What’s the Story Behind Antitrust Reform? Unpacking the “Better Deal”
The Democrats’ “Better Deal,” announced last week, makes competition a national priority. It follows an Executive Order issued in the twilight of the Obama administration that responded to warnings that competition is in decline. While such initiatives at the highest levels of government are new, concern that competition may be struggling in the U.S. is not. Competition and consumer advocates have long encouraged antitrust enforcers and courts to take a firmer hand in enforcing the antitrust laws. They have pushed back against decades of lax enforcement that put too much stock in claims that cost savings and vague consumer benefits could justify anticompetitive mergers and behavior that entrenched the market power of large firms.
There are a few important things to know about the Better Deal. It seeks to capture the attention of voters in the run-up to the 2018 and 2020 elections. Everyone should care deeply about competition. It is central to our market-based system, economic growth, consumer welfare, and innovation. As the American Antitrust Institute’s recent National Competition Policy statement recounts, there is mounting economic evidence that competition is sagging.
Many consumers have already been touched by the consequences of declining competition. Major markets and industries show higher levels of market concentration, which means fewer sellers (and buyers) with more market power. There is growing income and wealth inequality, due largely to powerful firms setting wage rates in labor markets, eroding the bargaining power of workers and making them worse off. Rates of start-ups have also slowed, signaling that fewer entrepreneurial firms are entering markets.
The Better Deal accepts this diagnosis and could serve as a rallying cry for the more robust use of antitrust law in our economy. But its action plan raises questions. The Better Deal proposes new merger standards that would “ensure that regulators carefully scrutinize whether mergers reduce wages, cut jobs, lower product quality, limit access to services, stifle innovation, or hinder the ability of small businesses and entrepreneurs to compete.” Because this notion is so appealing and fundamental, it should not come as a surprise that the existing merger standard is flexible enough to accommodate these concerns. While broadly promoting “consumer welfare,” the existing standard has been interpreted by the antitrust agencies and courts to include the effects of mergers on price, quality and choice, innovation, and workers.
Notably, the government has moved recently to block mergers that would have lowered quality of service (hospitals); reduced incentives to innovate (semi-conductor equipment); and pushed down prices paid to suppliers of important commodities and services (cattlemen, hog farmers, and physicians), thus jeopardizing their livelihoods. Public and private enforcers have also successfully prosecuted illegal agreements by hi-tech firms not to recruit each other’s employees, which directly depress wage rates or salaries.
So the current antitrust toolkit appears to have what is necessary to accomplish what the Better Deal proposes. What is needed is more vigorous enforcement under existing standards to challenge mergers in concentrated markets. More aggressive enforcement should also call out conduct that entrenches dominant firms and raises barriers to entry for smaller innovators.
To be sure, the Better Deal proposes certain tools that would give enforcers a stronger hand in the courts. This includes putting the burden of justifying the largest mergers on the merging companies, rather than requiring the government to prove that a merger is anticompetitive. Strengthening the existing presumption that mergers that unduly concentrate a market are unlawful would be a welcome improvement. On the other hand, the proposal for a new consumer competition advocate to make recommendations to the antitrust agencies adds a murky layer of oversight. And it sends the wrong message. The heads of those law enforcement agencies should be the advocates.
When the existing standard accomplishes much of what the Better Deal constructively proposes, creating new merger standards raises nontrivial risks. Courts would have to sort out how the new standard actually differs from the current law, which would increase uncertainty for enforcers and firms. It could also mean that antitrust enforcers act more like traditional sector regulators (such as in telecommunications and transportation). There are good policy, legal, and procedural reasons why the functions of antitrust enforcers and sector regulators are different.
Finally, there are serious questions about embarking on wholesale change in the U.S. antitrust regime. What is needed right now is assurance that the antitrust laws will be vigorously enforced within the bounds of the mainstream consensus and that political interference from the White House on particular antitrust cases is unacceptable.
The reality is that the antitrust agencies are law enforcers, and the vigor of enforcement directly affects the state of competition in markets and in the economy. The economic and political fallout we now see from decades of lax enforcement is proof positive. And we know the antitrust agencies can be more aggressive in enforcing the law. The late-era Obama Department of Justice in fact embarked on a major enforcement “course correction,” blocking or forcing the abandonment of numerous large mergers in health insurance, food distribution, oil and gas, and other markets. And the courts backed up the government.
More vigorous enforcement would be aided by providing clarity and emphasis as to how the laws can apply to competitive issues that have appeared more recently. This includes the exercise of market power by powerful buyers, abuse of intellectual property to restrict competition, and non-horizontal mergers. The Better Deal’s goal to “re-invigorate and modernize” the antitrust laws is sound. But let’s base constructive antitrust reform on the notion that the laws are flexible and have always incorporated concerns about the creation and abuse of economic power that animate progressive reformers today.