Why has antitrust enforcement declined in the United States since the 1970s? Is it due to the preferences of voters, business influence, or an alternative explanation altogether? In this symposium, Jonathan Baker, Eleanor Fox, and Herbert Hovenkamp discuss the findings of Filippo Lancieri, Eric Posner, and Luigi Zingales’ new paper, “The Political Economy of the Decline of Antitrust Enforcement in the United States.” In this article, Baker critiques the big business capture theory the authors develop and suggests an alternative “settlement” theory to explain the shift toward weaker antitrust enforcement that began in the 1970s.
Big business has benefited more than any other comparably broad interest group from the shift in antitrust rules and enforcement toward less intervention that began during the late 1970s. That makes big business capture of regulation a facially attractive theory of the political economy of antitrust, as Filippo Lancieri, Eric Posner and Luigi Zingales develop in their new article, “The Political Economy of the Decline of Antitrust Enforcement in the United States.”
But big business capture is not the only political economy theory that explains the shift in antitrust enforcement that took place roughly four decades ago. And there are reasons for skepticism: it does not account for the influence of competing interest groups, and it cannot readily rationalize the influence of developments in economics since the 1970s that often moved antitrust in a direction counter to the distributional interests of big business, such as the analysis of raising rivals’ costs, strategic entry deterrence, unilateral competitive effects of horizontal mergers, and network effects.
The plausibility of big business capture theory is also called into question by what it suggests about antitrust policy. In the abstract, it has four consequential but suspect implications (though Lancieri, Posner, and Zingales explicitly endorse only the second in their article). First, it views antitrust as concerned with distribution—the allocation of economic rents among interest groups—without recognizing that antitrust is also importantly concerned with economic growth and economic efficiency, which generates more resources available for distribution. Second, the capture theory calls into question the democratic legitimacy of antitrust law, rules, and enforcement policy by portraying them as created by unelected judges and regulators who act on behalf of big business interests without regard for voter preferences. Third, the big business capture theory means that the economic analysis and arguments accepted by policymakers are an intellectual superstructure that has been largely exploited and often developed to serve business interests, rather than a useful guide that judges and enforcers can rely on to understand and evaluate firm conduct. Fourth, the capture theory suggests that after decades in which the antitrust laws were weakened in the service of business interests, our democracy is at serious risk of being supplanted by an oligarchic system in which concentrated economic power and political power are self-reinforcing. It thus implies that the critical and proximate political threat to democracy today is from a big-business-led oligarchy, rather than from another source, authoritarianism.
The shift in antitrust law and enforcement to favor big business can be better understood within an alternative political economy perspective that sees mid-twentieth-century antitrust in terms of an informal or tacit “settlement” of a political competition between big business interests, on the one hand, and the potential victims of their market power, namely consumers, workers, farmers, and small business, on the other hand. That settlement led to an antitrust policy that pursues inclusive economic growth. The political settlement perspective explains the policy shift that began during the late 1970s in terms of a shift in the governing coalition from center-left to center-right, which led to a substantial reform in the way inclusive growth was pursued but not a rejection of that goal. The settlement perspective also explains why antitrust analysis properly relies on economic evidence, and why developments in economics have been influential. It provides an account of the democratic legitimacy of antitrust and does not entail an intellectual commitment to treating the danger of oligarchy, rather than Trumpian populism, as the urgent and decisive threat to democracy today.
I elaborate on the “settlement” perspective and its merits below and discuss them in more detail in a recent article appearing in the same issue of the Antitrust Law Journal that published Lancieri, Posner, and Zingales’ article now under discussion in this symposium.
Any political economy theory explaining the big business friendliness of antitrust law and enforcement cannot account for the 1940s through the 1960s, when antitrust was much more interventionist than today. It must instead describe what changed during the 1970s to cause the pro-business transformation of antitrust law by the courts and enforcement agencies, which was concentrated between 1977 and 1993.
In doing so, the capture theory focuses exclusively on a single interest group, big business. Yet the other interest groups that influenced public policy in the 1940s through the 1960s—including broad groups like workers, farmers, consumers, and small businesses—did not disappear during the 1970s, though they lost some political power. When multiple interest groups are effectively organized, they can be expected to bargain to create and divide rents, suggesting that policy outcomes should be understood as reflecting changes in the relative influence of competing interest groups. The big business capture theory ignores this political dynamic. It implicitly assumes that just one interest group, big business, was able to solve its collective action problem sufficiently to organize to influence antitrust policy, while large and diffuse interest groups were unable to successfully employ similar methods to solve their own collective action problems—without explaining how or why all this happened during the 1970s, when it would have had to take place.
In addition, the capture theory would benefit from a more fully formed account of the channels by which big business interests influenced antitrust institutions, particularly during the 1970s. Big business interests likely spend substantially more on lobbying than other large and diffuse interest groups like consumers, farmers, workers, and small businesses. But much business lobbying focuses on industry-specific or firm-specific issues, seeking to influence outcomes in the legislative or industry-focused regulatory settings where lobbying can matter.
By contrast, there is no direct evidence connecting corporate lobbying with antitrust enforcement outcomes, notwithstanding anecdotal allegations mainly involving the Nixon administration. That is not surprising: government decision-makers at the antitrust enforcement agencies have economy-wide responsibilities rather than focusing on a specific industry, so they are less prone to capture than sector regulators. Nor is there direct evidence connecting lobbying with the development of judicially created antitrust rules. Again, that is not surprising: antitrust rules are largely developed by the courts in a common-law manner rather than legislatively, where they would be subject more directly to the influence of special interests.
Furthermore, the indirect evidence on corporate influence in antitrust (including studies referenced by Lancieri, Posner, and Zingales) does not have a clear interpretation. For example, evidence indicating that lobbying or political salience can speed antitrust agency decisions does not mean that enforcement outcomes were affected. When firms lobby on antitrust matters, the primary target is often Congress or sector regulators with concurrent jurisdiction like the Federal Communications Commission, not the antitrust enforcement agencies or the courts. Evidence that the stock market responds positively when merging firms increase lobbying may mean that investors interpret those expenditures as a signal that the firms have also invested in antitrust counseling and have reason to believe the transaction will survive antitrust review based on their private information. Similarly, the evidence about the consequences of the “revolving door” (employment transitions between the private sector and government agencies) for regulatory outcomes generally, not looking at antitrust outcomes specifically, is limited and does not point strongly in a single direction.
The settlement perspective supposes that interest groups can better solve their collective action problems and mobilize politically under conditions of adversity (when they are out of power) than with political success. Under such circumstances, interest groups that recognize that they interact politically in repeated play may reach a self-enforcing political bargain (an informal consensus, not a literal bargain) to adopt competition policy (antitrust) in order to share the efficiency gains from competitive markets (the benefits of economic growth).
The U.S. can be understood as having reached an outcome of this sort during the 1940s, when the political system arrived at an informal or tacit consensus to focus economic policy generally on the pursuit of inclusive economic growth, and to do so in part through a policy of fostering competition using the antitrust laws. From this perspective, the 1980s shift in antitrust policy specifically, which is often described as Chicago School oriented, and the concurrent shift in domestic economic policy generally, which is sometimes described as a turn to neoliberalism, were each the product of a changing political coalition working within the inclusive growth framework: the replacement of a center-left governing coalition by a center-right coalition. The new coalition was much friendlier to big business, but it did not discard the general policymaking aspiration to achieve inclusive economic growth.
The center-left coalition that controlled antitrust policy from the 1940s through the mid-1970s chose a different approach to implement that goal than the approach employed later during the 20th century. Domestic economic policy, including antitrust, has pursued inclusive economic growth for eight decades. Doing so places bounds on antitrust rules without closely determining or constraining them. That allows substantial room for argument and debate. It also allows room for big business interests to influence antitrust enforcement supported by policy arguments favoring less intervention, much as is suggested by the big business capture theory.
The settlement theory is more attractive than the big business capture theory for two reasons. First, the settlement theory explains why, consistent with interest group competition, economic growth and economic efficiencies matter for antitrust policy (along with the importance of distribution, which is related to inclusivity). Growth and efficiency are ignored by the capture theory. Second, the settlement theory accounts for the way interest group competition influences the development of antitrust law, rules, and policy, while the capture theory accounts for the influence of just one interest group. (The settlement theory is concerned with interest group interaction because it is a political economy theory, not a public interest theory. It explains how interest group bargaining led to the development of a welfare-enhancing institution, even though that outcome was not the inevitable product of Coasian bargaining among conflicting interest groups or evolutionary selection.)
Furthermore, the capture theory’s focus on the interests of big business is challenging to reconcile with the observation that the advocates of pro-business positions in antitrust policy debates commonly frame their positions in public interest terms and generally support the antitrust laws rather than calling for their repeal, even when advocating reduced antitrust intervention. Even if that framing is intended in part to lend legitimacy to rent-seeking goals or to help business interests solve their collective action problem, this observation suggests a recognition that antitrust is more than just a policy area responsive to interest group claims. As the settlement theory shows, it is not necessary to suppose that shifts in antitrust law and enforcement are mainly driven by technocratic ideas of experts to recognize that public interest considerations play a substantial role in policy debates.
Nor can the big business capture theory readily rationalize the not-insubstantial influence on antitrust of developments in economics since the 1970s that called into question non-interventionist perspectives. Examples include, among other things, the analysis of network effects that underlies the Microsoft monopolization case; strategic entry deterrence; raising rivals’ costs analysis, including its application to vertical foreclosure, exclusive dealing, and vertical mergers; rebuttals of the single monopoly profit theory; new understandings of the potential anticompetitive effects of tying, bundled rebates, most favored nations (MFN) clauses, and platform MFNs; understanding the anticompetitive effect of “pay for delay” settlements between branded drug manufacturers and generic manufacturers, why competition in the sale of new products does not prevent the exercise of market power in aftermarkets, and how imperfect information can create market power; theoretical and empirical analyses demonstrating that predatory pricing is not implausible; and theoretical and empirical support for anticompetitive horizontal merger theories involving unilateral effects or the elimination of a maverick. The influence of these pro-enforcement developments in economics on antitrust is contrary to the implications of the political economy theory of big business capture. It shows that economic analysis does not necessarily or always serve business interests.
By contrast, developments in economics would be expected to play a central role in developing antitrust rules and making enforcement decisions under the settlement theory. Economic analysis is essential for antitrust to succeed in supporting inclusive growth, because that goal makes it necessary for policymakers, courts, and enforcers to understand both the distributional consequences of antitrust rules and the consequences of those rules for economic growth and efficiency. There is no contradiction between recognizing that antitrust operates in a political context—the context in which the goal of inclusive growth was established and the context in which antitrust rules aiming to achieve that goal are developed—and framing arguments about how best to achieve that goal in economic terms.
Finally, the contemporary authoritarian threat to democracy from Trumpian populism is not directly connected to economic concentration and big business interests. The political influence of Trumpian populism is hard to reconcile with capture theory, which emphasizes a proximate threat to democracy from a big-business-led oligarchy. A view of today’s politics as turning primarily on the economic interests of large firms does not credit the significance of social and cultural concerns as independent motivators of political positions. The settlement theory, by contrast, allows for political cleavages over social issues as well as economic ones, and does not suppose that big business always lurks behind the curtain pulling the political strings.
Both the capture theory and the settlement theory provide an explanation for the way antitrust law and enforcement changed during the 1980s toward a more business-friendly approach that turned out to be inadequate to deter growing market power. The stakes in accepting one of these two political economy theories are about how to frame, understand, and implement antitrust policy and reform initiatives, including: whether antitrust should be concerned with efficiency and growth (as well as distribution); the proper role of economics; and whether, when seeking to protect democracy, to prioritize attacking economic concentration or confronting direct authoritarian threats. On these grounds, I find the settlement theory—with its concern for growth as well as distribution, its embrace of economics, and its ability to accommodate recognition of authoritarian threats—the more persuasive.
This articles is adapted from Jonathan B. Baker, “Not a Simple Story of Big Business Capture: An Essay on the Political Economy of Antitrust,” 85 Antitrust L.J. 521 (2023).
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.