In a wide-ranging interview with ProMarket, Summers expands on recent criticism of top antitrust enforcement officials, efforts to stymie Big Tech, monopsony, and the economic history that has shaped the current corporate environment.
A new regime of antitrust has been ushered in with the appointment of top officials at the Federal Trade Commission and Department of Justice who are critical of lax antitrust enforcement in recent decades. For his part, former Treasury Secretary and President Emeritus of Harvard University Lawrence Summers largely agrees that antitrust enforcement should be stronger.
However, in a recent Twitter thread, Summers voiced concerns about the FTC and DoJ officials’ definitions of problematic companies, saying that “policies that attack bigness can easily be inflationary if they prevent the exploitation of economies of scale or limit superstar firms.”
We asked Summers to expand on his critique in the following interview.
Q: As soon as I saw your Twitter thread last week, I said we have to have Mr. Summers on, because this is just squarely in the debate that we have been having on ProMarket. But since Twitter limits the number of characters, could you summarize your views on what’s coming out of the FTC and the DOJ?
A: I think competition is central to a successful market economy and that antitrust has a crucial role in ensuring competition. I think the instinct that we need stronger antitrust than we’ve had in recent years and more pro-competition policy is entirely correct.
I think there’s a broad lesson though, that it is very important to distinguish between protecting competition and protecting competitors. Companies can increase in scale and gain market share, either because they’re doing inappropriate things towards monopolizing the market, or because they’re competing successfully and gaining at the expense of their competitors. It’s crucial to distinguish between those two approaches, or ways in which competitive success and increased scale can be achieved.
It seems to me that the broad contribution of economic analysis over the last four or five decades has been to focus attention on exactly that distinction: between increases in scale or in share that reflect success in providing better products at lower cost to consumers, and those that don’t and to focus attention on the latter category.
The concern I expressed was with the movement that has been called the new-Brandeisians, or more colloquially, hipster antitrust. Some of the doctrines associated with people in senior positions in the FTC and the DOJ is that they appear to blur that distinction in favor of a more broad brush view: that large or more concentrated is necessarily problematic. I think that puts at risk competing and winning, which is ultimately what drives progress in a market economy. Ultimately it’s going to be important to judge deeds rather than words and doctrines, and it’s certainly early days at this point.
But when, for example, there’s condemnation of private equity, which may raise a variety of issues, but from the point of view of issues of monopoly power, it shouldn’t really matter whether a company is owned by a private equity firm or its owned by public markets or is a family owned business. So when I saw that kind of rhetoric coming out of the Justice Department, I was concerned.
But again, we do need more activism in antitrust and ultimately, it’s the deeds rather than the words that will matter.
Q: We recently published an interview with FTC Chair Lina Khan in which she mentions weaker ‘diseconomies of scale’ in the digital context. A lot of the focus in antitrust recently has been on Big Tech. What’s your take?
A: I think that clearly there are many issues raised by the large tech companies. There certainly should be antitrust scrutiny where there are inappropriate interferences with competition. But I think that we need to recognize that in certain platform activities there will be a tendency for there to be a winner who gains very substantial market share. That may not be something that is desirable to prevent.
Similarly, I think we need to recognize when we address technology companies, that if we prevent startup companies from ever being purchased by larger companies, we may interfere with competition by discouraging startup companies who no longer have the exit route of acquisition. So there are very difficult balances that need to be struck. I also think we need to recognize that not every concern associated with these tech companies– concerns about a public discourse, or concerns about privacy– may be very important concerns to address with regulatory policies but antitrust may not be the universal tool.
I think one thing we need to be particularly mindful of is that the United States is not alone in the world. If one sees, for example, the formidable success of TikTock and the challenges that it poses both to US companies, and to a range of US national security values, that we need to be prudent in our application of antitrust. We need to recognize when we think about how competitive our market is, the salience of TikTok as a competitor.
Q: Do you think that President Biden should be appointing more antitrust judges to the courts?
A: I think it’s important for the judiciary to have antitrust expertise. I think that often the merits of antitrust cases depend upon quite subtle and sophisticated economic analysis that is desirable to have. Now, how a President who has to weigh a huge number of factors in judicial appointments should weight antitrust expertise, I don’t know. But I certainly hope that over time, there would come to be a growing number of experts in market analysis and the like who would come to serve as the judiciary.
Q: Earlier you emphasized that antitrust should focus on lowering costs to consumers. Are you referring to the consumer welfare standard?
A: You could call it the consumer welfare standard, you could call it the “promoting healthy competition standard,” you could give it a variety of different names. But I think ultimately it is important that antitrust judgments be made not with a view too simple, not with a view to political abstractions, not with a view to numerical measures without regard to economic context, but instead be made on the basis of making the economy function better ultimately for households and ultimately for purchasers of what the economy produces.
Ultimately, competition, merger analysis, market practices analysis–all of that is a means to an end which is getting the most, getting the most goods and services produced and distributed at lowest cost and in the fairest ways. I think that that kind of economic analysis has become the touchstone of antitrust and needs to remain the touchstone of antitrust. I would contrast that view with the view that, for example, we need to protect small businesses. Which is a view that would often encourage inefficiency and higher price by saying that more efficient producers should be limited in their ability to compete with and challenge smaller businesses.
Q: What about when a tech startup offers low prices at a loss in order to gain market share and then raises prices once they have it?
A: That argument, the so-called predatory pricing argument of providing initial consumer benefits in order to recognize ultimate monopoly power, is obviously one that has to be carefully monitored and guarded against. It depends upon the premise that when prices are raised, there will not again be entry and competition and challenges. My own view, and there are many who are more expert than I, is that while the fear of predatory pricing is very often advanced by those who are losing in the short run in competition. There are relatively few examples of successful predatory pricing, where the monopoly pricing or subsequent high pricing was able to be maintained for long and large periods of time.
Q: What about the flip side of the antitrust coin: monopsony. We’ve seen recent changes in the antitrust judgements, in particular with regard to the NCAA.
A: Monopsony is the mirror image of monopoly and it should be something that receives antitrust attention. I think the NCAA athletes case involves a whole variety of issues that apply in the context of athletics and apply in the context of the nonprofit institutions that universities are and I don’t have the expertise to judge how those cases should be resolved.
I think where there is monopsony power in labor markets, it is certainly appropriate to think about antitrust remedies. In general, I think most labor markets are much less concentrated than many product markets. There are many, many places to work as an economist. There are many, many places to work as a journalist. There are many, many places that one could work as an accountant. So I think one has to make sure there really is monopsony power being applied in labor markets. But where there is, for example, all the car dealerships in a town setting the compensation of car salesmen, I think it’s absolutely appropriate for there to be antitrust action.
Q: It seems to be very difficult to define the labor markets.
A: That’s why in general, I am somewhat skeptical of the idea that there are a large number of settings in which monopsony power is being exercised in the labor market. I think where it is being exercised tends to be with respect to more highly skilled workers in performing more specifically defined tasks. So if I think about the workers where I would have the greatest concern, those doing less skilled labor at lower wages, I wonder how many settings there are these days in which there really is substantial concentration and there is competition amongst employers.
Q: For my last question, I feel I can’t avoid asking about your comments on the economic history of the Chicago School and how it’s shaped the landscape we’re in today.
A: Pendulums swing in economics. When I think of the Chicago School, I think of George Stigler, Sam Peltzman, Lester Telser, [Frank] Easterbrook, Landes and many others. I think of the Chicago School as having made an enormous contribution to thinking with respect to markets by emphasizing consequences for economic efficiency, and also by emphasizing that many practices that others have challenged: price discrimination or retail price maintenance, for example, in fact, might well serve purposes of efficiency.
I think that over time, those hugely important insights probably have generated a useful set of counter reactions, pointing out that many of the practices involving Hayek for example, have benefits, but may also have economic detriments in terms of increasing monopoly power and hurting consumers.
So I think the pendulum has swung back somewhat from where it was in the 80s and 90s as experience has been gained and as economic thinking and research have advanced. Now we’re in a position to be much more thoughtful than we were generations ago before the Chicago School did its fundamental work, and one generation ago, after the Chicago School had done its fundamental work, but we hadn’t yet seen some of the corrections.
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