This year’s Stigler Center conference on antitrust and competition invited scholars to propose alternatives to the consumer welfare standard.
The Stigler Center recently concluded its annual two-day antitrust and competition conference. While there were more stimulating discussions and presentations than can be summarized here, a few key themes emerged.
Regarding the Consumer Welfare Standard (CWS), it seems that, as was stated at last year’s conference, both economists and law scholars have overwhelmingly decided to move on from its use, or at least use of the terminology.
There was considerable debate about what should replace the CWS, with proposals ranging from measures of concentration to profit margins. Yet, many argued that there is no need to provide a new standard, because the original language in the Clayton and Sherman Acts are the mandates from Congress.
NYU Law professor Eleanor Fox pointed out that the CWS was a way to exclude non-market values from any antitrust considerations. Thus, the lines drawn over how to proceed reflect a similar debate as that which is taking place in corporate governance, as pointed out by Chicago Booth economist Luigi Zingales: to what degree should non-monetary values, such as political power and environmental concerns, be considered?
Zingales took a hard position in this debate: “I love economics and I think economists have a lot to contribute to the conversation for their expertise. But one thing that they should not do is substitute their expertise for values. In a democracy, who gives values is the people, Congress. Not us, not the lawyers, not anybody else.”
As for whether this shift away from the CWS will play out in the courts that enforce antitrust rules, Judge Diane Wood of the U.S. Court of Appeals for the Seventh Circuit had this to say:
“Lots of the summaries that I read for this program caused me to think these are fine policy debates but they, number one, don’t really fully take into account that at least Frank [Easterbrook] and I are not our own bosses. We have nine other bosses in Washington and we could be as persuaded as we could possibly be by an article, and if it doesn’t comport with what the Supreme Court is saying, the article is just so much intellectual fun. I mean, it’s not something that we can do that much about.”
Concentration And Anti-Competitive Behavior
Tim Wu, who recently wrapped up a position as special assistant to the president for technology and competition policy, said that the Biden administration acknowledged the limitations of their own ability to rapidly change antitrust enforcement trends. Instead, they used the analogy of “turning the aircraft carrier” away from the last 40 years of underenforcement.
Indeed, no matter where they stood on continued use of an economic efficiency standard, most conference panelists agreed that the U.S. has experienced a period of antitrust underenforcement since the Reagan administration, which has resulted in an increasingly concentrated economy.
However, Chicago Booth economist Chad Syverson, particularly, raised the question of how much increased concentration has actually quantitatively harmed the economy. While he suggested that more active enforcement of the marginal case would gain small benefits for the economy, he was skeptical that increasing concentration had caused a significant negative impact on macroeconomic trends (such as rising markups and decreasing labor share of income) and believed the overall impact on U.S. productivity to be negligible.
On the other hand, Boston College finance professor Simcha Barkai and Stigler Affiliate Fellow presented findings from a forthcoming paper looking at the economic impact of active antitrust enforcement. In that paper, he finds long-term positive effects, including new businesses entering the market, a positive impact on labor share of income, and increased economic activity. These effects can be seen in the data even eight years after an enforcement action, said Barkai.
Academic debates on antitrust have not always expressed concern about labor. This year’s conference sought to remedy this exclusion. Ioana Marinesciu, who is currently the principal economist at the U.S. Department of Justice (DOJ), presented evidence that concentration in labor markets leads employers to suppress wages to the tune of 20%. Monopsony and non-compete agreements are some of the spaces that the Supreme Court and Federal Trade Commission have taken action against anticompetitive behaviors that harm workers, rather than consumers, in recent years.
Other areas of potentially detrimental anticompetitive actions discussed at this year’s conference included common ownership and killer acquisitions. Killer acquisitions refers to the tendency of large tech companies to buy and subsequently shutter small startups that could one day grow into competitors.
Common ownership is a theory proposed by Oxford economist Martin Schmalz, which posits that the overlapping investment of large index funds in companies operating in the same industry reduces those companies’ incentives to compete. Schmalz also detailed harassment by industry actors for his research, and received a round of applause for persevering despite the pressure to quit.
One strength of this year’s conference was its focus on proposing solutions to the concentration problem.
To this effect, Nobel Laureate and Harvard economist Oliver Hart proposed one of the most provocative questions of the conference: what can companies do via merger that can’t be accomplished via contracts? The questioning led Hart to propose an inversal in the burden of proof in merger review.
Several other scholars also trained their focus on mergers, perhaps for their practical relevance, as Imperial College London economist Tommaso Valletti pointed out. According to Valletti, there are about 20,000 mergers in the U.S. each year. He summarized his proposed solution, co-authored with Stigler research fellow and conference organizer Filippo Lancieri, with a simple slogan: “If you are [a] big [firm], make. Don’t buy.”
Chicago Law professor Eric Posner, who recently wrapped up a stint as counsel to the assistant attorney general in the DOJ antitrust division, also focused on mergers. Posner pointed out that Nobel Laureate and Berkeley economist Oliver Williamson had many qualifications for his model evaluating the efficiency of a merger, including the idea that perhaps the 100 largest firms should not be allowed to merge. Posner said Judge Robert Bork ignored many of these qualifications, even though they came in the same paper of the model that would undergird Bork’s interpretation of the CWS that would become dominant in merger evaluation. Instead of consumer prices, Posner said courts should focus on margins when evaluating mergers, as they’re a better indicator of market power. This led to healthy exchange with Carl Shapiro on the upsides and downsides of this model vis-à-vis the present standards
Other alternatives to the consumer welfare standard were proposed by Georgetown law professor Steve Salop, University of Pennsylvania law professor Herbert Hovenkamp, London School of Economics law fellow Stavros Makris, University of Georgia and Fordham law professors Greg Day and Bennett Capers, Howard University law professor Andrew Gavil, George Washington law professor Bill Kovacic, and Duke law professor Barak Richman. Their proposals can be read in detail on ProMarket.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.