The House Subcommittee on Antitrust, led by Rep. David Cicilline (D-R.I.), is expected to release its report on competition in digital markets in the coming weeks. Though focused on digital markets, its proposals may have far-reaching effects for the whole economy.
While we cannot judge the report until it is out, there are signs that it may recommend dramatic changes to antitrust law that would nullify decades of judicial precedent, abandon antitrust’s focus on consumer wellbeing in favor of other goals, and move towards a guilty-until-proven-innocent standard in some antitrust cases that would require businesses to prove that their challenged conduct is legal. Cicilline’s recent endorsement of a near-blanket ban on mergers during the coronavirus shutdown suggests that he may be tempted by some of these proposals.
Advocates argue that competition is weakening in America, pointing to rising market concentration – big businesses’ share of national markets – and recent studies that have shown a rise in markups, a measure of business profitability.
Both of these pieces of evidence, though, are flawed. While market concentration is rising at the national level, it is falling at the local level, which is what usually matters for consumers. In fact, this decreasing local concentration may be what is driving increasing national concentration. In many parts of America, until recently a few independent businesses had been able to dominate their local markets and charge higher prices as a result. But as national chains have grown, they have exposed these places to greater competition and pushed prices down.
The significance of rising markups has also been questioned by subsequent analyses. Studies that show this often fail to account for the fixed costs that represent an increasing share of businesses’ costs, but are not directly related to the cost of producing additional products, like research and development and marketing. Factor those in, and the apparent rise in markups disappears.
As argued in a joint letter signed by some of the United States’ leading antitrust scholars and practitioners, many of the more interventionist proposals that have been made to the Subcommittee could end up hurting competition and consumers.
Making mergers and acquisitions more difficult, for example, would make it harder for startup founders and investors to ‘exit’ those companies through buyouts, which are currently a key way that those entrepreneurs can recoup their investments. This would make it even riskier to set up or invest in a new business, especially in areas where it may not be simple to turn a good idea into a reliable revenue stream.
Similarly, moves to assume that businesses accused of certain anticompetitive practices are guilty unless they can prove themselves innocent could render many innovative, pro-consumer business practices illegal, simply because a federal agency or court didn’t understand them. That could mean a return to the days when, in Supreme Court Justice Potter Stewart’s words, “the only consistency [in antitrust] is that the government always wins.”
Other proposals, to abandon the promotion of consumer welfare as the core goal of antitrust and to nullify existing antitrust precedent, would damage antitrust at a fundamental level.
Prior to the 1970s, antitrust was contradictory, confused and gave enormous discretionary power to judges, because its goals were so vague. With the rise of the so-called “consumer welfare standard,” modern antitrust law has been able to evolve, allowing courts to scrutinize the specifics of cases and make judgements about whether the practices concerned are working for or against consumers, guided by one question above all: “Is the challenged conduct likely to make consumers better or worse off?”
This has allowed greater accountability of courts and federal antitrust agencies, easier use of economics to guide judicial decision-making, and a strengthening of the rule of law.
Abandoning this standard, and the legal precedent that has evolved from it, would risk a wholesale politicization of U.S. antitrust. In place of this clear, objective standard of conduct, courts would be faced with the impossible task of promoting some form of ‘general welfare’, weighing often-conflicting goals that are impossible to trade off against each other without the sort of value judgements that elected representatives, not judges, should be making. Hopefully, Rep. Cicilline’s report will ignore proposals like these. American markets can be more competitive, with antitrust playing a valuable role.
The joint letter proposes a few steps that could be taken. Improve funding for the federal antitrust agencies so that they can employ top talent for longer, and require them to be more transparent about their decisions so Congress can oversee them properly. Enhance penalties for criminal cartels, and reform the state action doctrine, so state-sponsored monopolies can be challenged more easily, especially in areas like occupational licensing where poorer people are the most badly hit.
These are pragmatic, if somewhat unsexy, reforms. But that is the sort of incremental approach that antitrust needs, and not an attempt to throw out a system that is working well, and go back to Year Zero.
Sam Bowman is the director of competition policy at the International Center for Law & Economics, a think tank that promotes the use of law & economics methodologies to inform public policy debates.