The congressional debate over antitrust: It’s about time

The “consumer welfare standard” is at the center of the debate currently swirling around antitrust law. President Biden calls it “misguided” and the Federal Trade Commission rescinded a policy to adhere to it in every case. At the same time, Sens. Mike Lee (R-Utah) and Charles Grassley (R-Iowa) introduced a bill requiring federal courts to apply a version of it exclusively.

Not everyone agrees on the meaning of the consumer welfare standard. As the standard has been applied, a merger or practice can violate the antitrust laws if it results in higher prices, reduced output, or lower quality. Detractors agree that these are important concerns but argue that such effects as foreclosing new competitors, stifling innovation, eliminating jobs, and threating the nation’s economic security, should count as well. (The Lee/Grassley bill counts innovation but not all the rest.)

This debate misses a pivotal issue—whether antitrust analysis should focus only on short-term effects or also on long-term effects? In other words, it’s about time.

Sometimes, a merger or practice may result in price hikes almost instantaneously. But in the long run, blocking competitors, smothering innovation, exporting jobs and skills, and allowing technologies to migrate abroad can result in higher prices too. It just may take longer.

The antitrust standard applicable to mergers and most troublesome unilateral conduct already forbids long-term threats to competition. The “incipiency” standard, which was incorporated into U.S. antitrust law in 1914, requires courts to consider not only short-term effects but long-term effects that threaten to substantially lessen competition. This means that even without proof that a merger or practice will drive up prices immediately, evidence of a genuine threat of higher prices in the future can be enough to prove a violation. (Conspiracies among multiple competitors to fix prices are subject to a different standard, forbidding that conduct categorically.)

Antitrust law never was intended to preserve every single competitor but, sooner or later, leaving too few competitors in a market will result in too little competition and higher prices. Too little innovation will result in fewer products from which to choose. Loss of too many jobs and critical skills eventually could allow sellers to raise prices to consumers. Loss of key technologies ultimately could enable other nations to dictate prices or deny access to those technologies altogether. This never was more obvious than in the shortages of personal protective equipment experienced during the pandemic.

In other words, all these effects are relevant to consumer welfare, given a long enough time horizon. They shouldn’t need to be added to the consumer welfare standard—they already belong there.

The debate should be not whether antitrust analysis ought to be limited to effects on prices, output, and quality, but whether safeguarding enough competitors, innovation, jobs, skills, and technologies is intrinsic to enjoying greater prosperity, including lower prices, higher output, and better quality. The incipiency doctrine already is integral to American antitrust law but too often it is being overlooked or misapplied in court. The challenge for Congress and the enforcement agencies today is convincing the courts to recognize it and apply it.

Yogi Berra famously is quoted as saying, “It’s tough to make predictions, especially about the future.” But that is the job Congress assigned the courts.

Today, there are multiple bills pending in Congress to buttress the antitrust laws and growing bipartisan support to act. One place to start is fortifying the incipiency doctrine, to make the principle behind it unmistakable. For another, if Congress investigates a practice and determines it is always anticompetitive, that practice should be prohibited. Instead, Congress has been considering proposals to create presumptions against certain practices based on market share, but market-share presumptions already exist in judicial precedents and almost always lead to protracted litigation to define each market. Companies need certainty. Experience teaches that businesses can adapt to any set of prohibitions if the rules are clear cut and apply to everyone.

There are other possible improvements to be made as well. Some of the bills that have been introduced hold more promise than others. But regardless of whether any are eventually enacted, the incipiency doctrine—with its forward-looking time horizon—already is on the books. Enforcers can press for its application in the cases they pursue right now, whether or not additional legislation takes effect. Helping courts better understand when and how to apply the incipiency doctrine would go a long way toward shaping a coherent antitrust standard for the 21st Century, even as Congress debates whether to do more.

Richard M. Steuer is an Adjunct Professor at Fordham Law School