Antitrust Law Daily Antitrust scholars reject recent proposals to change established antitrust, merger laws
Friday, May 15, 2020

Antitrust scholars reject recent proposals to change established antitrust, merger laws

By Jody Coultas, J.D.

Proposals seen as counterproductive to promoting competition and consumer welfare.

Several antitrust economists, legal scholars, and practitioners, including former FTC and Department of Justice Antitrust Division officials, have submitted remarks on the state of antitrust law and implications for protecting competition in digital markets to the House Judiciary Committee pursuant to the committee’s request for information to aid its inquiry concerning the state of existing antitrust laws. The remarks discuss various dimensions of antitrust law, economics, and institutions that have been the targets of "radical reform proposals," and assert that current antitrust institutions and federal antitrust law are up to the task of protecting competition. Signatories to the remarks also shared proposals to improve the functioning of those institutions.

The authors argue that many recent proposals related to antitrust law—including abandoning the consumer welfare standard, overturning unanimous and supermajority judicial precedents, and imposing obsolete and arbitrary market share tests to determine the legality of mergers—would "abandon the legal and political traditions that helped transform antitrust from an unprincipled and incoherent body of law, marred by internal contradictions, into a workable system that contributes positively to American competitiveness and consumer welfare." The remarks also argue that many of the current proposals would require antitrust agencies to micromanage the economy by picking winners and losers, abandon a focus on consumer welfare in favor of vague and politically-oriented goals, and undermine successful American businesses and their competitiveness in the global economy.

Digital economy. The remarks argue that the economy has not been trending toward increased market power and greater consumer harm, but rather that studies suggest that the observed changes in national-level concentration are brought about by the expansion of more productive large firms into local markets leading to more competitive markets. There are also no systematic competition problems in digital markets, despite some arguments to the contrary, the commenters say. Rather, there is evidence that the deployment of new technology by traditional industries has increased economies of scale and scope and enhanced local competition.

"[D]igital markets are intensely rivalrous and generate substantial long-run economic welfare," they contend. While the digital economy is not, or should it be, immune from antitrust scrutiny, "scholarship strongly suggests that competition in that sector of the economy has thrived under the existing antitrust laws, which can and should be applied when those laws are violated."

Consumer welfare standard. The authors of the remarks are strong proponents of the consumer welfare standard, arguing that it helps prevent arbitrary or politically motivated enforcement decisions and tethers antitrust outcomes to modern economics. Because of the many benefits of the consumer welfare standard, any "radical initiatives" seeking to abandon the standard should be rejected. They argue that without the standard, regulators and courts would have to evaluate the multidimensional and diverse effects of business conduct on political power, economic inequality, the environment, rival businesses, profits, and an assortment of other vague factors without the anchor of the focus on the impact on input and output market competition. "This would necessarily lead to an incoherent weighing of the diverse effects, and subjective management oversight of the economy by the government and by the courts."

Mergers. The commenters also take issue with the suggestion that merger enforcement is broken and that we should fundamentally alter basic tenets of the legal system to make it easier for the federal government and private plaintiffs to prevail in merger challenges. Merger enforcement has actually increased, the authors say, and there is no evidence that anticompetitive mergers are more likely to pass muster today than in decades past. It is "difficult to understand proponents’ calls for radical reform to antitrust merger law other than as an effort to increase the agencies’ incentives to challenge more mergers, regardless of merit, and without the critical, independent oversight of the federal judiciary." Rather, the current Horizontal Merger Guidelines already have burden shifting provisions that are carefully constructed with attention to both evidentiary needs and the economic logic of impact on competition. "Injecting new arbitrary criteria for burden shifting can only undermine the focus of merger enforcement."

Monopolization suits. In contrast to assertions proffered to the committee, the authors argue that antitrust agencies can and routinely do bring monopolization cases, including in high-tech markets. Both the federal agencies and private litigants have brought—and won—monopolization suits. This contrasts with arguments from some circles that Sherman Act, Section 2 claims are virtually unwinnable. "In the area of vertical mergers and vertical restraints, the overwhelming lesson that arises from economic theory and empirical evidence is that while vertical integration can pose competitive risks, it is likely to bring procompetitive benefits to the parties and consumers—or, at the very least, to be competitively neutral," they contend. The remarks state that there is no evidence presented that vertical mergers and vertical restraints impose a greater competitive threat in digital markets than in other markets.

Supreme Court precedent. In addition, the commenters argue that one of the most troubling reforms suggested is the systematic effort to overturn established case law and to return antitrust jurisprudence to its incoherent, pre-economic era. Prior to the focused introduction of economics to antitrust enforcement in the 1970s, the reliance on per se rules and other presumptions against defendants prohibited economic analysis and fact-based defenses. Thus, earlier enforcement relied heavily upon denying firms accused of antitrust violations the right to defend themselves. However, there is solid economic support for the cases alleged by critics to depart from economic learning. The economic evidence does not support the claim that the Supreme Court has been "too willing to presume" that monopolies promote innovation. In reality, innovation arises from both small and large firms, and in concentrated and unconcentrated markets, depending on the business environment, the remarks state.

Proposals. Although not all of the signatories to this letter agree with even all of the proposals set forth in the letter, they agree that these proposals at least build upon, rather than replace, the rigorous evidence-based approach to antitrust that has developed over time. The proposals include: (1) Increasing transparency of agency decision-making; (2) Increasing the use of merger retrospectives; (3) Strengthening the ability to challenge state-sponsored monopolies; (4) Enhancing penalties for criminal cartel conduct; (5) Protecting workers against anticompetitive conduct in labor markets; (6) Allowing indirect purchasers to sue for antitrust damages; (7) Eliminating inefficiencies created by dual-agency enforcement; (8) Increasing the role of economists at the agencies; and (9) Increasing antitrust agency funding.

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