Section 2 Symposium

We’re very pleased to be able to kick off Truth on the Market’s symposium on Section and the Section 2 Report.  We’ve put together a lineup that includes current and former agency representatives, economists, practicing lawyers and academics in the hopes of creating an environment conductive to a productive discussion of not only the actual content and policy recommendations of the Section 2 Report and the current controversies surrounding the Report, but also the process of the hearings themselves and where our panelists think that the critical Section 2 debates are headed in the future.

When the Section 2 hearings kicked off in June 2006, Chairman Majoras noted the importance of finding consensus on the issues surrounding monopolization enforcement:

Unilateral or “single-firm” conduct, however, still vexes. Even though we can find some respectable measure of consensus around principles that should apply, we find a range of opinions from knowledgeable people about how to apply those principles to enforcement in the market. The question of the proper test that our agencies should apply to conduct of a single firm with market power now has dominated antitrust debate for several years….

The Chairman articulated the process that she had in mind for how the hearings would elicit the information and analysis necessary to move the ball forward on the these critical issues that began with increasing our understanding of the relevant business practices and their competitive consequences and then moved toward mapping that increased understanding into improvements in antitrust law:

We want the panels to discuss the conduct from the market perspective from the ground up, that is, examine why and when firms engage in it, how they do it, and what effects it produces for the firm, for other firms (customers and competitors), and for consumers. We should look at whether firms in competitive markets engage in the same conduct and, if so, examine why they do it.  We want these discussions, to the extent possible, to include knowledgeable business people or at least their advisors. From these discussions, we then should endeavor to develop signposts for when the conduct may harm competition and when it typically does not. From these signposts, it would be beneficial to draw some guiding principles. Only then should we turn to examining the current state of the law as it has been applied to such conduct and then to determining what workable legal rules can be applied to the specific conduct at issue for the panel. Perhaps at that point, we may examine what we have learned about workable legal rules for individual types of conduct and determine whether we can pull those together into a broader test or set of rules. Even if these hearings do not produce consensus on a universal test or set of tests, I am optimistic that they can identify relative consensus on a number of principles and on how to approach a significant fraction of the single-firm conduct we encounter.

Likewise, Tom Barnett in his opening remarks was clear about the rationale for the hearings from the DOJ perspective:

The Antitrust Division is co-sponsoring these hearings to help advance our own thinking about unilateral conduct and better inform our judgment about when it is appropriate for the United States to bring enforcement actions under Section 2 of the Sherman Act. Antitrust experts continue to advance the understanding of the different ways that firms unilaterally can–and cannot–harm competition. The Antitrust Division tries to incorporate the latest scholarship and economic thinking into its enforcement decisions, and these hearings will help us meet that goal by providing a forum for experts to review the literature, the business practices, and the law and to speak directly to each other and to us. A number of prominent practitioners and economists have committed to participate in these hearings, and the Antitrust Division is grateful to them for agreeing to share their insights. We are also seeking the views of the business community, consumer groups, and business historians. Those views are significant to our understanding of the real-world implications of various business practices and their potential impact on competition. Improving the legal system helps us all, and I commend those who contribute through either written submissions or panel participation for rendering a valuable public service.

A second reason for these hearings is to advance the development of the law, particularly by articulating points of consensus. Developing the law–or, more accurately, influencing the development of the law–in ways that help competition is an important goal for the Antitrust Division. Courts routinely rely on the Antitrust Division’s views when construing the antitrust laws.

With all of the well known debate over the Section 2 Report, some of which we have covered here at TOTM (see, e.g. here, here , here and here), the new incoming administration, and what looks like a sea change in monopolization enforcement at the agencies, we thought it an appropriate time to take a retrospective look at the Section 2 Report process and outcomes relative to the stated goals above, the substantive content of the Report itself, and the important questions moving forward.

To provide informative commentary on these issues, we’ve invited some of the most prominent and insightful commentators on Section 2 (including many who were involved in the Section 2 hearings themselves) to comment on various aspects of the Section 2 Report.  Today, posts will focus on various perspectives on the Report, process, and outcomes.  Tuesday we will turn to the the Report’s analysis of the the appropriate general standard of exclusionary conduct under Section 2.  On Wednesday, our panelists will tackle some of the specific issues in the Report, including tying, predatory pricing, remedies, exclusive dealing, etc.

We would like to thank all of our participants and commenters for an outstanding symposium.  This was a truly impressive collection of commentaries on Section 2 and the Section 2 Report, and it should stand for some time as a useful, interesting and provocative collective statement on the issues.  For easy reference, you can access the complete collection of posts here or by clicking on the “section 2 symposium” category on the left side of this page.

We would also like to announce that the symposium will appear in collected form in Global Competition Policy, so be on the lookout for another opportunity to engage with these commentaries there.

Once again, thanks to everyone who participated!

Coda: Varney Withdraws Section 2 Report

I guess it comes as little surprise that Christine Varney has withdrawn the Section 2 Report.  The comments made in the statement withdrawing the Report indicate . . . well, that Varney isn’t convinced by reading this blog, among other things.  Coming on the heels of our Section 2  Symposium, the news is jarring, although not unexpected.  Moreover, as predicted in Howard Marvel’s first post here, Varney is using “recent events” in the economy as a lever:

Varney said that while there is no question that Section 2 cases present unique challenges, the report advocated hesitancy in the face of potential abuses by monopoly firms. She said that implicit in this overly cautious approach is the notion that most unilateral conduct is driven by efficiency and that monopoly markets are generally self-correcting. “The recent developments in the marketplace should make it clear that we can no longer rely upon the marketplace alone to ensure that competition and consumers will be protected,” Varney added.

She doesn’t say it in this statement (and I haven’t seen the text of her speech yet where she announced this policy), but implicit in this is her ongoing rejection of error-cost analysis and the cost of false positives.  As she has said elsewhere:

“My view and, you stole my thunder, I was prepared to say there is no such thing as a false positive, you know, let’s get real. I have counseled numerous incumbents who are dominant as well as numerous new entrants. I can tell you, at least in my own experience, there is not a dominant incumbent who hasn’t done something that is lawful because they were afraid that it might be reviewed by the DOJ or a state attorney general or an FTC. I just don’t see it. Ten years back in the private sector I have never once seen it, so I think that this ruse of, you know, we have to be restrained in our enforcement because false positives will chill innovation, take an economic toll on society and overall result in negative economic consequence, slowing output, increasing cost, I just think is false. I think the more people in the bars start rejecting this idea of false positives the better off we’re going to be.”

It is a stark reminder that we may, indeed, be living under a new antitrust regime.  I can’t say I’m optimistic about it.

Here’s the full text of the DOJ’s statement:

Christine A. Varney, Assistant Attorney General in charge of the Department’s Antitrust Division, today announced that the Department is withdrawing, effective immediately, a report relating to monopolization offenses under the antitrust laws that was issued in September 2008. As of today, the Section 2 report will no longer be Department of Justice policy. Consumers, businesses, courts and antitrust practitioners should not rely on it as Department of Justice antitrust enforcement policy.

The report, “Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act,” raised too many hurdles to government antitrust enforcement and favored extreme caution and the development of safe harbors for certain conduct within reach of Section 2, Varney said. Varney announced the withdrawal of the report today at a speech at the Center for American Progress.

“Withdrawing the Section 2 report is a shift in philosophy and the clearest way to let everyone know that the Antitrust Division will be aggressively pursuing cases where monopolists try to use their dominance in the marketplace to stifle competition and harm consumers,” said Varney. “The Division will return to tried and true case law and Supreme Court precedent in enforcing the antitrust laws.”

The report was issued after a series of joint hearings, involving more than 100 participants, that the Department and the Federal Trade Commission (FTC) held from June 2006 to May 2007 to explore the antitrust treatment of single-firm conduct. The FTC did not join with the Department in its report.

Varney said that while there is no question that Section 2 cases present unique challenges, the report advocated hesitancy in the face of potential abuses by monopoly firms. She said that implicit in this overly cautious approach is the notion that most unilateral conduct is driven by efficiency and that monopoly markets are generally self-correcting. “The recent developments in the marketplace should make it clear that we can no longer rely upon the marketplace alone to ensure that competition and consumers will be protected,” Varney added.

“I want to commend the efforts of those who participated in the Section 2 hearings,” said Varney. “While I do not agree with the conclusions of the Section 2 report, I do believe that the hearings and the report provided a valuable discussion of the enforcement issues involving single-firm conduct.”