Alden Abbott, former general counsel of the FTC, argues that, contrary to claims made in a recent ProMarket article, American competition is vibrant and robust. He says that a sudden change toward significantly more intrusive antitrust enforcement, far from strengthening the economy, would likely inject unwarranted uncertainty into business planning. 

In a recent article, Leah Samuel and Fiona Scott-Morton (“the authors”) argue, essentially, that antitrust’s well-known “consumer welfare standard” has been changed and applied by antitrust enforcers and the courts in a manner that is at odds with economists’ understanding of the concept. In so doing, they focus on a “straw man” villain—the late Robert Bork and his Chicago School cohorts—for allegedly having fooled enforcers and judges into adopting enforcement policies that actually undermine, rather than strengthen, competition. 

There are only two problems with their argument. First, it is not clear at all that competition has declined during the reign of this supposedly misused concept. Second, the consumer welfare standard has not been misapplied at all. Indeed, as antitrust scholars and enforcement officials have demonstrated (see, for example, here, here, here, here, here, here, and here), modern antitrust enforcement has not adopted a narrow “Chicago School” view of the world. To the contrary, it has incorporated the more sophisticated analysis the authors advocate, and enforcement initiatives have been vigorous and largely successful. Accordingly, the authors’ call for an adjustment in antitrust enforcement is a solution in search of a non-existent problem. 

The authors begin by asserting that “the [consumer welfare] term itself has become the target of vocal criticism in light of mounting evidence that recent enforcement—and what many call the ‘consumer welfare standard era’ of antitrust enforcement—has been a failure.” This statement implicitly suggests that competition has declined due to lax enforcement in recent years, during a period that “consumer welfare” has been deemed the touchstone of sound antitrust analysis. Such a suggestion, however, lacks solid empirical support (despite the fact that it has been advanced by many other commentators as well, including the “New Brandeisians” referred to by the authors).

Let’s examine some facts that contradict the oft-repeated  “competition has declined” story. Based on a detailed literature review, Chapter 6 of the 2020 Economic Report of the President concluded that “the argument that the U.S. economy is suffering from insufficient competition is built on a weak empirical foundation and questionable assumptions.” The 2020 Report acknowledged a 2016 CEA “Issue Brief” that contended competition may be decreasing, as well as several subsequent research studies that argued competition is declining.

Similarly, in an article which will be published as a chapter in Research Handbook on Abuse of Dominance and Monopolization (forthcoming in 2022), Gregory Werden, who served over 40 years in the Justice Department Antitrust Division, explains:

“The modest upward trends in concentration observed for the US at higher levels of aggregation do not indicate diminished competition. The steep upward trends in concentration observed for the US in firm-based data reflect the bias to concentration trends that can arise from assigning entire firms to single industries. A half-century ago, industrial organization economists understood the problems arising from measuring concentration with aggregated data as well as those from using firm-based data to construct market observations.”

Furthermore, recent quantitative research by Robert Kulick (of NERA Economic Consulting and the American Enterprise Institute) is consistent with and supplements the 2020 Economic Report’s findings. In presenting his research (which will be published this spring) at the January 26 Mercatus Antitrust Forum, Kulick stressed that “[t]here is no general trend towards increasing industrial concentration in the U.S. economy from 2002 to 2017.” In particular, industrial concentration has been declining since 2007; the Herfindahl-Hirschman Index (HHI) has declined significantly in manufacturing since 2002; and the Four-firm concentration ratio economy-wide in 2017 was approximately the same as in 2002. Even in industries where concentration may have risen, Kulick writes, “the evidence does not support claims that concentration is persistent or harmful.” In that regard, Kulick’s research finds that higher-concentration industries tend to become less concentrated while lower-concentration industries tend to become more concentrated over time; increases in industrial concentration are associated with economic growth and job creation particularly for high growth industries; and rising industrial concentration may be driven by increasing market competition.

In short, the strongest justification for revising American antitrust enforcement standards (including possible new merger guidelines mentioned by the authors) is based on false premises (or, at best, claims that have not been proven): a supposed decline in competition within the United States. Given these findings, the assertion that changes in agency policies and judicial analysis are needed to combat “worsening competition” by “ratcheting up” enforcement would appear unjustified. 

The lack of empirical support for “declining American competition” claims may reflect the fact that the authors’ portrayal of a misapplied consumer welfare standard is inaccurate.

The authors explain alleged “underenforcement” by the courts’ Chicago School-inspired “minimization of harms” (based on the assumption that harms are implausible, speculative, or difficult to quantify). According to the authors, “[u]ltimately, a forgiving standard for counting cognizable efficiencies became a backdoor way of using a total welfare standard rather than a consumer welfare standard.”

The authors, however, present no evidence at all that courts and enforcers actually have “minimized” competitive harm and cognizable efficiencies. In fact, these claims lack merit. 

“the strongest justification for revising American antitrust enforcement standards (including possible new merger guidelines mentioned by the authors) is based on false premises (or, at best, claims that have not been proven).”

The notion that antitrust enforcement ignores competitive harm and exaggerates efficiencies is belied by reality. The facts are to the contrary. Current FTC Commissioner Wilson has appropriately called for the symmetric treatment of both the potential harms and benefits arising from mergers, explaining that “the agencies readily credit harms but consistently approach potential benefits with extreme skepticism.” Wilson and (former FTC Commissioner) Joshua Wright have also explained that overly narrow product market definitions may sometimes preclude the consideration of substantial “out-of-market” efficiencies arising from certain mergers. Indeed, the focus on very narrow market definitions has led to some merger challenges targeting mergers that, overall, may confer far greater benefits than costs on consumers. 

Furthermore, far from focusing on producer welfare and overly emphasizing efficiencies, antitrust courts have tended to take the advice of the FTC and Justice Department and downplay merger efficiency claims, as research summarized by Commissioner Wilson demonstrates (footnotes omitted):

“While several litigated cases have been decided at least partially on efficiency grounds, courts largely continue to follow the [federal antitrust] Agencies’ lead in minimizing the importance of efficiencies. One study surveyed merger cases from 1986 to 2009 and found that “[a]lthough courts claim to be balancing merger-generated efficiencies with other negative factors affecting market competition,” they are actually “making an assessment of the relevant concentration in the applicable market and then allowing that initial assessment to color their recognition of claimed efficiencies.” Indeed, even when courts acknowledge efficiencies in finding in favor of merging parties, they often emphasize that efficiencies were not pivotal to their decision.”

Consistent with this portrayal, in recent decades the antitrust enforcement agencies, the FTC, and the Justice Department, have enjoyed a good deal of success in challenging mergers and other forms of anticompetitive behavior in courts and through effective settlements by consent agreement. For example, the FTC won every litigated hospital merger case in the 21st century, until finally losing a challenge to a Philadelphia-area merger in 2021. With regard to consent agreements, between 1994 and 2020, the FTC challenged sixty-seven pharmaceutical mergers, deciding in all but one instance to settle subject to divestitures. Evidence shows that these divestitures have been successful in maintaining pre-merger levels of competition in the market (see here and here).

These antitrust challenges succeeded despite the fact that substantial efficiency claims typically are raised in health care industry litigation. In fiscal year 2020 alone, the FTC saw twenty-eight merger enforcement actions: seven complaints voted out by the Commission, ten settlements accepted for public comment, and eleven transactions abandoned or restructured. Assertions of efficiencies did not preclude the FTC from successfully concluding these matters. DOJ won seven and lost zero fully litigated civil antitrust cases in the 2010-2019 period, and successfully settled 123 other matters. Many of these cases involved efficiency claims as well.

Moreover, recent changes in the way in which markets are assessed may have strengthened the hand of the enforcement agencies in pursuing litigation. A recent empirical study by Wilson and Keith Klovers reveals that the FTC and DOJ have benefited from the narrowing of market definitions (the set of products over which potential competitive effects are assessed), which has made it more difficult for defendants to succeed. According to the study (footnotes omitted): 

“because the narrowing of markets has the effect of making antitrust enforcement more stringent, at least on average, it cuts against the narrative that antitrust rules have become “overly lenient” since the 1980s. Nor is this effect fully offset by higher market share thresholds, as in recent years product markets have continued to narrow even as thresholds have remained unchanged.”

What’s more, the consumer welfare standard—as actually employed—fully allows for such considerations as quality, innovation, and monopsony. These concepts are accounted for in existing agency merger guidelines and have been reflected in significant litigation matters. Just to cite a few among many examples, potential harms to quality and innovation were key elements underlying the FTC’s successful blocking of the Lockheed Martin-Aerojet Rocketdyne and Nvidia-Arm mergers (both mergers were dropped in the face of FTC challenges), and monopsony buyer concerns underlay successful Justice Department challenges to “no-poach” agreements among companies bidding for workers.

In sum, the authors’ portrayal of lax American antitrust enforcement is contradicted by actual practice. Agencies have enjoyed a solid record of enforcement success in recent years. Furthermore, agencies and courts actually have been very cautious in weighing efficiencies, have not minimized harm from anticompetitive behavior, have actually focused on consumer (not producer) welfare, and have taken into account such factors as innovation, quality, and monopsony. 

This is not surprising. It follows from the fact that the Borkian Chicago School philosophy has not dominated the thinking of enforcement agencies and courts. William Kovacic, one of the nation’s top antitrust scholars and former FTC Chairman, has demonstrated in a highly detailed article that modern American antitrust enforcement policy  actually reflects the contributions of various schools of thought (footnotes omitted):

“[T]he Chicago School–centric explanation for what motivates US law and policy is badly incomplete and provides an unreliable guide to policy making. The Chicago School–centric interpretation either ignored the significant influence of non–Chicago School ideas entirely, or dismissed them quickly as, at most, secondary forces in guiding the US system. . . . The greatest omission in Chicago School–centric interpretations of US antitrust policy is the failure to recognize the significant influence of the modern Harvard School and its formative scholars: Professors Phillip Areeda, Donald Turner, and now Justice Stephen Breyer. Harvard School perspectives today guide key elements of US antitrust doctrine and enforcement policy, so much so that American case law more strongly reflects the Harvard School’s ideas than the Chicago School’s.”

My critique of the authors’ discussion of the consumer welfare standard should not be read to mean that American antitrust enforcement protocols and case law are perfect and should never change. Far from it. Antitrust analysis has evolved gradually in recent decades, reflecting changes in applied economic techniques and enhanced abilities to collect and analyze data. Case law has evolved as well, to take into account new information and scholarship. This is as it should be. Antitrust is a real world facts-based system that should periodically be adjusted—but with great care, so as to increase its utility in promoting a strong competitive process and the welfare of consumers. 

Antitrust, however, should not change on a dime, based on unsupported claims that enforcers and judges have been asleep at the switch, captives of flawed pro-business “Chicago School” nostrums that have contributed to a decline in competition throughout the American economy. 

The reality is that American competition is vibrant and robust. A sudden change toward significantly more intrusive antitrust enforcement, far from strengthening the economy, would likely inject unwarranted uncertainty into business planning. The result would be a slowdown in innovation and reduced economic efficiency, which would retard the rate of improvement in the welfare of both producers and consumers. One may hope that enforcers, judges, and legislators will keep this reality in mind before significantly altering the standards that inform American antitrust, which, warts and all, has served the American economy and consumers very well.

Disclosure: Alden Abbott is a Senior Research Fellow in charge of antitrust and competition policy for the Mercatus Center at George Mason University, whose donors have included firms in the tech sector. The Mercatus Center’s policy regarding independence of research is available on their website.

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