Archives For international competition network

The Globalization of Antitrust: A Cost-Benefit Appraisal

Alden Abbott —  27 May 2021

Overview

Virtually all countries in the world have adopted competition laws over the last three decades. In a recent Mercatus Foundation Research Paper, I argue that the spread of these laws has benefits and risks. The abstract of my Paper states:

The United States stood virtually alone when it enacted its first antitrust statute in 1890. Today, almost all nations have adopted competition laws (the term used in most other nations), and US antitrust agencies interact with foreign enforcers on a daily basis. This globalization of antitrust is becoming increasingly important to the economic welfare of many nations, because major businesses (in particular, massive digital platforms like Google and Facebook) face growing antitrust scrutiny by multiple enforcement regimes worldwide. As such, the United States should take the lead in encouraging adoption of antitrust policies, here and abroad, that are conducive to economic growth and innovation. Antitrust policies centered on promoting consumer welfare would be best suited to advancing these desirable aims. Thus, the United States should oppose recent efforts (here and abroad) to turn antitrust into a regulatory system that seeks to advance many objectives beyond consumer welfare. American antitrust enforcers should also work with like-minded agencies—and within multilateral organizations such as the International Competition Network and the Organisation for Economic Cooperation and Development—to promote procedural fairness and the rule of law in antitrust enforcement.

A brief summary of my Paper follows.

Discussion

Widespread calls for “reform” of the American antitrust laws are based on the false premises that (1) U.S. economic concentration has increased excessively and competition has diminished in recent decades; and (2) U.S. antitrust enforcers have failed to effectively enforce the antitrust laws (the consumer welfare standard is sometimes cited as the culprit to blame for “ineffective” antitrust enforcement). In fact, sound economic scholarship, some of it cited in chapter 6 of the 2020 Economic Report of the President, debunks these claims. In reality, modern U.S. antitrust enforcement under the economics-based consumer welfare standard (despite being imperfect and subject to error costs) has done a good job overall of promoting competitive and efficient markets.

The adoption of competition laws by foreign nations was promoted by the U.S. Government. The development of European competition law in the 1950s, and its incorporation into treaties that laid the foundation for the European Union (EU), was particularly significant. The EU administrative approach to antitrust, based on civil law (as compared to the U.S. common law approach), has greatly influenced the contours of most new competition laws. The EU, like the U.S., focuses on anticompetitive joint conduct, single firm conduct, and mergers. EU enforcement (carried out through the European Commission’s Directorate General for Competition) initially relied more on formal agency guidance than American antitrust law, but it began to incorporate an economic effects-based consumer welfare-centric approach over the last 20 years. Nevertheless, EU enforcers still pay greater attention to the welfare of competitors than their American counterparts.

In recent years, the EU prosecutions of digital platforms have begun to adopt a “precautionary antitrust” perspective, which seeks to prevent potential monopoly abuses in their incipiency by sanctioning business conduct without showing that it is causing any actual or likely consumer harm. What’s more, the EU’s recently adopted “Digital Markets Act” for the first time imposes ex ante competition regulation of platforms. These developments reflect a move away from a consumer welfare approach. On the plus side, the EU (unlike the U.S.) subjects state-owned or controlled monopolies to liability for anticompetitive conduct and forbids anticompetitive government subsidies that seriously distort competition (“state aids”).

Developing and former communist bloc countries rapidly enacted and implemented competition laws over the last three decades. Many newly minted competition agencies suffer from poor institutional capacity. The U.S. Government and the EU have worked to enhance the quality and consistency of competition enforcement in these jurisdictions by supporting technical support and training.

Various institutions support efforts to improve competition law enforcement and develop support for a “competition culture.” The International Competition Network (ICN), established in 2001, is a “virtual network” comprised of almost all competition agencies. The ICN focuses on discrete projects aimed at procedural and substantive competition law convergence through the development of consensual, nonbinding “best practices” recommendations and reports. It also provides a significant role for nongovernmental advisers from the business, legal, economic, consumer, and academic communities, as well as for experts from other international organizations. ICN member agency staff are encouraged to communicate with each other about the fundamentals of investigations and evaluations and to use ICN-generated documents and podcasts to support training. The application of economic analysis to case-specific facts has been highlighted in ICN work product. The Organization for Economic Cooperation and Development (OECD) and the World Bank (both of which carry out economics-based competition policy research) have joined with the ICN in providing national competition agencies (both new and well established) with the means to advocate effectively for procompetitive, economically beneficial government policies. ICN and OECD “toolkits” provide strategies for identifying and working to dislodge (or not enact) anticompetitive laws and regulations that harm the economy.

While a fair degree of convergence has been realized, substantive uniformity among competition law regimes has not been achieved. This is not surprising, given differences among jurisdictions in economic development, political organization, economic philosophy, history, and cultural heritage—all of which may help generate a multiplicity of policy goals. In addition to consumer welfare, different jurisdictions’ competition laws seek to advance support for small and medium sized businesses, fairness and equality, public interest factors, and empowerment of historically disadvantaged persons, among other outcomes. These many goals may not take center stage in the evaluation of most proposed mergers or restrictive business arrangements, but they may affect the handling of particular matters that raise national sensitivities tied to the goals.

The spread of competition law worldwide has generated various tangible benefits. These include consensus support for combating hard core welfare-reducing cartels, fruitful international cooperation among officials dedicated to a pro-competition mission, and support for competition advocacy aimed at dismantling harmful government barriers to competition.

There are, however, six other factors that raise questions regarding whether competition law globalization has been cost-beneficial overall: (1) effective welfare-enhancing antitrust enforcement is stymied in jurisdictions where the rule of law is weak and private property is poorly protected; (2) high enforcement error costs (particularly in jurisdictions that consider factors other than consumer welfare) may undermine the procompetitive features of antitrust enforcement efforts; (3) enforcement demands by multiple competition authorities substantially increase the costs imposed on firms that are engaging in multinational transactions; (4) differences among national competition law rules create complications for national agencies as they seek to have their laws vindicated while maintaining good cooperative relationships with peer enforcers; (5) anticompetitive rent-seeking by less efficient rivals may generate counterproductive prosecutions of successful companies, thereby disincentivizing welfare-inducing business behavior; and (6) recent developments around the world suggest that antitrust policy directed at large digital platforms (and perhaps other dominant companies as well) may be morphing into welfare-inimical regulation. These factors are discussed at greater length in my paper.

One cannot readily quantify the positive and negative welfare effects of the consequences of competition law globalization. Accordingly, one cannot state with any degree of confidence whether globalization has been “good” or “bad” overall in terms of economic welfare.

Conclusion

The extent to which globalized competition law will be a boon to consumers and the global economy will depend entirely on the soundness of public policy decision-making.  The U.S. Government should take the lead in advancing a consumer welfare-centric competition policy at home and abroad. It should work with multilateral institutions and engage in bilateral and regional cooperation to support the rule of law, due process, and antitrust enforcement centered on the consumer welfare standard.

In Antitrust & Competition, Cartels, Error Costs, European Union, Facebook, Google, International, Platforms, Truth on the Market , , , , , ,
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The International Competition Network at Seventeen

Alden Abbott —  28 March 2018

Introduction

Last week I attended the 17th Annual Conference of the International Competition Network (ICN) held in New Delhi, India from March 21-23.  The Delhi Conference highlighted the key role of the ICN in promoting global convergence toward “best practices” in substantive and procedural antitrust analysis by national antitrust (“competition”) agencies.  The ICN operates as a virtual network of competition agencies and expert “non-governmental advisers” (NGAs), not governments.  As such, the ICN promulgates “recommended practices,” provides online training and other assistance to competition agencies, and serves as a forum for the building of relationships among competition officials (an activity which facilitates cooperation on particular matters and the exchange of advice on questions of antitrust policy and administration).  There is a general consensus among competition agencies and NGAs (I am one) that the ICN has accomplished a great deal since its launch in 2001 – indeed, it has far surpassed expectations.  Although (not surprisingly) inter-jurisdictional differences in perspective on particular competition issues remain, the ICN has done an excellent job in helping ensure that national competition agencies understand each other as they carry out their responsibilities.  By “speaking a common antitrust language,” informed by economic reasoning, agencies are better able to cooperate on individual matters and evaluate the merits of potential changes in law and procedure.

Pre-ICN Program Hosted by Competition Policy International (CPI)

Special one-day programs immediately preceding the ICN have proliferated in recent years.  On March 20, I participated in the small group one-day program hosted by Competition Policy International (CPI), attended by senior competition agency officials, private practitioners, and scholars.  This program featured a morning roundtable covering problems of extraterritoriality and an afternoon roundtable focused on competition law challenges in the digital economy.

The extraterritoriality session reflected the growing number of competition law matters (particularly cartels and mergers) that have effects in multiple jurisdictions.  There appeared to be general support for the proposition that a competition authority should impose remedies that have extraterritorial application only to the extent necessary to remedy harm to competition within the enforcing jurisdiction.  There also was a general consensus that it is very difficult for a competition authority to cede enforcement jurisdiction to a foreign authority, when the first authority finds domestic harm attributable to extraterritorial conduct and has the ability to assert jurisdiction.  Thus, although efforts to promote comity in antitrust enforcement are worthwhile, it must be recognized that there are practical limitations to such initiatives.  As such, a focus on enhancing coordination and cooperation among multiple agencies investigating the same conduct will be of paramount importance.

The digital economy roundtable directed particular attention to enforcement challenges raised by Internet “digital platforms” (e.g., Google, Facebook, Amazon).  In particular, with respect to digital platforms, roundtable participants discussed whether new business models and disruptive innovations create challenges to existing competition law and practices; what recent technology changes portend for market definition, assessment of market power, and other antitrust enforcement concepts; whether new analytic tools are required; and what are good mechanisms to harmonize regulation and competition enforcement.  Although there was no overall consensus on these topics, there was robust discussion of multi-sided market analysis and differences in approach to digital platform oversight.

An ICN Conference Overview

As in recent years, the ICN Conference itself featured set-piece (no Q&A) plenary sessions involving colloquies among top agency officials regarding cartels, unilateral conduct, mergers, advocacy, and agency effectiveness – the areas covered during the year by the ICN’s specialized working groups.  Numerous break-out sessions allowed ICN delegates to discuss in detail particular developments in these areas, and to evaluate and hash out the relative merits of competing approaches to problems.  At least seven generalizations can be drawn from the Delhi Conference’s deliberations.

First, other international organizations that initially had kept their distance from the ICN, specifically the OECD, the World Bank, and UNCTAD, now engage actively with the ICN.  This is a very positive development indeed.  Research carried out by the OECD on competition policy – for example, on the economic evaluation of regulatory approaches (important for competition advocacy), digital platforms, and public tenders – has been injected as “policy inputs” to discrete ICN initiatives.  Annual Competition advocacy contests cosponsored by the ICN and the World Bank have enabled a large number of agencies (particularly in developing countries) to showcase their successes in helping improve the competitive climate within their jurisdictions.  UNCTAD initiatives on competition and economic development can be effectively presented to new competition agencies through ICN involvement.

Second, competition authorities are focusing more intensively on “vertical mergers” involving firms at different levels of the distribution chain.  The ICN can help agencies be attentive to the need to weigh procompetitive efficiencies as well as new theories of anticompetitive harm in investigating these mergers.

Third, the transformation of economies worldwide through the Internet and the “digital revolution” is posing new challenges – and opportunities – for enforcers.  Policy analysis, informed by economics, is evolving in this area.

Fourth, cartels and bid rigging (collusion in public tenders was the showcase “special project” at the Delhi Conference) investigations remain as significant as ever.  Thinking on the administration of government leniency programs and “ex officio” investigations aimed at ferreting out cartels continues to be refined.

Fifth, the continuing growth in the number and scope of competition laws and the application of those laws to international commerce places a premium on enhanced coordination among competition agencies.  The ICN’s role in facilitating such cooperation thus assumes increased importance.

Sixth, issues of due process, or procedural fairness, commendably are generally recognized as important elements of effective agency administration.  Nevertheless, the precise contours of due process, and its specific application, are not uniform across agencies, and merit continued exploration by the ICN.

Seventh, the question of whether non-purely economic factors (such as fairness, corporate size, and the rights of workers) should be factored into competition analysis is gaining increased traction in a number of jurisdictions, and undoubtedly will be a subject of considerable debate in the years to come.

Conclusion

The ICN is by now a mature organization.  As a virtual network that relies on the power to persuade, not to dictate, it is dynamic, not static.  The ICN continues to respond flexibly to the changing needs of its many members and to global economic developments, within the context of the focused work carried out by its various substantive and process-related working groups.  The Delhi Conference provided a welcome opportunity for a timely review of its accomplishments and an assessment of its future direction.  In short, the ICN remains a highly useful vehicle for welfare-enhancing “soft convergence” among competition law regimes.

 

In Amazon, Antitrust & Competition, Cartels, Facebook, Google, Market Definition, Platforms, Truth on the Market , ,
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Foreign Export Cartels, Comity, and the Separation of Powers

Alden Abbott —  15 February 2018

Over the last two decades, the United States government has taken the lead in convincing jurisdictions around the world to outlaw “hard core” cartel conduct.  Such cartel activity reduces economic welfare by artificially fixing prices and reducing the output of affected goods and services.  At the same, the United States has acted to promote international cooperation among government antitrust enforcers to detect, investigate, and punish cartels.

In 2017, however, the U.S. Court of Appeal for the Second Circuit (citing concerns of “international comity”) held that a Chinese export cartel that artificially raised the price of vitamin imports into the United States should be shielded from U.S. antitrust penalties—based merely on one brief from a Chinese government agency that said it approved of the conduct. The U.S. Supreme Court is set to review that decision later this year, in a case styled Animal Science Products, Inc., v. Hebei Welcome Pharmaceutical Co. Ltd.  By overturning the Second Circuit’s ruling (and disavowing the overly broad “comity doctrine” cited by that court), the Supreme Court would reaffirm the general duty of federal courts to apply federal law as written, consistent with the constitutional separation of powers.  It would also reaffirm the importance of the global fight against cartels, which has reflected consistent U.S. executive branch policy for decades (and has enjoyed strong support from the International Competition Network, the OECD, and the World Bank).

Finally, as a matter of economic policy, the Animal Science Products case highlights the very real harm that occurs when national governments tolerate export cartels that reduce economic welfare outside their jurisdictions, merely because domestic economic interests are not directly affected.  In order to address this problem, the U.S. government should negotiate agreements with other nations under which the signatory states would agree:  (1) not to legally defend domestic exporting entities that impose cartel harm in other jurisdictions; and (2) to cooperate more fully in rooting out harmful export-cartel activity, wherever it is found.

For a more fulsome discussion of the separation of powers, international relations, and economic policy issues raised by the Animal Science Products case, see my recent Heritage Foundation Legal Memorandum entitled The Supreme Court and Animal Science Products: Sovereignty and Export Cartels.

In Antitrust & Competition, Cartels, China, Constitutional Law, Health Care, International, Pharmaceuticals, Supreme Court, Truth on the Market , , , , ,
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Fourth Annual Heritage Foundation Antitrust Conference: A Quick Summary

Alden Abbott —  26 January 2018

On January 23rd, the Heritage Foundation convened its Fourth Annual Antitrust Conference, “Trump Antitrust Policy after One Year.”  The entire Conference can be viewed online (here).  The Conference featured a keynote speech, followed by three separate panels that addressed  developments at the Federal Trade Commission (FTC), at the Justice Department’s Antitrust Division (DOJ), and in the international arena, developments that can have a serious effect on the country’s economic growth and expansion of our business and industrial sector.

  1. Professor Bill Kovacic’s Keynote Speech

The conference started with a bang, featuring a stellar keynote speech (complemented by excellent power point slides) by GW Professor and former FTC Chairman Bill Kovacic, who also serves as a Member of the Board of the UK Government’s Competitive Markets Authority.  Kovacic began by noting the claim by senior foreign officials that “nothing is happening” in U.S. antitrust enforcement.  Although this perception may be inaccurate, Kovacic argued that it colors foreign officials’ dealings with the U.S., and continues a preexisting trend of diminishing U.S. influence on foreign governments’ antitrust enforcement systems.  (It is widely believed that the European antitrust model is dominant internationally.)

In order to enhance the perceived effectiveness (and prestige) of American antitrust on the global plane, American antitrust enforcers should, according to Kovacic, adopt a positive agenda citing specific priorities for action (as opposed to a “negative approach” focused on what actions will not be taken) – an orientation which former FTC Chairman Muris employed successfully in the last Bush Administration.  The positive engagement themes should be communicated powerfully to the public here and abroad through active public engagement by agency officials.  Agency strengths, such as FTC market studies and economic expertise, should be highlighted.

In addition, the FTC and Justice Department should act more like an “antitrust policy joint venture” at home and abroad, extending cooperation beyond guidelines to economic research, studies, and other aspects of their missions.  This would showcase the outstanding capabilities of the U.S. public antitrust enterprise.

  1. FTC Panel

A panel on FTC developments (moderated by Dr. Jeff Eisenach, Managing Director of NERA Economic Consulting and former Chief of Staff to FTC Chairman James Miller) followed Kovacic’s presentation.

Acting Bureau of Competition Chief Bruce Hoffman began by stressing that FTC antitrust enforcers are busier than ever, with a number of important cases in litigation and resources stretched to the limit.  Thus, FTC enforcement is neither weak nor timid – to the contrary, it is quite vigorous.  Hoffman was surprised by recent political attacks on the 40 year bipartisan consensus regarding the economics-centered consumer welfare standard that has set the direction of U.S. antitrust enforcement.  According to Hoffman, noted economist Carl Shapiro has debunked the notion that supposed increases in industry concentration even at the national level are meaningful.  In short, there is no empirical basis to dethrone the consumer welfare standard and replace it with something else.

Other former senior FTC officials engaged in a discussion following Hoffman’s remarks.  Orrick Partner Alex Okuliar, a former Attorney-Advisor to FTC Acting Chairman Maureen Ohlhausen, noted Ohlhausen’s emphasis on “regulatory humility” ( recognizing the inherent limitations of regulation and acting in accordance with those limits) and on the work of the FTC’s Economic Liberty Task Force, which centers on removing unnecessary regulatory restraints on competition (such as excessive occupational licensing requirements).

Wilson Sonsini Partner Susan Creighton, a former Director of the FTC’s Bureau of Competition, discussed the importance of economics-based “technocratic antitrust” (applied by sophisticated judges) for a sound and manageable antitrust system – something still not well understood by many foreign antitrust agencies.  Creighton had three reform suggestions for the Trump Administration:

(1) the DOJ and the FTC should stress the central role of economics in the institutional arrangements of antitrust (DOJ’s “economics structure” is a bit different than the FTC’s);

(2) both agencies should send relatively more economists to represent us at antitrust meetings abroad, thereby enabling the agencies to place a greater stress on the importance of economic rigor in antitrust enforcement; and

(3) the FTC and the DOJ should establish a task force to jointly carry out economics research and hone a consistent economic policy message.

Sidley & Austin Partner Bill Blumenthal, a former FTC General Counsel, noted the problems of defining Trump FTC policy in the absence of new Trump FTC Commissioners.  Blumenthal noted that signs of a populist uprising against current antitrust norms extend beyond antitrust, and that the agencies may have to look to new unilateral conduct cases to show that they are “doing something.”  He added that the populist rejection of current economics-based antitrust analysis is intellectually incoherent.  There is a tension between protecting consumers and protecting labor; for example, anti-consumer cartels may be beneficial to labor union interests.

In a follow-up roundtable discussion, Hoffman noted that theoretical “existence theorems” of anticompetitive harm that lack empirical support in particular cases are not administrable.  Creighton opined that, as an independent agency, the FTC may be a bit more susceptible to congressional pressure than DOJ.  Blumenthal stated that congressional interest may be able to trigger particular investigations, but it does not dictate outcomes.

  1. DOJ Panel

Following lunch, a panel of antitrust experts (moderated by Morgan Lewis Partner and former Chief of Staff to the Assistant Attorney General Hill Wellford) addressed DOJ developments.

The current Principal Deputy Assistant Attorney General for Antitrust, Andrew Finch, began by stating that the three major Antitrust Division initiatives involve (1) intellectual property (IP), (2) remedies, and (3) criminal enforcement.  Assistant Attorney General Makan Delrahim’s November 2017 speech explained that antitrust should not undermine legitimate incentives of patent holders to maximize returns to their IP through licensing.  DOJ is looking into buyer and seller cartel behavior (including in standard setting) that could harm IP rights.  DOJ will work to streamline and improve consent decrees and other remedies, and make it easier to go after decree violations.  In criminal enforcement, DOJ will continue to go after “no employee poaching” employer agreements as criminal violations.

Former Assistant Attorney General Tom Barnett, a Covington & Burling Partner, noted that more national agencies are willing to intervene in international matters, leading to inconsistencies in results.  The International Competition Network is important, but major differences in rhetoric have created a sense that there is very little agreement among enforcers, although the reality may be otherwise.  Muted U.S. agency voices on the international plane and limited resources have proven unfortunate – the FTC needs to engage better in international discussions and needs new Commissioners.

Former Counsel to the Assistant Attorney Eric Grannon, a White & Case Partner, made three specific comments:

(1) DOJ should look outside the career criminal enforcement bureaucracy and consider selecting someone with significant private sector experience as Deputy Assistant Attorney General for Criminal Enforcement;

(2) DOJ needs to go beyond merely focusing on metrics that show increased aggregate fines and jail time year-by-year (something is wrong if cartel activities and penalties keep rising despite the growing emphasis on inculcating an “anti-cartel culture” within firms); and

(3) DOJ needs to reassess its “amnesty plus” program, in which an amnesty applicant benefits by highlighting the existence of a second cartel in which it participates (non-culpable firms allegedly in the second cartel may be fingered, leading to unjustified potential treble damages liability for them in private lawsuits).

Grannon urged that DOJ hold a public workshop on the amnesty plus program in the coming year.  Grannon also argued against the classification of antitrust offenses as crimes of “moral turpitude” (moral turpitude offenses allow perpetrators to be excluded from the U.S. for 20 years).  Finally, as a good government measure, Grannon recommended that the Antitrust Division should post all briefs on its website, including those of opposing parties and third parties.

Baker and Botts Partner Stephen Weissman, a former Deputy Director of the FTC’s Bureau of Competition, found a great deal of continuity in DOJ civil enforcement.  Nevertheless, he expressed surprise at Assistant Attorney General Delrahim’s recent remarks that suggested that DOJ might consider asking the Supreme Court to overturn the Illinois Brick ban on indirect purchaser suits under federal antitrust law.  Weissman noted the increased DOJ focus on the rights of IP holders, not implementers, and the beneficial emphasis on the importance of DOJ’s amicus program.

The following discussion among the panelists elicited agreement (Weissman and Barnett) that the business community needs more clear-cut guidance on vertical mergers (and perhaps on other mergers as well) and affirmative statements on DOJ’s plans.  DOJ was characterized as too heavy-handed in setting timing agreements in mergers.  The panelists were in accord that enforcers should continue to emphasize the American consumer welfare model of antitrust.  The panelists believed the U.S. gets it right in stressing jail time for cartelists and in detrebling for amnesty applicants.  DOJ should, however, apply a proper dose of skepticism in assessing the factual content of proffers made by amnesty applicants.  Former enforcers saw no need to automatically grant markers to those applicants.  Andrew Finch returned to the topic of Illinois Brick, explaining that the Antitrust Modernization Commission had suggested reexamining that case’s bar on federal indirect purchaser suits.  In response to an audience question as to which agency should do internet oversight, Finch stressed that relevant agency experience and resources are assessed on a matter-specific basis.

  1. International Panel

The last panel of the afternoon, which focused on international developments, was moderated by Cadwalader Counsel (and former Attorney-Advisor to FTC Chairman Tim Muris) Bilal Sayyed.

Deputy Assistant Attorney General for International Matters, Roger Alford, began with an overview of trade and antitrust considerations.  Alford explained that DOJ adds a consumer welfare and economics perspective to Trump Administration trade policy discussions.  On the international plane, DOJ supports principles of non-discrimination, strong antitrust enforcement, and opposition to national champions, plus the addition of a new competition chapter in “NAFTA 2.0” negotiations.  The revised 2017 DOJ International Antitrust Guidelines dealt with economic efficiency and the consideration of comity.  DOJ and the Executive Branch will take into account the degree of conflict with other jurisdictions’ laws (fleshing out comity analysis) and will push case coordination as well as policy coordination.  DOJ is considering new ideas for dealing with due process internationally, in addition to working within the International Competition Network to develop best practices.  Better international coordination is also needed on the cartel leniency program.

Next, Koren Wong-Ervin, Qualcomm Director of IP and Competition Policy (and former Director of the Scalia Law School’s Global Antitrust Institute) stated that the Korea Fair Trade Commission had ignored comity and guidance from U.S. expert officials in imposing global licensing remedies and penalties on Qualcomm.  The U.S. Government is moving toward a sounder approach on the evaluation of standard essential patents, as is Europe, with a move away from required component-specific patent licensing royalty determinations.  More generally, a return to an economic effects-based approach to IP licensing is important.  Comprehensive revisions to China’s Anti-Monopoly Law, now under consideration, will have enormous public policy importance.  Balanced IP licensing rules, with courts as gatekeepers, are important.  Chinese law still has overly broad essential facilities and deception law; IP price regulation proposals are very troublesome.  New FTC Commissioners are needed, accompanied by robust budget support for international work.

Latham & Watkins’ Washington, D.C. Managing Partner Michael Egge focused on the substantial divergence in merger enforcement practice around the world.  The cost of compliance imposed by European Commission pre-notification filing requirements is overly high; this pre-notification practice is not written down and has escaped needed public attention.  Chinese merger filing practice (“China is struggling to cope”) features a costly 1-3 month pre-filing acceptance period, and merger filing requirements in India are particularly onerous.

Jim Rill, former Assistant Attorney General for Antitrust and former ABA Antitrust Section Chair, stressed that due process improvements can help promote substantive antitrust convergence around the globe.  Rill stated that U.S. Government officials, with the assistance of private sector stakeholders, need a mechanism (a “report card”) to measure foreign agencies’ implementation of OECD antitrust recommendations.  U.S. Government officials should consider participating in foreign proceedings where the denial of due process is blatant, and where foreign governments indirectly dictate a particular harmful policy result.  Multilateral review of international agreements is valuable as well.  The comity principles found in the 1991 EU-U.S. Antitrust Cooperation Agreement are quite useful.  Trade remedies in antitrust agreements are not a competition solution, and are not helpful.  More and better training programs for foreign officials are called for; International Chamber of Commerce, American Bar Association, and U.S. Chamber of Commerce principles are generally sound.  Some consideration should be given to old ICPAC recommendations, such as (perhaps) the development of a common merger notification form for use around the world.

Douglas Ginsburg, Senior Judge (and former Chief Judge) of the U.S. Court of Appeals for the D.C. Circuit, and former Assistant Attorney General for Antitrust, spoke last, focusing on the European Court of Justice’s Intel decision, which laid bare the deficiencies in the European Commission’s finding of a competition law violation in that matter.

In a brief closing roundtable discussion, Roger Alford suggested possible greater involvement by business community stakeholders in training foreign antitrust officials.

  1. Conclusion

Heritage Foundation host Alden Abbott closed the proceedings with a brief capsule summary of panel highlights.  As in prior years, the Fourth Annual Heritage Antitrust Conference generated spirited discussion among the brightest lights in the American antitrust firmament on recent developments and likely trends in antitrust enforcement and policy development, here and abroad.

In Antitrust & Competition, Antitrust Division, Cartels, China, European Union, Federal Trade Commission, Intellectual Property, International, Justice Department, Patent, Standard Setting, Truth on the Market, United Kingdom , , , , ,
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The Present State and Future Prospects of the International Competition Network (ICN)

Alden Abbott —  19 May 2017
  1. Introduction

The International Competition Network (ICN), a “virtual” organization comprised of most of the world’s competition (antitrust) agencies and expert non-governmental advisors (NGAs), held its Sixteenth Annual Conference in Porto, Portugal from May 10-12. (I attended this Conference as an NGA.) Now that the ICN has turned “sweet sixteen,” a stocktaking is appropriate. The ICN can point to some significant accomplishments, but faces major future challenges. After describing those challenges, I advance four recommendations for U.S.-led initiatives to enhance the future effectiveness of the ICN.

  1. ICN Background and Successes

The ICN, whose key objective is to promote “soft convergence” among competition law regimes, has much to celebrate. It has gone from a small core of competition authorities focused on a limited set of issues to a collection of 135 agencies from 122 far-flung jurisdictions, plus a large cadre of NGA lawyers and economists who provide practical and theoretical advice. The ICN’s nature and initiatives are concisely summarized on its website:

The ICN provides competition authorities with a specialized yet informal venue for maintaining regular contacts and addressing practical competition concerns. This allows for a dynamic dialogue that serves to build consensus and convergence towards sound competition policy principles across the global antitrust community.

The ICN is unique as it is the only international body devoted exclusively to competition law enforcement and its members represent national and multinational competition authorities. Members produce work products through their involvement in flexible project-oriented and results-based working groups. Working group members work together largely by Internet, telephone, teleseminars and webinars.

Annual conferences and workshops provide opportunities to discuss working group projects and their implications for enforcement. The ICN does not exercise any rule-making function. Where the ICN reaches consensus on recommendations, or “best practices”, arising from the projects, individual competition authorities decide whether and how to implement the recommendations, through unilateral, bilateral or multilateral arrangements, as appropriate.

The Porto Conference highlighted the extent of the ICN’s influence. Representatives from key international organizations that focus on economic growth and development (and at one time were viewed as ICN “rivals”), including the OECD, the World Bank, and UNCTAD, participated in the Conference. A feature in recent years, the one-day “Pre-ICN” Forum jointly sponsored by the World Bank, the International Chamber of Commerce, and the International Bar Association, this year shared the spotlight with other “sidebar” events (for example, an antitrust symposium cosponsored by UNCTAD and the Japan Fair Trade Commission, an “African Competition Forum,” and a roundtable of former senior officials and academics sponsored by a journal). The Porto Conference formally adopted an impressive array of documents generated over the past year by the ICN’s various Working Groups (the Advocacy, Agency Effectiveness, Cartel, Merger, and Unilateral Conduct Working Groups) (see here and here). This work product focuses on offering practical advice to agencies, rather than theoretical academic speculation. If recent history is in any indication, a substantial portion of this advice will be incorporated within some national laws, and various agencies guidance documents, and strategic plans.

In sum, the ICN is an increasingly influential organization. More importantly, it has, on balance, been a force for the promotion of sound policies on such issues as pre-merger notifications and cartel enforcement – policies that reduce transaction costs for the private sector and tend to improve the quality of antitrust enforcement. It has produced valuable training materials for agencies. Furthermore, the ICN’s Advocacy Working Group, buoyed by a growing amount of academic research (some of it supported by the World Bank), increasingly has highlighted the costs of anticompetitive government laws and regulations, and provided a template for assessing and critiquing regulatory schemes that undermine the competitive process. Most recently, the revised chapter on the “analytical framework for evaluating unilateral exclusionary conduct” issued at the 2017 Porto Conference did a solid job of describing the nature of harm to the competitive process and the need to consider error costs in evaluating such conduct. Other examples of welfare-enhancing ICN proposals abound.

  1. Grounds for Caution Going Forward

Nevertheless, despite its generally good record, one must be cautious in evaluating the ICN’s long-term prospects, for at least five reasons.

First, as the ICN tackles increasingly contentious issues (such as the assessment of vertical restraints, which are part of the 2017-2018 ICN Work Plan, and “dominant” single firm “platforms,” cited specifically by ICN Chairman Andreas Mundt in Porto), the possibility for controversy and difficulty in crafting recommendations rises.

Second, most ICN members have adopted heavily administrative competition law frameworks that draw upon an inquisitorial civil law model, as opposed to the common law adversarial legal system in which independent courts conduct full legal reviews of agency conclusions. Public choice analysis (not to mention casual empiricism and common sense) indicates that as they become established, administrative agencies will have a strong incentive to “do something” in order to expand their authority. Generally speaking, sound economic analysis (bolstered by large staffs of economists) that stresses consumer welfare has been incorporated into U.S. federal antitrust enforcement decisions and federal antitrust jurisprudence – but that is not the case in large parts of the world. As its newer member agencies grow in size and influence, the ICN may be challenged by those authorities to address “novel” practices that stray beyond well-understood competition law categories. As a result, innovative welfare-enhancing business innovations could be given unwarranted scrutiny and thereby discouraged.

Third, as various informed commentators in Porto noted, many competition laws explicitly permit consideration of non-economic welfare-based goals, such as “industrial policy” (including promotion of “national champion” competitors), “fairness,” and general “public policy.” Such ill-defined statutory goals allow competition agencies (and, of course, politicians who may exercise influence over those agencies) to apply competition statutes in an unpredictable manner that has nothing to do with (indeed, may be antithetical to) promotion of a vigorous competitive process and consumer welfare. With the proliferation of international commerce, the costly uncertainty injected into business decision-making by malleable antitrust statutes becomes increasingly significant. The ICN, which issues non-binding recommendations and advice and relies on voluntary interagency cooperation, may have little practical ability to fend off such welfare-inimical politicization of antitrust.

Fourth, for nearly a decade United States antitrust agencies have expressed concern in international forums about lack of due process in competition enforcement. Commendably, in 2015 the ICN did issue guidance regarding “key investigative principles and practices important to effective and fair investigative process”, but this guidance did not address administrative hearings and enforcement actions, which remain particularly serious concerns. The ICN’s ability to drive a “due process improvements” agenda may be inherently limited, due to differences among ICN members’ legal systems and sensitivities regarding the second-guessing of national enforcement norms associated with the concept of “due process.”

Fifth, there is “the elephant outside the room.” One major jurisdiction, China, still has not joined the ICN. Given China’s size, importance in the global economy, and vigorous enforcement of its completion law, China’s “absence from “the table” is a significant limitation on the ICN’s ability to promote economically meaningful global policy convergence. (Since Hong Kong, a “special administrative region” of China, has joined the ICN, one may hope that China itself will consider opting for ICN membership in the not too distant future.)

  1. What Should the U.S. Antitrust Agencies Do?

Despite the notes of caution regarding the ICN’s future initiatives and effectiveness, the ICN will remain for the foreseeable future a useful forum for “nudging” members toward improvements in their competition law systems, particularly in key areas such as cartel enforcement, merger review, and agency effectiveness (internal improvements in agency management may improve the quality of enforcement and advocacy initiatives). Thus, the U.S. federal antitrust agencies, the Justice Department’s Antitrust Division (DOJ) and the Federal Trade Commission (FTC), should (and undoubtedly will) remain fully engaged with the ICN. DOJ and the FTC not only should remain fully engaged in the ICN’s Working Groups, they should also develop a strategy for minimizing the negative effects of the ICN’s limitations and capitalizing on its strengths. What should such a strategy entail? Four key elements come to mind.

First, the FTC and DOJ should strongly advocate against an ICN focus on expansive theories of liability for unilateral conduct (particularly involving such areas as popular Internet “platforms” (e.g., Google, Facebook, and Amazon, among others) and vertical restraints), not tied to showings of harm to the competitive process. The proliferation of cases based on such theories could chill economically desirable business innovations. In countering such novel and expansive condemnations of unilateral conduct, the U.S. agencies could draw upon the extensive law and economics literature on efficiencies and unilateral conduct in speeches, publications, and presentations to ICN Working Groups. To provide further support for their advocacy, the FTC and DOJ should also consider issuing a new joint statement of unilateral conduct enforcement principles, inspired by the general lines of the 2008 DOJ Report on Single Firm Conduct Under Section 2 of the Sherman Act (regrettably withdrawn by the Obama Administration DOJ in 2009). Relatedly, the FTC and DOJ should advocate the right of intellectual property (IP) holders legitimately to maximize returns on their holdings. The U.S. agencies also should be prepared to argue against novel theories of antitrust liability untethered from traditional concepts of antitrust harm, based on the unilateral exploitation of IP rights (see here, here, here, and here).

Second, the U.S. agencies should promote a special ICN project on decision theory and competition law enforcement (see my Heritage Foundation commentary here), under the aegis of the ICN’s Agency Effectiveness Working Group. A decision-theoretic framework aims to minimize the costs of antitrust administration and enforcement error, in order to promote cost-beneficial enforcement outcomes. ICN guidance on decision theory (which would stress the primacy of empirical analysis and the need for easily administrable rules) hopefully would encourage competition agencies to focus on clearly welfare-inimical practices, and avoid pursuing fanciful new theories of antitrust violations unmoored from robust theories of competitive harm. The FTC and DOJ should also work to inculcate decision theory into the work of the core ICN Cartel and Merger Working Groups (see here).

Third, the U.S. agencies should also encourage the ICN’s Agency Effectiveness Working Group to pursue a comprehensive “due process” initiative, focused on guaranteeing fundamental fairness to parties at all stages of a competition law proceeding.  An emphasis on basic universal notions of fairness would transcend the differences inherent in civil law and common law administrative processes. It would suggest a path forward whereby agencies could agree on the nature of basic rights owed litigants, while still preserving differences among administrative enforcement models. Administrative procedure recommendations developed by the American Bar Association’s Antitrust Section in 2015 (see here) offer a good template for consideration, and 2012 OECD deliberations on fairness and transparency (see here) yield valuable background analysis. Consistent with these materials, the U.S. agencies could stress that due process reforms to protect basic rights would not only improve the quality of competition authority decision-making, it would also enhance economic welfare and encourage firms from around the world to do business in reforming jurisdictions. (As discussed above, due process raises major sensitivities, and thus the push for due process improvements should be viewed as a long-term project that will have to be pursued vigorously and very patiently.)

Fourth, working through the ICN’s Advocacy Working Group, the FTC and DOJ should push to substantially raise the profile of competition advocacy at the ICN. A growing body of economic research reveals the enormous economic gains that could be unlocked within individual countries by the removal of anticompetitive laws and rules, particularly those that create artificial barriers to entry and distort trade (see, for example, here and here). The U.S. agencies should emphasize the negative consequences for poorer consumers, reduced innovation, and foregone national income due to many of these anticompetitive barriers, drawing upon research by World Bank and OECD scholars (see here). (Fortunately, the ICN already works with the World Bank to promote an annual contest that showcases economic “success stories” due to agency advocacy.) The FTC and DOJ should also use the ICN as a forum to recommend that national competition authorities accord competition advocacy aimed at domestic regulatory reform relatively more resources and attention, particularly compared to investigations of vertical restraints and novel unilateral conduct. It should also work within the ICN’s guidance and oversight body, the “Steering Group,” to make far-reaching competition advocacy initiatives a top ICN priority.

  1. Conclusion

The ICN is a worthwhile international organization that stands at a crossroads. Having no permanent bureaucracy (its website is maintained by the Canadian Competition Bureau), and relying in large part on online communications among agency staff and NGAs to carry out its work, the ICN represents a very good investment of scare resources by the U.S. Government. Absent thoughtful guidance, however, there is a danger that it could drift and become less effective at promoting welfare-enhancing competition law improvements around the world. To avert such an outcome, U.S. antitrust enforcement agencies (joined by like-minded ICN members from other jurisdictions) should proactively seek to have the ICN take up new projects that hold out the promise for substantive and process-based improvements in competition policy worldwide, including far-reaching regulatory reform. A positive ICN response to such initiatives would enhance the quality of competition policy. Moreover, it could contribute in no small fashion to increased economic welfare and innovation in those jurisdictions that adopted reforms in response to the ICN’s call. American businesses operating internationally also would benefit from improvements in the global competition climate generated by ICN-incentivized reforms.

 

 

 

In Amazon, Antitrust & Competition, Antitrust Division, Barriers to Entry, China, Economic Theory, Error Costs, Exclusionary Conduct, Facebook, Federal Trade Commission, Google, Intellectual Property, International, International Trade, Justice Department, Platforms, Regulation, Regulatory Reform, Truth on the Market, Vertical Restraints , , , , , , ,
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Competition Policy for a New Administration

Alden Abbott —  23 November 2016

As Truth on the Market readers prepare to enjoy their Thanksgiving dinners, let me offer some (hopefully palatable) “food for thought” on a competition policy for the new Trump Administration.  In referring to competition policy, I refer not just to lawsuits directed against private anticompetitive conduct, but more broadly to efforts aimed at curbing government regulatory barriers that undermine the competitive process.

Public regulatory barriers are a huge problem.  Their costs have been highlighted by prestigious international research bodies such as the OECD and World Bank, and considered by the International Competition Network’s Advocacy Working Group.  Government-imposed restrictions on competition benefit powerful incumbents and stymie entry by innovative new competitors.  (One manifestation of this that is particularly harmful for American workers and denies job opportunities to millions of lower-income Americans is occupational licensing, whose increasing burdens are delineated in a substantial body of research – see, for example, a 2015 Obama Administration White House Report and a 2016 Heritage Foundation Commentary that explore the topic.)  Federal Trade Commission (FTC) and Justice Department (DOJ) antitrust officials should consider emphasizing “state action” lawsuits aimed at displacing entry barriers and other unwarranted competitive burdens imposed by self-interested state regulatory boards.  When the legal prerequisites for such enforcement actions are not met, the FTC and the DOJ should ramp up their “competition advocacy” efforts, with the aim of convincing state regulators to avoid adopting new restraints on competition – and, where feasible, eliminating or curbing existing restraints.

The FTC and DOJ also should be authorized by the White House to pursue advocacy initiatives whose goal is to dismantle or lessen the burden of excessive federal regulations (such advocacy played a role in furthering federal regulatory reform during the Ford and Carter Administrations).  To bolster those initiatives, the Trump Administration should consider establishing a high-level federal task force on procompetitive regulatory reform, in the spirit of previous reform initiatives.  The task force would report to the president and include senior level representatives from all federal agencies with regulatory responsibilities.  The task force could examine all major regulatory and statutory schemes overseen by Executive Branch and independent agencies, and develop a list of specific reforms designed to reduce federal regulatory impediments to robust competition.  Those reforms could be implemented through specific regulatory changes or legislative proposals, as the case might require.  The task force would have ample material to work with – for example, anticompetitive cartel-like output restrictions, such as those allowed under federal agricultural orders, are especially pernicious.  In addition to specific cartel-like programs, scores of regulatory regimes administered by individual federal agencies impose huge costs and merit particular attention, as documented in the Heritage Foundation’s annual “Red Tape Rising” reports that document the growing burden of federal regulation (see, for example, the 2016 edition of Red Tape Rising).

With respect to traditional antitrust enforcement, the Trump Administration should emphasize sound, empirically-based economic analysis in merger and non-merger enforcement.  They should also adopt a “decision-theoretic” approach to enforcement, to the greatest extent feasible.  Specifically, in developing their enforcement priorities, in considering case selection criteria, and in assessing possible new (or amended) antitrust guidelines, DOJ and FTC antitrust enforcers should recall that antitrust is, like all administrative systems, inevitably subject to error costs.  Accordingly, Trump Administration enforcers should be mindful of the outstanding insights provide by Judge (and Professor) Frank Easterbrook on the harm from false positives in enforcement (which are more easily corrected by market forces than false negatives), and by Justice (and Professor) Stephen Breyer on the value of bright line rules and safe harbors, supported by sound economic analysis.  As to specifics, the DOJ and FTC should issue clear statements of policy on the great respect that should be accorded the exercise of intellectual property rights, to correct Obama antitrust enforcers’ poor record on intellectual property protection (see, for example, here).  The DOJ and the FTC should also accord greater respect to the efficiencies associated with unilateral conduct by firms possessing market power, and should consider reissuing an updated and revised version of the 2008 DOJ Report on Single Firm Conduct).

With regard to international competition policy, procedural issues should be accorded high priority.  Full and fair consideration by enforcers of all relevant evidence (especially economic evidence) and the views of all concerned parties ensures that sound analysis is brought to bear in enforcement proceedings and, thus, that errors in antitrust enforcement are minimized.  Regrettably, a lack of due process in foreign antitrust enforcement has become a matter of growing concern to the United States, as foreign competition agencies proliferate and increasingly bring actions against American companies.  Thus, the Trump Administration should make due process problems in antitrust a major enforcement priority.  White House-level support (ensuring the backing of other key Executive Branch departments engaged in foreign economic policy) for this priority may be essential, in order to strengthen the U.S. Government’s hand in negotiations and consultations with foreign governments on process-related concerns.

Finally, other international competition policy matters also merit close scrutiny by the new Administration.  These include such issues as the inappropriate imposition of extraterritorial remedies on American companies by foreign competition agencies; the harmful impact of anticompetitive foreign regulations on American businesses; and inappropriate attacks on the legitimate exercise of intellectual property by American firms (in particular, American patent holders).  As in the case of process-related concerns, White House attention and broad U.S. Government involvement in dealing with these problems may be essential.

That’s all for now, folks.  May you all enjoy your turkey and have a blessed Thanksgiving with friends and family.

In Antitrust & Competition, Error Costs, Federal Trade Commission, Intellectual Property, International, Justice Department, Patent, Regulation, Regulatory Reform, Truth on the Market , , , , , , , ,
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ICN Advocacy Workshop a Success

Alden Abbott —  10 November 2016

On November 1st and 2nd, Cofece, the Mexican Competition Agency, hosted an International Competition Network (ICN) workshop on competition advocacy, featuring presentations from government agency officials, think tanks, and international organizations.  The workshop highlighted the excellent work that the ICN has done in supporting efforts to curb the most serious source of harm to the competitive process worldwide:  government enactment of anticompetitive regulatory schemes and guidance, often at the behest of well-connected, cronyist rent-seeking businesses that seek to protect their privileges by imposing costs on rivals.

The ICN describes the goal of its Advocacy Working Group in the following terms:

The mission of the Advocacy Working Group (AWG) is to undertake projects, to develop practical tools and guidance, and to facilitate experience-sharing among ICN member agencies, in order to improve the effectiveness of ICN members in advocating the dissemination of competition principles and to promote the development of a competition culture within society. Advocacy reinforces the value of competition by educating citizens, businesses and policy-makers. In addition to supporting the efforts of competition agencies in tackling private anti-competitive behaviour, advocacy is an important tool in addressing public restrictions to competition. Competition advocacy in this context refers to those activities conducted by the competition agency, that are related to the promotion of a competitive environment by means of non-enforcement mechanisms, mainly through its relationships with other governmental entities and by increasing public awareness in regard to the benefits of competition.  

At the Cofece workshop, I moderated a panel on “stakeholder engagement in the advocacy process,” featuring presentations by representatives of Cofece, the Japan Fair Trade Commission, and the Organization for Economic Cooperation and Development.  As I emphasized in my panel presentation:

Developing an appropriate competition advocacy strategy is key to successful interventions.  Public officials should be mindful of the relative importance of particular advocacy targets, as well as matter-specific political constraints and competing stakeholder interests.  In particular, a competition authority may greatly benefit by identifying and motivating stakeholders who are directly affected by the competitive restraints that are targeted by advocacy interventions.  The active support of such stakeholders may be key to the success of an advocacy initiative.  More generally, by reaching out to business and consumer stakeholders, a competition authority may build alliances that will strengthen its long-term ability to be effective in promoting a pro-competition agenda. 

The U.S. Federal Trade Commission, the FTC, has developed a well-thought-out approach to building strong relationships with stakeholders.  The FTC holds public publicized workshops highlighting emerging policy issues, in which NGAs and civil society representatives with expertise are invited to participate.  Its personnel (and, in particular, its head) speak before a variety of audiences to inform them of what the FTC is doing and of the opportunities for advocacy filings.  It reaches out to civil society groups and the general public through the media, utilizing the Internet and other sources of public information dissemination.  It is willing to hold informal non-public meetings with NGAs and civil society representatives to hear their candid views and concerns off the record.  It carries out major studies (often following up on information gathered at workshops and from non-government sources) in addition to making advocacy filings.  It interacts closely with substantive FTC enforcers and economists to obtain “leads” that may inform future advocacy projects and to suggest possible lines for substantive investigations, based on the input it has received.  It communicates with other competition authorities on advocacy strategies.  Other competition authorities may wish to note the FTC’s approach in organizing their own advocacy programs.  

Competition authorities would also benefit from consulting the ICN Market Studies Good Practice Handbook, last released in updated form at the April 2016 ICN 15th Annual Conference.  This discussion of the role of stakeholders, though presented in the context of market studies, provides insights that are broadly applicable more generally to the competition advocacy process.  As the Handbook explains, stakeholders are any individuals, groups of individuals, or organizations that have an interest in a particular market or that can be affected by market conditions.  The Handbook explains the crucial inputs that stakeholders can provide a competition authority and how engaging with stakeholders can influence the authority’s reputation.  The Handbook emphasizes that a stakeholder engagement strategy can be used to determine whether particular stakeholders will be influential, supportive, or unsupportive to a particular endeavor; to consider the input expected from the various stakeholders and plan for soliciting and using this input; and to describing how and when the authority will seek to engage stakeholders.  The Handbook provides a long list of categories of stakeholders and suggests ways of reaching out to stakeholders, including through public consultations, open seminars, workshops, and roundtables.  Next, the Handbook presents tactics for engaging with stakeholders.  The Handbook closes by summarizing key good practices, including publicly soliciting broad voluntary stakeholder engagement, developing a stakeholder engagement strategy early in a particular process, and reviewing and updating the engagement strategy as necessary throughout a particular competition authority undertaking.

In sum, properly conducted advocacy initiatives, along with investigations of hard core cartels, are among the highest-valued uses of limited competition agency resources.  To the extent advocacy succeeds in unraveling government-imposed impediments to effective competition, it pays long-run dividends in terms of enhanced consumer welfare, greater economic efficiency, and more robust economic growth.  Let us hope that governments around the world (including, of course, the United States Government) keep this in mind in making resource commitments and setting priorities for their competition agencies.

In Antitrust & Competition, Cartels, Federal Trade Commission, Truth on the Market , , ,
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Acting AAG’s Policy Speech Sends the Wrong Signals on Antitrust Enforcement (or “a Wild Ride Back to the Fifties and Sixties”)

Alden Abbott —  22 September 2016

In a September 20 speech at the high profile Georgetown Global Antitrust Enforcement Symposium, Acting Assistant Attorney General Renata Hesse sent the wrong signals to the business community and to foreign enforcers (see here) regarding U.S. antitrust policy.  Admittedly, a substantial part of her speech was a summary of existing U.S. antitrust doctrine.  In certain other key respects, however, Ms. Hesse’s remarks could be read as a rejection of the mainstream American understanding (and the accepted approach endorsed by the International Competition Network) that promoting economic efficiency and consumer welfare are the antitrust lodestar, and that non-economic considerations should not be part of antitrust analysis.  Because foreign lawyers, practitioners, and enforcement officials were present, Ms. Hesse’s statement not only could be cited against U.S. interests in foreign venues, it could undermine longstanding efforts to advance international convergence toward economically sound antitrust rules.

Let’s examine some specifics.

Ms. Hesse’s speech begins with a paean to “economic fairness” – a theme that runs counter to the theme that leading federal antitrust enforcers have consistently stressed for decades, namely, that antitrust seeks to advance the economic goal of consumer welfare (and efficiency).  Consider this passage (emphasis added):

[E]nforcers [should be] focused on the ultimate goal of antitrust, economic fairness. . . .    The conservative leaning “Chicago School” made economic efficiency synonymous with the goals of antitrust in the 1970s, which incorporated theoretical economics into mainstream antitrust scholarship and practice.  Later, more centrist or left-leaning post-Chicago and Harvard School scholars showed that sophisticated empirical and theoretical economics tools can be used to support more aggressive enforcement agendas.  Together, these developments resulted in many technical discussions about what impact a business practice will have on consumer welfare mathematically measured – involving supply and demand curves, triangles representing “dead weight loss,” and so on.   But that sort of conversation is one that resonates very little – if at all – with those engaged in the straightforward, popular dialogue about the dangers of increasing corporate concentration.  The language of economic theory does not sound like the language of economic fairness that is the raw material for most popular discussions about competition and antitrust.      

Unfortunately, Ms. Hesse’s references to the importance of “fairness” recur throughout her remarks, driving home again and again that fairness is a principle that should play a key role in antitrust enforcement.  Yet fairness is an inherently subjective concept (fairness for whom, and measured by what standard?) that was often invoked in notorious and illogical U.S. Supreme Court decisions of days of yore – decisions that were rightly critiqued by leading scholars and largely confined to the dustbin of bad precedents, starting in the mid-1970s.

Equally bad are the speech’s multiple references to “high concentration” and “bigness,” unfortunate terms that also cropped up in economically irrational pre-1970s Supreme Court antitrust opinions.  Scholarship demonstrating that neither high market concentration nor large corporate size is necessarily associated with poor economic performance is generally accepted, and the core teaching that “bigness” is not “badness” is a staple of undergraduate industrial organization classes and introductory antitrust law courses in the United States.  Admittedly the speech also recognizes that bigness and high concentration are not necessarily harmful, but merely by giving lip service to these concepts, it encourages interventionists and foreign enforcers who are seeking additional justifications for antitrust crusades against “big” and “powerful” companies (more on this point later).

Perhaps the most unfortunate passage in the speech is Ms. Hesse’s defense of the Supreme Court’s “Philadelphia National Bank” (1963) (“PNB”) presumption that “a merger which produces a firm controlling an undue percentage share of the relevant market, and results in a significant increase in the concentration of firms in that market is so inherently likely to lessen competition substantially” that the law will presume it unlawful.  The PNB presumption is a discredited historical relic, an antitrust “oldie but baddy” that sound scholarship has shown should be relegated to the antitrust scrap heap.  Professor Joshua Wright and Judge Douglas Ginsburg explained why the presumption should be scrapped in a 2015 Antitrust Law Journal article:

The practical effect of the PNB presumption is to shift the burden of proof from the plaintiff, where it rightfully resides, to the defendant, without requiring evidence – other than market shares – that the proposed merger is likely to harm competition. The problem for today’s courts in applying this semicentenary standard is that the field of industrial organization economics has long since moved beyond the structural presumption upon which the standard is based. That presumption is almost the last vestige of pre-modern economics still embedded in the antitrust law of the United States. Even the 2010 Horizontal Merger Guidelines issued jointly by the Federal Trade Commission and the Antitrust Division of the Department of Justice have abandoned the . . . presumption, though the agencies certainly do not resist the temptation to rely upon the presumption when litigating a case. There is no doubt the . . . presumption of PNB is a convenient litigation tool for the enforcement agencies, but the mission of the enforcement agencies is consumer welfare, not cheap victories in litigation. The presumption ought to go the way of the agencies’ policy decision to drop reliance upon the discredited antitrust theories approved by the courts in such cases as Brown Shoe, Von’s Grocery, and Utah Pie. Otherwise, the agencies will ultimately have to deal with the tension between taking advantage of a favorable presumption in litigation and exerting a reformative influence on the direction of merger law.  

Ms. Hesse ignored this reasoned analysis in commenting on the PNB presumption:

[I]n the wake of the Chicago School’s influence, antitrust commentators started to call into question the validity of this common-sense presumption, believing that economic theory showed that mergers tended to be beneficial or, if they resulted in harm, that harm was fleeting.  Those skeptics demanded more detailed proof of consumer harm in place of the presumption.  More recent economics studies, however, have given new life to the old presumption—in several ways.  First, we are learning more and more that mergers among substantial competitors tend to lead to higher prices. [citation omitted]  Second, economists have been finding that mergers often fail to deliver on the gains their proponents sought to achieve. [citation omitted] Taking these insights together, we should be skeptical of the claim that mergers among substantial competitors are beneficial.  The law – which builds this skepticism into it – provides an excellent tool for protecting competition from large, horizontal mergers.

Ms. Hesse’s discussion of the PNB presumption is problematic on several counts.  First, it cites one 2014 study that purports to find price increases following certain mergers in some oligopolistic industries as supporting the presumption, without acknowledging a key critique of that study – that it ignores efficiencies and potential gains in producer welfare (see here).  Second, it cites one 2001 study suggesting that financial performance may not be enhanced by some mergers while ignoring other studies to the contrary (see, for example, here and here).  Third, and most fundamentally, Ms. Hesse’s statement that “we should be skeptical of the claim that mergers among substantial competitors are beneficial” misses the point of antitrust enforcement entirely, and, in so doing, could be read as discouraging efficiency-seeking acquisitions.  It is not the role of antitrust enforcement to make merging parties prove that their proposed transaction will be beneficial – rather, enforcers must prove that a proposed transaction’s effect “may be substantially to lessen competition”, as stated in section 7 of the Clayton Act.  Requiring “proof” that a merger between competitors “will be beneficial” after the fact, in response to a negative presumption, strongly discourages potential efficiency-seeking consolidations, to the detriment of economic growth and welfare.  That was the case in the 1960s, and it could become so again today, if U.S. antitrust enforcers embark on a concerted campaign of touting the PNB presumption.  Relatedly, an efficient market for corporate control (involving the strong potential of acquisitions to achieve synergies or to correct management problems in badly-run targets) is chilled when a presumption blocks acquisitions absent a “proof” of future benefit, to the detriment of the economy.  Apart from these technical points, the PNB presumption in effect grants a government bureaucracy (exercising “the pretense of knowledge”) the right to condemn voluntary commercial transactions of a particular sort (horizontal mergers) that have not been shown to be harmful.  Such a grant of authority ignores the superior ability of information-seeking market participants to uncover and apply knowledge (as the late Friedrich Hayek might have pointed out) and is fundamentally at odds with the system of voluntary exchange that lies at the heart of a successful market economy.

Another highly problematic statement is Ms. Hesse’s discussion of the Federal Trade Commission’s (FTC) final 2010 Intel settlement:

The Federal Trade Commission’s case against Intel a decade later . . . shows how dominant firms can cut off the normal mechanisms of competition to maintain dominance.  In that case, the FTC alleged that Intel violated Section 5 of the FTC Act by maintaining its monopoly in central processing units (or CPUs) through a variety of payments and penalties (including loyalty or market-share discounts) to computer manufacturers to induce them not to purchase products from Intel’s rivals such as AMD and Via Technologies. [citation omitted]  When a monopolist pays customers to disfavor its rivals and punishes those customers who nevertheless do business with a rival, that does not look like the monopolist is competing with its rivals on the merits of their products.  Because these actions served only to foreclose competition from rival producers of CPUs, these actions distorted the competitive process.

Ms. Hesse ignores the fact that Intel involved a settlement, not a final litigated decision, and thus is lacking in precedential weight.  Firms that believe their conduct was perfectly legal may nevertheless settle an FTC investigation if they deem the costs (including harm to reputation) of continuing to litigate outweigh the costs of the settlement’s terms.  Furthermore, various learned commentators (such as Professor and then-FTC Commissioner Joshua Wright, see here) have pointed out that Intel’s discounts had tangible procompetitive effects and that there was a lack of evidence that Intel’s conduct harmed consumers or competitors (indeed, AMD, Intel’s principal competitor, continued to thrive during the period of Intel’s alleged “bad” behavior).  In short, Ms. Hesse’s conclusion that Intel’s actions “served only to foreclose competition from rival producers of CPUs” lacks credibility.  Moreover, Ms. Hesse’s reference to illegal “monopoly maintenance,” a Sherman Antitrust Act monopolization term of art, fails to note that the FTC stressed that Intel was brought purely under FTC section 5, “which is broader than the antitrust laws”.

Finally, the speech’s concluding section ends on a discordant note.  In summing up what she deemed to be an appropriate, up-to-date approach to antitrust litigation, Ms. Hesse reemphasizes the “fairness” theme, making such statements as “ultimately the plaintiff’s story should highlight the moral underpinnings of the antitrust laws—fighting against the unfairness of concentrated economic power” and “attempts to obtain or keep economic power unfairly”.  While such statements might be rationalized as having been made in the context of promoting a “non-technical” appreciation for antitrust by the general public, the emphasis on fairness as a rhetorical device in lieu of palpable economic harm and consumer welfare is quite troublesome.

On the domestic front, that emphasis may not have a direct impact on the exercise of prosecutorial discretion and on American judicial precedents in the short run (at least one hopes so).  In the longer run, however, it cuts against efforts to constrain populist impulses that would transform antitrust once again into an unguided missile aimed at the heart of the American market system.

On the international front, things are even worse.  A variety of major jurisdictions make explicit reference to “fairness” in their competition law statutes and decisions.  Foreign officials with a strongly interventionist bent might well cite Ms. Hesse’s speech in justifying expansive and economically untethered “fairness-based” competition law prosecutions.  Niceties as to whether their initiatives do not fall within the strict contours of Ms. Hesse’s analysis of the competitive process might be readily ignored, given the inherent elasticity (to say the least) of the “fairness” concept.  What’s more, Ms. Hesse’s remarks seriously undermine arguments advanced by the United States and leading commentators in multilateral fora (such as the ICN and the OECD) that competition law enforcement should focus solely on consumer welfare, with other policies handled under different statutory schemes.

In sum, Ms. Hesse’s speech summons up not the comforting ghost of Christmas past, but rather the malevolent goblin of antitrust past (whether she meant to do so or not).  Although her remarks concededly contain many well-reasoned and uncontroversial comments about antitrust analysis, her totally unnecessary application of a gaudy, un-economic populist gloss to the antitrust enterprise is what stares the reader in the face.  One can hope that, as an experienced and accomplished antitrust practitioner and public servant, Ms. Hesse will come to realize this and respond by unequivocally disavowing and stripping away the rhetorical gloss in a future major address.  Whether she chooses to do so or not, however, antitrust agency leadership in the next Administration should loudly and repeatedly make it clear that populist notions and “fairness” have no role in modern competition law analysis, whose lodestar should be consumer welfare and efficiency.

In Antitrust & Competition, Antitrust Division, China, Economic Theory, Federal Trade Commission, Google, International, Justice Department, Merger Guidelines, Platforms, Section 5, Truth on the Market , , ,
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Combatting Anticompetitive Market Distortions: An Update

Alden Abbott —  19 May 2016

I have previously written at this site (see here, here, and here) and elsewhere (see here, here, and here) about the problem of anticompetitive market distortions (ACMDs), government-supported (typically crony capitalist) rules that weaken the competitive process, undermine free trade, slow economic growth, and harm consumers.  On May 17, the Heritage Foundation hosted a presentation by Shanker Singham of the Legatum Institute (a London think tank) and me on recent research and projects aimed at combatting ACMDs.

Singham began his remarks by noting that from the late 1940s to the early 1990s, trade negotiations under the auspices of the General Agreement on Tariffs and Trade (GATT) (succeeded by the World Trade Organization (WTO)), were highly successful in reducing tariffs and certain non-tariff barriers, and in promoting agreements to deal with trade-related aspects of such areas as government procurement, services, investment, and intellectual property, among others.  Regrettably, however, liberalization of trade restraints at the border was not matched by procompetitive regulatory reform inside borders.  Indeed, to the contrary, ACMDs have continued to proliferate, harming competition, consumers, and economic welfare.  As Singham further explained, the problem is particularly acute in developing countries:  “Because of the failure of early [regulatory] reform in the 1990s which empowered oligarchs and created vested interests in the whole of the developing world, national level reform is extremely difficult.”

To highlight the seriousness of the ACMD problem, Singham and several colleagues have developed a proprietary “Productivity Simulator,” that focuses on potential national economic output based on measures of the effectiveness of domestic competition, international competition, and property rights protections within individual nations.  (The stronger the protections, the greater the potential of the free market to create wealth.)   The Productivity Simulator is able to show, with a regressed accuracy of 90%, the potential gains of reducing distortions in a given country.  Every country has its own curve in the Productivity Simulator – it is a curve because the gains are exponential as one moves to the most difficult reforms.  If all distortions in the world were eliminated (aka, the ceiling of human potential), the Simulator predicts global GDP would rise by 1100% (a conservative estimate, because the Simulator could not be applied to certain very regulatorily-distorted economies for which data were unavailable).   By illustrating the huge “dollars and cents” magnitude of economic losses due to anticompetitive distortions, the Simulator could make the ACMD problem more concrete and thereby help invigorate reform efforts.

Singham also has adapted his Simulator technique to demonstrate the potential for economic growth in proposed “Enterprise Cities” (“e-Cities”), free-market oriented zones within a country that avoid ACMDs and provide strong property rights and rule of law protections.  (Existing city states such as Hong Kong, Singapore, and Dubai already possess e-City characteristics.)  Individual e-City laws, regulations, and dispute-resolution mechanisms are negotiated between individual governments and entrepreneurial project teams headed by Singham.  (Already, potential e-cities are under consideration in Morocco, Saudi Arabia, Saudi Arabia, Bosnia & Herzegovina, and Somalia.)  Private investors would be attracted to e-Cities due to their free market regulatory climate and legal protections.  To the extent that e-Cities are launched and thrive, they may serve as “demonstration projects” for the welfare benefits of dismantling ACMDs.

Following Singham’s presentation, I discussed analyses of the ACMD problem carried out in recent years by major international organizations, including the World Bank, the Organization for Economic Cooperation and Development (OECD, an economic think tank funded by developed countries), and the International Competition Network (a network of national competition agencies and experts legal and economic advisers that produces non-binding “best practices” recommendations dealing with competition law and policy).  The OECD’s  “Competition Assessment Toolkit” is a how-to manual for ferreting out ACMDs – it “helps governments to eliminate barriers to competition by providing a method for identifying unnecessary restraints on market activities and developing alternative, less restrictive measures that still achieve government policy objectives.”  The OECD has used the Toolkit to demonstrate the huge economic cost to the Greek economy (5.2 billion euros) of just a very small subset of anticompetitive regulations.  The ICN has drawn on Toolkit principles in developing “Recommended Practices on Competition Assessment” that national competition agencies can apply in opposing ACMDs.  In a related vein, the ICN has also produced a “Competition Culture Project Report” that provides useful survey-based analysis competition agencies could draw upon to generate public support for dismantling ACMDs.  The World Bank has cooperated with ICN advocacy efforts.  It has sponsored annual World Bank forums featuring industry-specific studies of the costs of regulatory restrictions, held in conjunction with ICN annual conferences, and (beginning in 2015).  It also has joined with the ICN in supporting annual “competition advocacy contests” in which national competition agencies are able to highlight economic improvements due to specific regulatory reform successes.  Developed countries also suffer from ACMDs.  For example, occupational licensing restrictions in the United States affect over a quarter of the work force, and, according to a 2015 White House Report, “licensing requirements raise the price of goods and services, restrict employment opportunities, and make it more difficult for workers to take their skills across State lines.”  Moreover, the multibillion dollar cost burden of federal regulations continues to grow rapidly, as documented by the Heritage Foundation’s annual “Red Tape Rising” reports.

I closed my presentation by noting that statutory international trade law reforms operating at the border could complement efforts to reduce regulatory burdens operating inside the border.  In particular, I cited my 2015 Heritage study recommending that United States antidumping law be revised to adopt a procompetitive antitrust-based standard (in contrast to the current approach that serves as an unjustified tax on certain imports).  I also noted the importance of ensuring that trade laws protect against imports that violate intellectual property rights, because such imports undermine competition on the merits.

In sum, the effort to reduce the burdens of ACMDs continue to be pursued and to be highlighted in research, proposed demonstration projects, and efforts to spur regulatory reform.  This is a long-term initiative very much worth pursuing, even though its near-term successes may prove minor at best.

In Amazon, Antitrust & Competition, Intellectual Property, International, International Trade, Platforms, Regulation, Regulatory Reform, Truth on the Market , , , , , , ,
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Reflections on the International Competition Network (ICN) at 15: Steady Progress and Major Long-Term Challenges

Alden Abbott —  10 May 2016

Introduction

In my role as a “non-governmental advisor” (NGA), I was privileged to attend and participate actively in the 15th Annual ICN Conference, held in Singapore from April 26-29.  (I have blogged previously on ICN annual conferences and policy initiatives, see here, here, and here.)  As a virtual network of national competition law agencies (“national competition authorities,” or NCAs, such as the U.S. Federal Trade Commission (FTC) and the U.S. Justice Department’s Antitrust Division (DOJ)) and expert NGAs from around the world, the ICN supports convergence toward consensus-based “best practices” in competition law enforcement and policy:

The ICN is unique as it is the only international body devoted exclusively to competition law enforcement and its members represent national and multinational competition authorities. Members produce work products through their involvement in flexible project-oriented and results-based working groups. Working group members work together largely by Internet, telephone, teleseminars and webinars.

Annual conferences and workshops provide opportunities to discuss working group projects and their implications for enforcement. The ICN does not exercise any rule-making function. Where the ICN reaches consensus on recommendations, or “best practices”, arising from the projects, individual competition authorities decide whether and how to implement the recommendations, through unilateral, bilateral or multilateral arrangements, as appropriate.

Since its founding in 2001, the ICN has evolved from a small club of fifteen agencies and a few NGAs (mainly from North America and Europe) to a robust organization comprising over 130 NCAs and numerous NGAs from around the world (although admittedly the majority of NGAs continue to come from developed countries).  Due to its lack of a centralized bureaucracy and the absence of top-down control by national governments, the ICN has been able to tackle concrete issues in a pragmatic and incremental fashion, drawing upon the insights of leading scholars as well as former and current NCA heads.

Summary Assessment of ICN Achievements

As the ICN turns fifteen, a bit of stock-taking is in order.  Here are some of my observations, based upon my decade-long involvement with the ICN:

  1. The ICN has significantly promoted the reduction of transactions costs involved in merger filings, through its recommended practices for merger notification and review procedures. This tangible benefit has gained importance with the proliferation of merger filing requirements around the world.  Although many regimes have yet to fully adopt the recommended practices, their influence has grown steadily.  Furthermore, the ICN’s Merger Working Group has leveraged this success to promote greater cooperation among NCAs in merger evaluation and a greater acceptance of economics-based merger analysis principles – factors which may also be expected to reduce transactions and error costs.
  1. The ICN’s Cartel Working Group has done an impressive job in promoting cooperation among NCAs in the detection, investigation, and prosecution of international cartels. Hard core cartel agreements involve the one type of business arrangement that unequivocally diminishes economic welfare, and therefore merits condemnation.  ICN work products related to cartel enforcement, including detection, punishment, investigative techniques, and information sharing (supplemented by hands-on workshops), continue to raise the quality of anti-cartel cooperation and new agency involvement in cartel enforcement.  Future challenges for this Working Group include the strengthening of corporate compliance programs worldwide to deter cartel activity, and dealing with private enforcement as a supplement to public anti-cartel efforts (European Union nations and other jurisdictions are beginning to introduce private competition law enforcement).
  1. The ICN has developed taped training modules and related documentary resources, centered on case-specific hypotheticals and economic analysis, that may over time raise the quality of substantive antitrust analyses carried out by NCAs, especially new and inexperienced ones. Although the influence of these materials may only be gradually felt over time, and cannot be quantified, discussion at the Singapore Conference suggests that they are being consulted more frequently.  These materials ideally will help reduce error costs in enforcement by dissuading enforcers from adopting economically irrational approaches to case analysis (although the materials cannot, of course, guarantee against the possible interjection of non-economic policy factors and extraneous political considerations in the assessment of particular matters).
  1. The ICN’s Working Group on Agency Effectiveness holds real promise for enhancement of the quality and efficiency of NCA decision-making. In particular, the Working Group’s recently developed ICN Guidance on Investigative Process provides useful guidance on investigative transparency and due process that, if followed, would help reduce widespread concerns about lack of procedural fairness in competition investigations, particularly those carried out by inexperienced NCAs.  Nevertheless, it must be recognized that calls for increased attention to due process in such investigations, by DOJ, the FTC, and corporate representatives, have met with limited success at best.  This may partly reflect the different view of due process found in civil law systems, which rely on inquisitorial proceedings guided by government officials rather than the common law adversary process.  It may also reflect concerns about having the nature of agency decision-making exposed to too much “sunshine,” particularly in young NCAs that have limited resources and inexperienced staff.  Improvements in procedural fairness thus may be expected to proceed slowly.  Even recognizing this, however, the Agency Effectiveness Group is engaging proactively in such issues as strategic planning and prioritization that could lead to improved substantive NCA outcomes from an economic welfare point of view, quite apart from due process issues.
  1. The ICN’s Advocacy Working Group (AWG) is expanding its efforts to enable NCAs to better assess the anticompetitive potential of government laws and regulations. This AWG has over the years produced excellent and succinct sets of Recommended Practices on Competition Assessment, centered on identifying features of proposed regulations and laws that prevent competitive forces from operating effectively, such as barriers to entry by new businesses.  The Working Group has also done valuable work on inculcating public support for procompetitive government policies (featuring release of a “competition culture” report in 2015).  Recently, the AWG has also worked closely with other multinational organizations involved in promoting international economic cooperation and development, including in particular the World Bank and the Organization for Economic Cooperation and Development (OECD).  The AWG has adapted analysis from the OECD’s Competition Assessment Toolkit (methodologies for identifying anticompetitive government actions) in its recommended practices and has involved OECD Competition Committee experts in its work.  Moreover, for several years now the World Bank has held one-day programs immediately preceding the ICN Annual Conference, which have highlighted how regulations and legislation that undermine competition greatly reduce economic growth potential in developing countries.  Starting in 2015, the World Bank and ICN AWG cooperated in launching annual “competition advocacy contests” in which NCAs compete in presenting case studies on how their successful public advocacy initiatives have enhanced competition and raised economic welfare within their jurisdictions.   The Working Group has also launched a web-based “Benefits Platform,” which “seeks to provide ICN members with knowledge, strategies and arguments for explaining the benefits of competition to support their competition advocacy efforts with government and non-government stakeholders, as well as in the evaluation of competition interventions.”  All told, among all of the ICN’s initiatives, the AWG’s projects hold out the greatest potential for enhancing economic welfare, since government interference in competitive processes tend to be far more serious, distortive, and long-lasting than mere private restraints.  (In a related vein, Shanker Singham and I have authored a Heritage Foundation essay on how procompetitive regulatory reform can advance both economic freedom and prosperity.)  The greatest limitation on the utility of AWG guidance is, of course, political opposition to regulatory reform from private rent seekers and their government allies.
  1. The ICN’s Unilateral Conduct Working Group (UCWG) has done solid and generally sound work on state-created monopolies and predatory pricing, and on the assessment of dominance/substantial market power, and is turning now to a broader policy initiative. In particular, the UCWG merits praise for recommending that competition analysis not treat state-owned enterprises more favorably than their private competitors (although the feasibility of true “neutrality” analysis may be questioned given the array of implicit benefits that state-supported enterprises may enjoy).  The UCWG is now developing a potentially ambitious “workbook” on the general analysis of unilateral conduct, which holds out both promise and risk.  Unilateral conduct analysis is particularly prone to high error costs, because procompetitive and anticompetitive conduct often look the same.  Given that fact, and the importance of aggressive unilateral initiatives to a vibrant competitive process, there is good reason to err on the side of caution in evaluating the competitive ramifications of unilateral conduct.  DOJ’s 2008 Report on Single-Firm Conduct Under Section 2 of the Sherman Act presents an excellent template for unilateral conduct analysis, which could profitably be adopted by the UCWG.  Regrettably, however, there are those who believe that unilateral conduct analysis should rely heavily on sophisticated theoretical models of potential competitive harm.  Such models typically ignore the problem of decision theory and error costs (see here), and threaten to condemn particular instances (if not broad categories) of single firm business initiatives that are welfare-enhancing.  What’s worse, such condemnations have the tendency to chill efficient unilateral actions by other firms, which fear that the efficiencies underlying their actions would be misunderstood or ignored by competition law enforcers.  The members of the UCWG should keep these considerations in mind in drafting the workbook, and rely on decision theory and error cost analysis in deriving their recommendations.

Conclusion

In sum, the ICN has done a commendable job in promoting sensible procedural and substantive principles in competition law analysis around the world.  Although its achievements inevitably have been and will continue to be constrained by the differences among national legal regimes (particularly the civil law and common law divide) and political limitations that individual NCAs face, there is every reason to believe that it has enhanced overall economic welfare through its efforts.  Accordingly, continued support for the ICN by the United States antitrust agencies and American antitrust scholars is clearly warranted.  It is to be hoped that active participants in ICN initiatives will continue to rely on sound economic analysis as their lodestar – and, in particular, that UCWG members will employ appropriate caution and a decision-theoretic template in developing future recommendations.

In Antitrust & Competition, Antitrust Division, Barriers to Entry, Cartels, Economic Theory, Error Costs, European Union, Federal Trade Commission, International, Justice Department, Regulation, Regulatory Reform , , , , , ,
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Anticompetitive Regulations Highlighted in the 2016 Heritage Index of Economic Freedom (Also, the U.S. Continues to Slip)

Alden Abbott —  5 February 2016

The Heritage Foundation’s Index of Economic Freedom is an annual data compilation that provides an ordinal ranking of economic freedom in nations throughout the world, based on such country-specific measures of economic liberty as commitment to limited government, strong protection of private property, openness to global trade and financial flows, and sensible regulation.

The 2016 edition, released on February 1, found that the “United States continues to be mired in the ranks of the ‘mostly free,’ the second-tier economic freedom category into which the U.S. dropped in 2010.  Worse, with scores in labor freedom, business freedom, and fiscal freedom notably declining, the economic freedom of the United States plunged 0.8 point to 75.4, matching its lowest score ever.”  In addition to a detailed statistical breakdown of country scores, this edition included six essays on various topics related to the nature of economic freedom and its assessment (see here, here, here, here, here, and here).

Those readers who are interested in the economic effects of anticompetitive regulatory distortions around the world may wish to turn to the essay entitled “Anticompetitive Policies Reduce Economic Freedom and Hurt Prosperity,” co-authored by Shanker Singham (Director of Economic Policy at the Legatum Institute) and me, whose key points are as follows:

Excessive government regulation interferes with individual economic freedom. It also imposes a substantial burden on national economies, reducing national wealth and slowing economic growth. Over the past decade, The Heritage Foundation has documented the large and rising cost to the United States economy stemming from overregulation. Regrettably, however, sizable regulatory burdens continue to characterize many (if not all) economies, as documented by the Organisation for Economic Co-operation and Development (OECD) and the World Bank.

One regulatory category that has garnered increased attention in recent years is government rules that distort and harm the competitive process. Competition everywhere faces restraints imposed by governments, either through laws, regulations, and practices or through hybrid public–private restrictions by which government sanctions or encourages private anticompetitive activity. Government-imposed restrictions on competition, which we term anticompetitive market distortions (or anticompetitive regulations), are especially pernicious because they are backed by the power of the state and may be largely impervious to attenuation through market processes. Often, these restrictions—for example, onerous licensing requirements—benefit powerful incumbents and stymie entry by innovative new competitors.

In recent years, recognizing the harm caused by anticompetitive regulations, international institutions have attempted to identify and categorize various types of harmful regulations and to estimate the consumer welfare costs that they impose. The intent of these efforts is to help governments move away from anticompetitive regulations. Such efforts, however, are often stymied by producer lobbies that tend to underplay the harmful effects of such regulations on consumers.

Ferreting out and publicizing the economic impact of these regulatory abuses should be given a higher priority in order to promote economic freedom and prosperity. In this chapter, we first outline the concept of anticompetitive regulations and the arguments for combatting them more vigorously, suggesting the importance of developing a neutral measure (a metric) to estimate their harmful impact. We then describe efforts by two major international organizations, the OECD and the International Competition Network (ICN), to develop methodologies for identifying anticompetitive regulations and to provide justifications for elimination of those restrictions. We then briefly summarize research (much of it supported in recent years by the World Bank) that estimates the nature and size of the economic welfare costs of anticompetitive regulations. Finally, we turn to ongoing research that focuses on a broad metric to measure the economic impact of these regulations on property rights, international trade, and domestic competition.

In Antitrust & Competition, International, International Trade, Regulation, Regulatory Reform, Truth on the Market , , ,
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Heritage Antitrust Conference Highlights Domestic and International Policy Challenges for the Next Administration

Alden Abbott —  27 January 2016

On January 26 the Heritage Foundation hosted a one-day conference on “Antitrust Policy for a New Administration.”  Featured speakers included three former heads of the U.S. Department of Justice’s Antitrust Division (DOJ) (D.C. Circuit Senior Judge Douglas Ginsburg, James Rill, and Thomas Barnett) and a former Chairman of the U.S. Federal Trade Commission (FTC) (keynote speaker Professor William Kovacic), among other leading experts on foreign and domestic antitrust.  The conference addressed developments at DOJ, the FTC, and overseas.  The entire program (which will be posted for viewing very shortly at Heritage.org) has generated substantial trade press coverage (see, for example, two articles published by Global Competition Review).  Four themes highlighted during the presentations are particularly worth noting.

First, the importance of the federal judiciary – and judicial selection – in the development and direction of U.S. antitrust policy.  In his opening address, Professor Bill Kovacic described the central role the federal judiciary plays in shaping American antitrust principles.  He explained how a few key judges with academic backgrounds (for example, Frank Easterbrook, Richard Posner, Stephen Breyer, and Antonin Scalia) had a profound effect in reorienting American antitrust rules toward the teachings of law and economics, and added that the Reagan Administration focused explicitly on appointing free market-oriented law professors for key appellate judgeships.  Since the new President will appoint a large proportion of the federal judiciary, the outcome of the 2016 election could profoundly influence the future direction of antitrust, according to Professor Kovacic.  (Professor Kovacic also made anecdotal comments about various candidates, noting the short but successful FTC experience of Ted Cruz; Donald Trump having once been an antitrust plaintiff (when the United States Football League sued the National Football League); Hillary Clinton’s misstatement that antitrust has not been applied to anticompetitive payoffs made by big drug companies to generic producers; and Bernie Sanders’ pronouncements suggesting a possible interest in requiring the breakup of large companies.)

Second, the loss of American global economic leadership on antitrust enforcement policy.  There was a consensus that jurisdictions around the world increasingly have opted for the somewhat more interventionist European civil law approach to antitrust, in preference to the American enforcement model.  There are various explanations for this, including the fact that civil law predominates in many (though not all) nations that have adopted antitrust regimes, and the natural attraction many governments have for administrative models of economic regulation that grant the state broad enforcement discretion and authority.  Whatever the explanation, there also seemed to be some sentiment that U.S. government agencies have not been particularly aggressive in seeking to counter this trend by making the case for the U.S. approach (which relies more on flexible common law reasoning to accommodate new facts and new economic learning).  (See here for my views on a desirable approach to antitrust enforcement, rooted in error cost considerations.)

Third, the need to consider reforming current cartel enforcement programs.  Cartel enforcement programs, which are a mainstay of antitrust, received some critical evaluation by the members of the DOJ and international panels.  Judge Ginsburg noted that the pattern of imposing ever- higher fines on companies, which independently have strong incentives to avoid cartel conduct, may be counterproductive, since it is typically “rogue” employees who flout company policies and collaborate in cartels.  The focus thus should be on strong sanctions against such employees.  Others also opined that overly high corporate cartel fines may not be ideal.  Relatedly, some argued that the failure to give “good behavior” credit to companies that have corporate compliance programs may be suboptimal and welfare-reducing, since companies may find that it is not cost-beneficial to invest substantially in such programs if they receive no perceived benefit.  Also, it was pointed out that imposing very onerous and expensive internal compliance mandates would be inappropriate, since companies may avoid them if they perceive the costs of compliance programs to outweigh the expected value of antitrust penalties.  In addition, the programs by which governments grants firms leniency for informing on a cartel in which they participate – instituted by DOJ in the 1990s and widely emulated by foreign enforcement agencies – came in for some critical evaluation.  One international panelist argued that DOJ should not rely solely on leniency to ferret out cartel activity, stressing that other jurisdictions are beginning to apply econometric methods to aid cartel detection.  In sum, while there appeared to be general agreement about the value and overall success of cartel prosecutions, there also was support for consideration of new means to deter and detect cartels.

Fourth, the need to work to enhance due process in agency investigations and enforcement actions.  Concerns about due process surfaced on both the FTC and international panels.  A former FTC general counsel complained about staff’s lack of explanation of theories of violation in FTC consumer protection investigations, and limitations on access to senior level decision-makers, in cases not raising fraud.  It was argued that such investigations may promote the micromanagement of non-deceptive business behavior in areas such as data protection.  Although consumer protection is not antitrust, commentators raised the possibility that foreigner agencies would cite FTC consumer protection due process deficiencies in justifying their antitrust due process inadequacies (since the FTC enforces both antitrust and consumer protection under one statutory scheme).  The international panel discussed the fact that due process problems are particularly bad in Asia but also exist to some extent in Europe.  Particular due process issues panelists found to be pervasive overseas included, for example, documentary request abuses, lack of adequate access to counsel, and inadequate information about the nature or purpose of investigations.  The international panelists agreed that the U.S. antitrust enforcement agencies, bar associations, and international organizations (such as the International Competition Network and the OECD) should continue to work to promote due process, but that there is no magic bullet and this will be require a long-term commitment.  (There was no unanimity as to whether other U.S. governmental organs, such as the State Department and the U.S. Trade Representative’s Office, should be called upon for assistance.)

In conclusion, the 2016 Heritage Foundation antitrust conference shed valuable light on major antitrust policy issues that the next President will have to confront.  The approach the next President takes in dealing with these issues will have major implications for a very significant branch of economic regulation, both here and abroad.

In Antitrust & Competition, Antitrust Division, Cartels, Constitutional Law, Federal Trade Commission, International, Justice Department, Law & Economics, Supreme Court, Truth on the Market , , , , , , , ,
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