New AAI White Paper Analyzes the Pitfalls of Countervailing Power as a Response to Rising Market Concentration

Market concentration and imbalances in bargaining leverage are a tremendous economic and social problem.  As lax antitrust enforcement and diluted antitrust doctrine have allowed markets to become more concentrated and monopolies to fester, the idea of letting companies bargain collectively, merge, or even fix prices to mitigate the ill effects of this concentration has reemerged.  The recent House Judiciary Report on the big technology companies and their tactics makes the need for some solution to their immense power apparent.  At the same time, great care must be taken in crafting such a solution to avoid undermining competition and unwinding the antitrust laws.

This AAI White Paper “Countervailing Power: a Comprehensive Assessment of a Persistent but Troubling Idea” examines one of the more vexing ideas that has been offered as a partial solution to increased concentration and market power: countervailing power.  Although not a new idea or one  that has been widely embraced, what is notable about countervailing power in the current moment is that it is seemingly embraced by an array of antitrust and competition thinkers, lawmakers, and companies that is exceedingly diverse and usually opposed to one another.  Apple, for example, has both deployed defenses based in countervailing power and been subject to arguments that the app developers with whom they deal should be allowed to collude to counter Apple’s market power.  So have the major health insurers both deployed and opposed countervailing power defense.  In academic and policy circles, support for countervailing power as a solution to monopoly is being put forth not just by conservatives who argue that total welfare should guide antitrust but also those who argue for the primacy of the competitive process.

This White Paper begins with a background on the economics of countervailing power and its treatment under current antitrust laws.  It then surveys the recent resurgence interest in countervailing power, and places the current thinking in historical context.  With this backdrop, next is a discussion of the myriad reasons why countervailing power is not an effective or prudent solution to problems of decreased competition and increased market concentration.  And, accordingly, why lawmakers, enforcers, and courts should continue to push back against attempts to infuse countervailing power defenses into antitrust law.  It concludes with policy recommendations for addressing market concentration and imbalances in bargaining power with competition-based solutions.

Market concentration and imbalances in bargaining power are a serious problem.  Although much attention has been focused on Big Tech recently, this is an issue that affects many other markets tech and that demands attention and solutions.  But, those solutions should be focused on preserving and promoting competition, which countervailing power does not do.

The White Paper was written by AAI Vice President of Policy Laura Alexander.