The Federal Trade Commission (FTC) has been grabbing headlines for attempting to eliminate non-competes and issuing record-breaking fines for child privacy violations. However, the proposed Tougher Enforcement Against Monopolies Act (TEAM) would put a pause on these actions by eliminating the agency’s authority over antitrust enforcement. Unfortunately, this move would have minimal impact. The problems facing U.S. antitrust enforcement aren’t the result of agency structure, but a reliance on unsupported theory.
TEAMS, introduced by Sen. Mike Lee, would take antitrust enforcement authority held primarily by the Department of Justice (DoJ), the FTC and, to a marginal extent, the Federal Communications Commission (FCC), and consolidate it under the DoJ.
Proponents of TEAMS argue that consolidation would conserve resources, reduce bureaucratic waste and prevent different standards of enforcement. However, it’s unclear how much of a problem the overlap in responsibility actually poses. A recent report from the Government Accountability Office states that disagreement over enforcement is quite rare — occurring in less than one percent of cases.
The real crossroads facing antitrust in the U.S. isn’t between agencies. It’s the battle over an emerging perspective that punishes size and expands the scope for considering potential harm.
Under the leadership of Jonathan Kanter, Assistant Attorney General for the Antitrust Division, the DoJ stopped the proposed acquisition of Simon & Schuster by fellow publishing house Penguin Random House. While the argument in this case considered the consumer impact, it also focused on the authors who could potentially see their compensation reduced with fewer publishers. This represents an approach to mergers that involves a potentially expanded definition of harm.
According to Kanter and FTC Chair Lina Khan, large businesses — especially tech platforms — represent a special case that calls for an expanded scope of antitrust. In her article Amazon’s Antitrust Paradox, Khan claims that the integration of such a large platform is anti-competitive in ways that aren’t captured by prices or outputs, which are how agencies have traditionally measured harm. This belief system necessitates the consideration of competitive effects beyond consumer welfare.
Efforts from the federal agencies don’t only seek to increase the scope of potential harms, but also to establish a bias against company size, specifically when increased through mergers and acquisitions.
The FTC and DoJ embarked on a joint effort to rewrite merger guidelines last year, a draft of which should be released in the upcoming months. The questions asked in the request for information, along with the stated purpose of addressing corporate consolidation, imply that a company’s size may play an increasing role in determining the competitiveness of behavior under these new guidelines.
Focusing on size ignores years of standard practice and economic theory. One of Khan’s complaints regarding previous guidelines for vertical mergers — mergers that occur at different spots on the supply chain rather than between competitors — is that “reliance on [elimination of double marginalization] is theoretically and factually misplaced.” The idea of double marginalization elimination essentially states that large firms can often reduce prices by controlling multiple points in a supply chain. A fairer read of the previous guidelines is not that the elimination of double marginalization always occurred with vertical mergers — just that it could occur.
While the presumption that mergers are always competitive should be avoided, so should the presumption that mergers are always anti-competitive.
For the past 40 years, the lens of the Consumer Welfare Standard (CWS), which focuses determinations of anti-competitive behavior on consumer impact, has enabled antitrust enforcers to avoid blanket presumption. Under the CWS, the existence of large companies is permissible so long as it benefits consumers through increased output or lower prices. This tradeoff mirrors a statement in the previous horizontal merger guideline: “The measurement of market shares and market concentration is not an end in itself, but is useful to the extent it illuminates the merger’s likely competitive effects.”
Reliance on the CWS has guided antitrust in a way that didn’t punish size or success but did consider the potential impact of market power. New theories involving antitrust enforcement too heavily rely on size as a measure of competitiveness instead of using it as one of many indicators. If there’s merit to the idea that unique characteristics of tech platforms demand new rules, then it should be tested in the economic literature prior to implementation.
Unfortunately for businesses and consumers alike, the DoJ and FTC appear eager to test the idea that big is bad in the courts instead of against economic theory. This is the key challenge facing U.S. antitrust enforcement, and agency consolidation will do nothing to address it.