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The Antitrust Anti-Consensus

Decades after free marketeers gained an effective monopoly over the field of antitrust law, there is a new race to rethink this critical tool of economic governance. With a growing list of socioeconomic and political problems being attributed to the power of Big Business, the debate is as timely as it is controversial.

LONDON – Fifteen years ago, Herbert Hovenkamp of the University of Pennsylvania Law School and the Wharton School of Business, perhaps the most revered scholar in the field of US competition law, wrote that, “today we enjoy more consensus about the goals of the antitrust laws than at any time in the last half-century.” The supposed common objective of antitrust law (competition law in the European context) was straightforward: to maximize consumer welfare, measured in economic terms.

True, lawyers and economists would quibble about the precise meaning of this rather technical concept. Its narrowness seemed to be both a strength and a potential weakness. Though “consumer welfare” helps to orient antitrust law toward what it is best suited to achieve, it also arguably reflects a rather underwhelming vision of the law’s proper role. Nonetheless, by 2005, antitrust law’s transformation into what Hovenkamp called “an economic, not a moral, enterprise,” was essentially a done deal.

Not so in late 2020. As antitrust law has risen to prominence in public consciousness – owing to concerns about inequality, sustainability, the scale and influence of Big Tech, and lingering market skepticism after the 2008 global financial crisis – many have come to question the existing framework. This intellectual shift is clearly reflected in the recent lawsuit brought by the US Federal Trade Commission and more than 40 states to break up Facebook. The suit channels longstanding concerns about the digital economy, where markets exhibit features – zero-price products, network effects, winner-take-all innovation – that are difficult to accommodate within the consumer-welfare framework that has been developed over the past half-century.

As one of the few regulatory instruments available within the chronically under-regulated digital sphere, antitrust law is widely regarded as the most readily available solution to these problems, even though they extend far beyond the narrow confines of consumer welfare. With fake news, hate speech, personal data security, unfair labor practices, and inadequate corporate taxation increasingly being suggested as targets for antitrust enforcement, the law’s narrow scope is increasingly being criticized as unwarranted and unhelpful.

Popular concern is also translating into public action on both sides of the Atlantic, with high-profile enforcement actions underway against all members of the ‘GAFA’ gang: Google, Amazon, Apple, and Facebook. Just two months after the US Department of Justice brought monopoly-related charges against Google, a lawsuit by the Federal Trade Commission (FTC) and 46 US states is seeking to break up Facebook.

Obviously, the consequences of competition policy play out far beyond law review articles and economics journals. And now the debates about it do, too. In the three books under review, progressive competition scholars each advocate revised approaches to antitrust law with arguments directed to a wide – and increasingly global – audience.

The Chicago School

In most critiques of contemporary antitrust law, it was the influence of the University of Chicago’s economics department and law school from the 1970s onwards that led to what many perceive to be today’s unduly neutered framework. These scholars saw antitrust as the law governing the market, and thus believed that it should be informed by the discipline designed to study and predict market behavior: economics. From this starting point, Chicago School thought challenged the underlying assumptions of the earlier “big is bad” trust-busting tradition.

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For example, Chicago scholars insisted that, according to economic theory, structural competition was neither a prerequisite for, nor a guarantor of, a well-functioning market, because markets were presumed to be self-correcting in the face of monopoly. On the basis of that assumption, any antitrust intervention should be limited to circumstances where firm behavior can be shown to have harmed consumer welfare.

In this case, consumer welfare was interpreted broadly and slightly perversely to encompass both higher prices for consumers and lost profits for producers, so that increased gains on the producer side could conceivably “compensate” for nominal consumer harm. But the definition has changed, and today consumer welfare tends to be viewed primarily in genuinely consumer-focused terms.

Chicago School scholars also argued that poorly executed antitrust enforcement actually generates even worse outcomes for consumers than monopolization does. Not surprisingly, this outlook gave rise to an almost pathological fear of “false positives.” The antitrust rule of thumb was therefore simple: Unless courts and regulators could guarantee that intervention would enhance efficiency within the market as a whole, they should leave well enough alone.

Moreover, for many years, the Chicago School had a trump card: Many of its leading proponents – including Robert Bork, Frank Easterbrook, and Richard Posner – became federal judges, and were prepared to practice what they preached from the bench. During the latter decades of the twentieth century and the early years of the twenty-first, US antitrust law underwent a paradigm shift.

Earlier precedents in the “inhospitality tradition” – which condemned both government restrictions on competition and aggregations of market power – were swept away. In their place, US courts enthusiastically elevated legal rules that borrowed heavily from economics. While this approach nominally had the merit of weeding out false positives, many observers pointed out that it also made it nearly impossible to catch the true positives. Nonetheless, antitrust law came to be seen as part of the problem rather than as a solution. And it is this propensity that today’s reform advocates hope to overturn.

Back to Antitrust Basics

In The Curse of Bigness, Columbia Law School’s Tim Wu offers a simple solution to contemporary antitrust law’s problematic meekness: namely, to restore its initial focus on bigness as such. His book thus belongs to what has been dubbed the “New Brandeis” – or, more colloquially, “Hipster Antitrust” – movement, so named for the early twentieth-century US Supreme Court justice and antitrust pioneer Louis Brandeis.

The Curse of Bigness

Ostensibly a progressive effort, the New Brandeisians find themselves in the counterintuitive position of advancing an originalist perspective that is more commonly associated with conservative jurists, at least in the United States. In essence, the argument is that when antitrust law was introduced through the Sherman Antitrust Act of 1890, it encompassed a plurality of social goals and was untroubled by (then still-embryonic) neo-classical economic thinking; to reverse the damage it sustained in Chicago, antitrust law should revert wholeheartedly to its original incarnation.

The Curse of Bigness is an idiosyncratic book. It is heavy on historical examples of where monopoly went hand in hand with undesirable social outcomes, but rather light on arguments intended to persuade the reader that correlation coincided with causation in these cases. There is not much attention to legal detail, although this is perhaps inevitable for a short work geared toward a non-expert audience. Moreover, Wu’s prescriptions are ambitious yet vague. They might be distilled to two key recommendations: apply competition rules with full force against instances of modern bigness, and don’t get too distracted by economic considerations when doing so.

A central and convincing pillar of the New Brandeis critique of the Chicago School approach to antitrust law is that, at its core, it is an ideological rather than a strictly legal movement. Its ultimate objective was to minimize opportunities for intervention against business. Wu nonetheless attributes the Chicago School’s success in recent decades to the antitrust community’s desire for the “respectability” offered by economics. But the ambiguous implications of respectability in this context are left largely unexplored.

To be sure, economics undoubtedly lent a more scientific air to competition law and enforcement. (Indeed, economics and its market-focused thinking were ascendent across many fields during the later twentieth century, a development traced in The Economists’ Hour by Binyamin Appelbaum of The New York Times.) But The Curse of Bigness does not do justice to the legitimate criticism that the Chicago School offered when it warned that an unyielding structuralist approach to market competition could yield potentially counterproductive outcomes.

This point holds even though Chicago scholars themselves famously “overshot the mark” with their trenchant and unnuanced prescriptions. Prohibiting efficient market structures simply because these make it difficult for inefficient competitors to turn a profit creates its own public-policy risks. As Hovenkamp argued recently, it is society’s most vulnerable who are hit the hardest when necessary goods and services become more expensive.

“Merely” securing lower prices for consumers might be seen as a relatively shallow goal; but at least we know that antitrust law is capable of achieving it. Conversely, by attributing such a wide array of problems to lax antitrust enforcement – from political corruption and environmental degradation to the rise of illiberalism – the vision advanced in The Curse of Bigness creates the very real risk that antitrust law will always under-deliver on its supposed objectives, no matter how forcefully it is applied.

Like other New Brandeisian works, Wu’s book is primarily critical in nature. It offers a vivid account of why the current state of competition and antitrust law is unsatisfactory, but it does not delve deeply into how the situation might be improved. Its criticism of contemporary US antitrust is well-founded. But because it refuses to engage with the question of whether and how economics can improve enforcement efforts without subsuming the law entirely, it ultimately betrays an ideological quality of its own.

For those of us who work in the competition and antitrust field, this extreme polarization is all too familiar nowadays. But if we are looking for a way to make things better, rather than just different, we cannot avoid the hard questions at the center of the debate.

Recalibrating Twenty-First-Century Antitrust

The Antitrust Paradigm, by Jonathan B. Baker of American University, is a more measured and scholarly work than Wu’s, though that probably makes it a less exciting read for the average armchair antitrust expert. The book pursues two main claims that together support Baker’s stated goal of “restoring a competitive economy.” His first claim is that error-cost analysis should be recalibrated to overcome the prevailing belief that intervention should always be avoided unless success can be guaranteed in advance. To that end, he explores the political nature of the ostensibly legal turn toward more permissive antitrust standards since the 1970s.

The Antitrust Paradigm

Baker’s book also debunks several common myths, including the assumptions that monopolies have a propensity to self-destruct, that courts cannot distinguish effectively between pro- and anti-competitive business practices, and that enforcement is easily hijacked by wily competitors or settlement-hungry plaintiffs.

Unsurprisingly for a former top-ranking economist at the US Federal Trade Commission, Baker does not seek to strip economics of its key role in enforcement. Still, the book’s second claim is that the proper role for antitrust law is more nuanced and perhaps pluralistic than the one envisioned by the Chicago School and its intellectual heirs.

While economic analysis, in Baker’s view, has significant potential to improve both the efficiency and effectiveness of competition enforcement, relying on it does not mean embracing the neoliberal faith in wholly unencumbered free markets. Nor, however, does it mean viewing economics as an inconvenient handbrake on the unencumbered application of antitrust rules. Baker is certainly no Chicago Schooler, but he is unimpressed by the New Brandeisians’ iconoclasm and apparently deliberate anti-intellectualism.

The latter half of The Antitrust Paradigm contains a meticulous exploration of the most common theories of antitrust harm, spanning the rules on agreements, monopolies, and mergers. Baker focuses on these problems within the digital economy, seeking to make the case that despite its nineteenth-century origins, the current US antitrust framework is sufficiently nimble to meet contemporary challenges.

Giving little space to abstract discussions of consumer welfare, or to its benefits or limitations as a legal standard, the book concentrates on how modern advances in economic thinking and methodology can support incremental improvements of the existing antitrust framework. Baker identifies situations where current presumptions against intervention are untenable, sketching the optimal parameters of an enhanced enforcement agenda. He also explains how post-Chicago developments in economics can help enforcers and plaintiffs discharge legal burdens that might otherwise be considered unsurmountable if viewed solely through a neoclassical lens.

Ultimately, the message of The Antitrust Paradigm might be boiled down to a single core recommendation, which is not all that far off from the one advanced by Wu: Competition rules should be applied with vigor to address existing and emerging antitrust problems. That this argument might be perceived as a radical suggestion in certain quarters clearly indicates that some recalibration of our enforcement paradigm is indeed overdue.

Transatlantic Convergence or Divergence?

Competition law today is an emphatically global enterprise, with distinct regimes found in 130 jurisdictions worldwide (and counting). But just two systems dominate the global economy, both in enforcement activity and by informing and influencing the development of case law elsewhere. These are US antitrust law, with its storied origins in the Sherman Act, and EU competition law, which traces its roots back to the 1957 Treaty of Rome.

Both Wu and Baker are US-based scholars, and it is in the US context that their arguments will have the greatest resonance (though Wu’s work does aspire to near-universal applicability). But debates about the future of competition law are equally robust and impassioned on the other side of the Atlantic.

For decades, EU competition law was attacked for its failure to engage with the supposed wisdom of the neoclassical economic turn. Its principal enforcer, the European Commission, was long criticized for punishing efficient firms, favoring the interests of inefficient rivals over the broader interests of consumers, and discouraging innovation. Not until the early 2000s did the Commission arrive at the Chicago-themed party, gradually endorsing the somewhat tortuously titled “more economic approach” across its enforcement activities.

Nonetheless, the EU system follows a broader understanding of consumer welfare than the US system, with its narrow definition in terms of lower prices. EU authorities recognize that potential benefits to consumers also encompass effects on output, innovation, and the variety or quality of products available. And EU competition law has an enduring side hustle as a tool of market integration, as seen in the emphasis on cases involving private barriers to trade between EU member states.

In any case, arguing for an originalist approach to EU competition rules makes very little sense in the context of the ever-evolving European project. The breadth of integration since 1957 – reflected in the much-maligned call for “ever closer union” – makes it illogical, if not impossible, to return to an understanding of EU competition law as designed to police the bare customs union of six western European countries.

Nor is it entirely clear that EU law ever fully embraced the “big is bad” mentality that marked mid-century US antitrust. Wu points to the European Court of Justice’s pivotal 1966 judgment in Consten and Grundig as evidence of an equivalent inhospitability tradition in Europe. In that case, the ECJ condemned an exclusive distribution arrangement as an infringement of competition “by its very nature.”

Of course, what Wu fails to mention is that the offending clause concerned a trademark that enabled a French distributor to repel imports from other member states, meaning that the case was fundamentally about integration rather than competition. Nor does his account acknowledge that just a month earlier, the Court held that in the absence of such obviously restrictive clauses, an exclusive-distribution contract breaches competition law only where it is demonstrated to have an anticompetitive effect. In other words, the ECJ applied certain economics-based assessment standards right from the outset.

The relevance of Baker’s prescriptions within the EU context depends on whether one views the Commission’s late adoption of the more economic approach as help or hindrance to effective enforcement. Certainly, the default skepticism apparent in Chicago School antitrust scholarship and much US case law is largely absent in Europe. While certain recent ECJ judgments follow the Commission’s lead in recognizing a greater role for economic analysis in the adjudication process, this case law remains largely reconcilable with Baker’s own cautious optimism concerning economics-based tools.

Yet in its latest enforcement activity, particularly in the digital economy, the Commission appears to have abandoned its relatively recent commitment to “more” economics. In three high-profile infringement decisions against Google concluded between 2017 and 2019, for example, it largely ignored its (already expanded) consumer welfare standard, focusing instead on harm to smaller traders.

These decisions thus run precipitously close to falling foul of the contemporary truism that “competition law protects competition, not competitors.” Yet this enforcement practice has taken on additional significance in light of the US Department of Justice’s decision in October to file a similar suit against Google under the Sherman Act and the FTC’s action to break up Facebook, initiated in early December.

Perhaps the most contentious question in contemporary competition law, however, is the extent to which rules can and should be extended to types of harm that lie far beyond the purview of the consumer-welfare paradigm, even very broadly construed.

Despite the European Commission’s enthusiastic pursuit of Big Tech (it is also pursuing investigations into Amazon, Apple, Facebook, and Google once more), the theories of harm that it deploys mostly concern leveraging, whereby a firm seeks to extend its market power from one segment to another. Though often highly successful as a mechanism for excluding competitors, this practice does not necessarily touch on the more acute fears – of everything from loss of privacy to the potential subversion of democracy – that ordinary people have about Big Tech.

Here, the German competition authority, the Bundeskartellamt, has led the way with its much-discussed 2019 infringement finding against Facebook for the excessive collection and collation of users’ personal data. This case poses the tantalizing, albeit potentially problematic, prospect that the mere possession of monopoly power might provide a hook upon which to hang sanctions against a range of socially harmful business practices, even those that have little to do with competition as such.

Proponents of aggressive intervention against Big Tech welcomed the Bundeskartellamt action as an ambitious restatement of competition law’s objective to protect consumers. More jaded commentators asked why competition law should be seen as the solution to what was basically a data-protection problem. Yet, notably, the Bundeskartellamt limited its findings to German rather than EU rules, hinting that it was unconvinced that EU competition law was ready to make the leap into data privacy.

The Limits of Competition Law

This brings us, naturally, to the limits of competition law, another emerging strand in the debate over “the soul of antitrust.” In Competition Overdose, Maurice E. Stucke of the University of Tennessee and Ariel Ezrachi of Pembroke College, Oxford, tackle the intriguing questions of why and in what circumstances greater competition might in fact make things worse for consumers and society more broadly. Surveying examples that range from private prisons to horsemeat lasagna, the book explores the dark side of competitive markets – an “overdose” that these authors, too, attribute to the supposed greed-is-good mentality of the Chicago School free marketeers.

Competition Overdose

Although Stucke and Ezrachi are specialists in competition law, their solutions do not lie primarily in that field. Instead, they argue for greater direct regulation of unscrupulous business practices, alongside a robust welfare state to protect the vulnerable. From this perspective, the answer to exploitative use of personal data is stronger and more vigorously enforced data-privacy regulation.

Because antitrust enforcement targets the real source of social harm only by proxy, it provides at best a temporary and inexact regulatory response. Thus, Competition Overdose provides a welcome counterpoint to the increasingly prominent narrative that whatever the problem, competition law should provide the answer.

More broadly, competition authorities worldwide are facing tough questions about whether and how best to adapt the law to meet the challenges of twenty-first century markets, particularly those dominated by the tech giants. The old consensus, which defined a cautious, narrowly constrained field of law dominated by neo-classical economics, is no longer viable, and the emerging consensus position does not see business as usual as an option.

But we still lack anything that remotely resembles the earlier certitude of the consumer-welfare standard to guide enforcement. Instead, we might just have to forge ahead, embracing new economic thinking in order to craft more realistic and effective theories of competition liability. Or, we might fall backwards, stripping competition law of its purported insights from economics and re-embracing its full-throttled role as a tool to attack aggregations of market power.

One way or another, competition law is coming back with a bang. It is likely to be some time, however, before the dust settles and the parameters of the “new” consensus are agreed.

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