Not since the first federal antitrust law was enacted over 120 years ago has there been the level of public concern over economic power that we see today. Until recently, public attention to antitrust in the U.S. was transient, driven by the occasional merger or cartel case in high profile markets. Concern over declining competition, growing inequality, and slowing rates of market entry is being driven by a number of factors. Consolidation in numerous markets such as wireless telecommunications, airlines, healthcare, and others has produced unprecedented levels of market concentration, raising concerns over stronger incentives to exercise market power and adverse effects on competition, consumers, and workers. Mega-mergers, once relatively rare, are now the order of the day. The average value of deals, in real terms, was almost 17% higher at the peak of the most recent merger wave in 2015 than at the peak of the previous wave in 2007. Other antitrust concerns are also stacking up. International cartels continue to proliferate, extracting billions of dollars from consumers, and the growth of dominant firms threatens to stymie smaller, innovative rivals.
The Obama administration expressed concern about declining competition in 2016, reinforced by a burgeoning body of economic research. The role of long-term under- enforcement of the U.S. antitrust laws features prominently in this debate. For four decades, antitrust enforcers have pulled their punches based on assumptions that most mergers and business practices are pro-competitive. But economic evidence shows that these assumptions lack empirical grounding or are demonstrably false, and they have effectively cloaked anticompetitive practices and harmful mergers. Indications that antitrust enforcement lags behind are apparent even in simple statistics. For example, federal merger enforcement, as measured by the number of transactions challenged by the U.S. Department of Justice (DOJ) and Federal Trade Commission (FTC), generally tracked the ups and downs of merger activity from the early 1990s to early 2000s. Thereafter, trends in merger and enforcement activity become increasingly disparate.
Where are we now? Antitrust enforcement is at a crossroads. The U.S. economy struggles with the cumulative effects of decades of under-enforcement and a step-down in current enforcement levels under the Trump administration. Despite its anti-corporate concentration rhetoric on the campaign trail, key metrics of cartel and merger enforcement have declined since the Trump administration took over. And in 2017 and 2018, the DOJ did not open one monopolization investigation, the longest span of inattention to dominant firms in the last 50 years. The compound effect of these problems is to imperil the very power of the antitrust laws. For example, the role of merger control is to prevent harmful mergers, but lax enforcement of hundreds of transactions over time has resulted in “creeping” concentration in many markets, resulting in tight oligopolies and dominant firms. Merger enforcement is now effectively constrained to preventing only the most patently anticompetitive mergers and acquisitions, and competition problems must instead be addressed through enforcement against collusive and exclusionary conduct. But these areas of law face their own limitations, including the difficulty of policing tacit agreements, which the courts do not recognize as illegal, and high standards for showing monopolization. The result is that the enforcement balance among the three areas of antitrust law—mergers, agreements, and monopolies—has been fundamentally and perhaps irrevocably disturbed.
Our analysis indicates that the Trump antitrust agencies have not recalibrated antitrust enforcement to address systemic concerns over declining competition. And they have no apparent plan for doing so. Moreover, sector regulators under the Trump administration have taken steps to remove important regulations that address market failures and promote a level playing field in key industries such as agriculture, telecommunications, and energy. The quandary that antitrust enforcement now faces has therefore fostered alternative proposals, including economic regulation and proposals that mandate firm breakups. Such solutions should be unnecessary if antitrust law were better enforced because in most cases, competition is better able than the government to ensure efficient and fair markets.
The first part of this report evaluates federal enforcement activity under the Trump antitrust agencies. This is measured by both quantitative statistics and qualitative assessments, which also account for policy changes and agency advocacy, as well as initiatives by federal sector regulators with statutory competition mandates. Our analysis indicates that the Trump administration receives a low grade by failing to protect competition at a time when markets are highly concentrated and evidence of competitive abuse surfaces with increasing regularity. The second part of the report assesses various alternatives to federal enforcement, and the promise they hold to make up for federal inaction. Enforcement by both state attorneys general and private plaintiffs has secured significant recoveries. State activity is on the rise, including initiatives by state Attorneys General to open investigations and block illegal mergers. Both forms of activity can take up some slack from federal inaction, shape case law, and generate useful public debate. We give private and state enforcers a higher grade for stepping into the void left by federal inaction to seek compensation and deterrence for antitrust violations that harm consumers and workers.
A free and open, market-based economy is fundamental to U.S. economic growth, consumer and entrepreneurial freedom, and democratic values. When markets produce anticompetitive and inefficient outcomes, as many in the U.S. economy do now, the role of antitrust enforcers as “referees” becomes all the more important. But the path forward is a fraught one. The cumulative effects of under-enforcement of the antitrust laws presents a significant political-economic dilemma. Stepped-up private and state antitrust enforcement cannot fully substitute for strong federal enforcement. The invocation of additional policy tools, including regulation and legislation, to address declining competition highlights the fundamentally “public policy” nature of the problem. Whether an antitrust-specific response should focus on strengthening and clarifying the laws, or if more significant legislative overhauls will be necessary remains to be seen. Regardless, a variety of complementary competition policy tools will be necessary to support and bootstrap antitrust moving forward.