Antitrust, Dominant Firms, And Public Policy Problems: A Framework For Maximizing Success By Minimizing Uncertainty

The first of the two reports in a series, Antitrust, Dominant Firms, And Public Policy Problems: A Framework For Maximizing Success By Minimizing Uncertainty creates a general framework for policymakers to assess potential outcomes when combatting dominant-firm behavior using federal antitrust litigation under existing legal doctrine. It explains that when a single firm achieves dominance in a critical market, it can give rise to complex public-policy problems with economic, social, and political dimensions that call upon government to craft creative solutions using a variety of available tools. The menu of available options includes antitrust law, economic and/or social regulation, intellectual property law, labor and trade policy, tax law, and other legal and regulatory mechanisms. And, it is up to policymakers to choose the right combination of tools and wield them collaboratively and effectively.

Because of modern antitrust law’s technical complexity, non-expert policymakers often struggle to understand how antitrust law can be effectively deployed as part of a broader public-policy strategy. The first report solves for this problem by creating a framework that policymakers can use to assess degrees of uncertainty associated with litigation-based antitrust challenges to dominant-firm behavior under existing legal doctrine. It derives five variables that implicate litigation uncertainty, each of which arises from core areas of policy agreement or disagreement in antitrust law.

The core area of policy agreement that informs litigation uncertainty under existing antitrust law is the idea that antitrust law, as currently constituted, serves to protect and promote competitive markets. The core area of disagreement is over whether antitrust, in the course of protecting competition, should seek to protect and promote consumer welfare as its primary or exclusive goal. Each of these areas has been a flashpoint in recent public policy debates over the adequacy of existing antitrust law as applied to modern digital technology markets. But, importantly, each area also tends to inform the litigation arguments of parties who appear before judges in actual antitrust cases. Consequently, these areas of policy agreement and disagreement tend to shape the contours of applied antitrust law, affecting arguments and outcomes from jurisdiction to jurisdiction and even from case to case.

After a detailed analysis, the report identifies and explains the five uncertainty variables that emerge from an understanding of these key areas of agreement and disagreement, as well as their implications for policymakers:

1. THE THREAT OF MARKET FAILURE. When competition occurs within the context of a market failure, policymakers should recognize that it may exacerbate a given public policy problem rather than cure it. Confronted with a potential market failure, the efficacy of applying a law that promotes competition becomes less certain.

2. THE WELFARE TRADEOFFS CAUSED BY LAWFUL COMPETITION. The lawful competition that antitrust law promotes can sometimes lead to welfare tradeoffs that harm vulnerable constituencies, including consumers, workers, and small business. Policymakers therefore should recognize that other tools, in addition to a tool that promotes competition, may be necessary if their particular goal is to protect vulnerable constituencies from injury rather than to promote open markets.]

3. THE DETECTABILITY OF A WEALTH TRANSFER. To survive the preliminary stages of litigation and thereby obtain meaningful deterrence against socially undesirable behavior (including by spurring settlement discussions), an antitrust plaintiff may have to allege evidence that a powerful firm forced its trading partners to transfer wealth to the firm. Policymakers should recognize that, to the extent such a wealth transfer is difficult to detect, the deterrence value of initiating antitrust litigation may be less certain, as may the prospect of obtaining a competition-restoring remedy should the litigation proceed to summary judgment or trial.

4. THE NATURE OF EVIDENTIARY ALLEGATIONS OF AN ANTICOMPETITIVE EFFECT. As currently applied, antitrust law holds that it protects against not only harm caused by inflated prices and reduced output (“price effects”), but also against harm caused by diminished product quality, reduced choice, and reduced innovation (“non-price effects”). However, cases premised solely on harmful non-price effects are sometimes harder to support with proof, particularly when the effects are unquantified or unquantifiable. Policymakers therefore should recognize that cases premised on unquantified, non-price effects may be more difficult to maintain and win than cases premised on quantified price or output effects, or both kinds of effects.

5. THE COMPATIBILITY OF ANY “INCOMMENSURABLE” COMPETITIVE EFFECTS. It is common for challenged conduct to generate both quantified price/output effects and unquantified non-price effects. When the two kinds of effects are both present and both harmful, antitrust law has comparatively little difficulty policing the conduct that generates them. However, when the competitive effects diverge, meaning conduct is beneficial in one sense but harmful in the other, courts often struggle to impose remedies. Policymakers therefore should recognize that conduct that creates divergent price and non-price effects, such as lower prices but also reduced innovation, or higher prices but also higher quality, may be difficult to remedy using antitrust law under existing legal doctrine.

The report was authored by Randy Stutz, AAI’s Vice President of Legal Advocacy, and made possible by grant funding from the John S. and James L. Knight Foundation. See