” the second element of the Aspen Skiing exception. Aerotec Int’l, 836 F.3d at 1184 (internal quotation marks and citation omitted). Instead, Qualcomm responded to the change in patent-exhaustion law by choosing the path that was “far more lucrative,” both in the short term and the long term, regardless of any impacts on competition. 

Finally, the Court concluded that a firm breaching its FRAND pledges did not automatically amount to anticompetitive conduct: 

We decline to adopt a theory of antitrust liability that would presume anticompetitive conduct any time a company could not prove that the “fair value” of its SEP portfolios corresponds to the prices the market appears willing to pay for those SEPs in the form of licensing royalty rates.

Taken together, these findings paint a very clear picture. The Qualcomm Court repeatedly rejected the radical idea that US antitrust law should concern itself with the prices charged by monopolists — as opposed to practices that allow firms to illegally acquire or maintain a monopoly position. The words of Learned Hand and those of Antonin Scalia (respectively, below) loom large:

The successful competitor, having been urged to compete, must not be turned upon when he wins. 

And,

To safeguard the incentive to innovate, the possession of monopoly power will not be found unlawful unless it is accompanied by an element of anticompetitive conduct.

Other courts (both in the US and abroad) have reached similar conclusions

For instance, a district court in Texas dismissed a suit brought by Continental Automotive Systems (which supplies electronic systems to the automotive industry) against a group of SEP holders. 

Continental challenged the patent holders’ decision to license their technology at the vehicle rather than component level (the allegation is very similar to the FTC’s complaint that Qualcomm licensed its SEPs at the OEM, rather than chipset level). However, following a forceful intervention by the DOJ, the Court ultimately held that the facts alleged by Continental were not indicative of antitrust injury. It thus dismissed the case.

Likewise, within weeks of the Qualcomm and Continental decisions, the UK Supreme court also ruled in favor of SEP holders. In its Unwired Planet ruling, the Court concluded that discriminatory licenses did not automatically infringe competition law (even though they might breach a firm’s contractual obligations):

[I]t cannot be said that there is any general presumption that differential pricing for licensees is problematic in terms of the public or private interests at stake.

In reaching this conclusion, the UK Supreme Court emphasized that the determination of whether licenses were FRAND, or not, was first and foremost a matter of contract law. In the case at hand, the most important guide to making this determination were the internal rules of the relevant SDO (as opposed to competition case law):

Since price discrimination is the norm as a matter of licensing practice and may promote objectives which the ETSI regime is intended to promote (such as innovation and consumer welfare), it would have required far clearer language in the ETSI FRAND undertaking to indicate an intention to impose the more strict, “hard-edged” non-discrimination obligation for which Huawei contends. Further, in view of the prevalence of competition laws in the major economies around the world, it is to be expected that any anti-competitive effects from differential pricing would be most appropriately addressed by those laws

All of this ultimately led the Court to rule in favor of Unwired Planet, thus dismissing Huawei’s claims that it had infringed competition law by breaching its FRAND pledges. 

In short, courts and antitrust authorities on both sides of the Atlantic have repeatedly, and unambiguously, concluded that pricing disputes (albeit in the specific context of technological standards) are generally a matter of contract law. Antitrust/competition law intercedes only when unfair/excessive/discriminatory prices are both caused by anticompetitive behavior and result in anticompetitive injury.

Apple’s Loss is… Apple’s gain.

Readers might wonder how the above cases relate to Apple’s app store. But, on closer inspection the parallels are numerous. As explained above, courts have repeatedly stressed that antitrust enforcement should not concern itself with the allocation of surplus between commercial partners. Yet that is precisely what Epic Game’s suit against Apple is all about.

Indeed, Epic’s central claim is not that it is somehow foreclosed from Apple’s App Store (for example, because Apple might have agreed to exclusively distribute the games of one of Epic’s rivals). Instead, all of its objections are down to the fact that it would like to access Apple’s store under more favorable terms:

Apple’s conduct denies developers the choice of how best to distribute their apps. Developers are barred from reaching over one billion iOS users unless they go through Apple’s App Store, and on Apple’s terms. […]

Thus, developers are dependent on Apple’s noblesse oblige, as Apple may deny access to the App Store, change the terms of access, or alter the tax it imposes on developers, all in its sole discretion and on the commercially devastating threat of the developer losing access to the entire iOS userbase. […]

By imposing its 30% tax, Apple necessarily forces developers to suffer lower profits, reduce the quantity or quality of their apps, raise prices to consumers, or some combination of the three.

And the parallels with the Qualcomm litigation do not stop there. Epic is effectively asking courts to make Apple monetize its platform at a different level than the one that it chose to maximize its profits (no more monetization at the app store level). Similarly, Epic Games omits any suggestion of profit sacrifice on the part of Apple — even though it is a critical element of most unilateral conduct theories of harm. Finally, Epic is challenging conduct that is both the industry norm and emerged in a highly competitive setting.

In short, all of Epic’s allegations are about monopoly prices, not monopoly maintenance or monopolization. Accordingly, just as the SEP cases discussed above were plainly beyond the outer bounds of antitrust enforcement (something that the DOJ repeatedly stressed with regard to the Qualcomm case), so too is the current wave of antitrust litigation against Apple. When all is said and done, Apple might thus be relieved that Qualcomm was victorious in their antitrust confrontation. Indeed, the legal principles that caused its demise against Qualcomm are precisely the ones that will, likely, enable it to prevail against Epic Games.

The goal of US antitrust law is to ensure that competition continues to produce positive results for consumers and the economy in general. We published a letter co-signed by twenty three of the U.S.’s leading economists, legal scholars and practitioners, including one winner of the Nobel Prize in economics (full list of signatories here), to exactly that effect urging the House Judiciary Committee on the State of Antitrust Law to reject calls for radical upheaval of antitrust law that would, among other things, undermine the independence and neutrality of US antitrust law. 

A critical part of maintaining independence and neutrality in the administration of antitrust is ensuring that it is insulated from politics. Unfortunately, this view is under attack from all sides. The President sees widespread misconduct among US tech firms that he believes are controlled by the “radical left” and is, apparently, happy to use whatever tools are at hand to chasten them. 

Meanwhile, Senator Klobuchar has claimed, without any real evidence, that the mooted Uber/Grubhub merger is simply about monopolisation of the market, and not, for example, related to the huge changes that businesses like this are facing because of the Covid shutdown.

Both of these statements challenge the principle that the rule of law depends on being politically neutral, including in antitrust. 

Our letter, contrary to the claims made by President Trump, Sen. Klobuchar and some of the claims made to the Committee, asserts that the evidence and economic theory is clear: existing antitrust law is doing a good job of promoting competition and consumer welfare in digital markets and the economy more broadly, and concludes that the Committee should focus on reforms that improve antitrust at the margin, not changes that throw out decades of practice and precedent.

The letter argues that:

  1. The American economy—including the digital sector—is competitive, innovative, and serves consumers well, contrary to how it is sometimes portrayed in the public debate. 
  2. Structural changes in the economy have resulted from increased competition, and increases in national concentration have generally happened because competition at the local level has intensified and local concentration has fallen.
  3. Lax antitrust enforcement has not allowed systematic increases in market power, and the evidence simply does not support out the idea that antitrust enforcement has weakened in recent decades.
  4. Existing antitrust law is adequate for protecting competition in the modern economy, and built up through years of careful case-by-case scrutiny. Calls to throw out decades of precedent to achieve an antitrust “Year Zero” would throw away a huge body of learning and deliberation.
  5. History teaches that discarding the modern approach to antitrust would harm consumers, and return to a situation where per se rules prohibited the use of economic analysis and fact-based defences of business practices.
  6. Common sense reforms should be pursued to improve antitrust enforcement, and the reforms proposed in the letter could help to improve competition and consumer outcomes in the United States without overturning the whole system.

The reforms suggested include measures to increase transparency of the DoJ and FTC, greater scope for antitrust challenges against state-sponsored monopolies, stronger penalties for criminal cartel conduct, and more agency resources being made available to protect workers from anti-competitive wage-fixing agreements between businesses. These are suggestions for the House Committee to consider and are not supported by all the letter’s signatories.

Some of the arguments in the letter are set out in greater detail in the ICLE’s own submission to the Committee, which goes into detail about the nature of competition in modern digital markets and in traditional markets that have been changed because of the adoption of digital technologies. 

The full letter is here.