Category Archives: Competition law and inequality

Hipster antitrust

Policy debate has an important rhetoric component. An appealing metaphor can be powerful in swaying the opinion of policy makers and the public (remember trickle-down economics?). That said, there is a recent trend in the US and other parts of the world to depart from certain aspects of conventional antitrust wisdom and some scholars are expressing concerns about how digital markets will look like in the future. Some commentators are calling these new/refurbished ideas and gloomy views of the digital landscape hipster antitrust because they depart from what is deemed to be the mainstream.

To the best of my knowledge, the term started to be used as a twitter hashtag, mostly with a pejorative connotation.  The problem with that, seems to me, is that being a hipster is not necessarily a bad thing and, therefore, the rhetoric trick may not be the best tactic for the defenders of the antitrust status quo.

Let me give you a brief historical timeline, which I think has led us to the use of this term. Back in the 1950s, there was discontent among a small group of academics with how antitrust laws were applied, mainly to single-firm conduct and mergers. These scholars and their ideas gave birth to the most influential school of thought in modern competition law: the Chicago School (CS) of antitrust. In those days, George Stigler and his colleagues were the outcasts who proposed non-mainstream, hipster ideas. Fast forward to the 1980s, and the Chicago School became conventional wisdom. Current antitrust law in the US still reflects a great deal of influence from it. I will not discuss the relative merits and flaws of the CS. I will just point to one common theme in the rhetoric of its proponents. Practitioners and academics who defend CS points of view have always said that they use the economic approach to antitrust.

Since now most of the CS views are mainstream, that formulation is very powerful. It implies that someone who tries to approach antitrust analysis with frameworks other than price theory does not deserve to be called an economist. Now, the rhetoric was freshened up and the advocates of ideas that depart from the mainstream are dismissed as antitrust hipsters. Some are even trying to make #adultantitrust (the opposite of #hipsterantitrust) a thing. This is problematic for one fundamental reason. The way a society is organized in order to produce goods and services depends on a myriad of important factors studied across many fields of the economics profession and other disciplines. Saying that price theory alone holds all the answers is, to put it mildly, myopic.

As I explained in a previous post, an intervention aimed to curtail market power can have detrimental/positive effects on other sources of market failure such as information asymmetries and externalities.[1] Therefore, the improvement of consumer welfare is too narrow a focus of antitrust enforcement policies. The first issue would therefore be to analyze the merits of including a holistic approach to efficiency.

In addition, there is the issue of whether to consider other policy objectives. In the US, Banks were allowed to merge and grow because it was thought that the financial system was going to become more efficient, which might have been true. However, as a result, too-big-to-fail institutions arose from this merger wave, which may have led to the reckless behavior that caused the global financial meltdown that started in 2007. The question in retrospect is whether such factors should have been taken into account by the antitrust authorities. One could say that other public entities are better suited to make such an evaluation of these peculiar issues. Even if that is true, policy makers still have to decide how the balancing of the interests will be carried out. Should financial stability, for instance, take precedence over consumer welfare?

The Chicago School of antitrust succeeded against the backdrop of the deep economic recession in the 1970s, which led to a change in economic thinking and the rise of Margaret Thatcher and Ronald Reagan. It comes, therefore, as little surprise that views of strong (though not blind) faith in market forces have come under attack after the Great Recession, with antitrust being no exception. The potential shift in competition policy could have deep repercussions at the global stage. Many countries in the world look to influential jurisdictions such as the US and the EU for guidance. If the consumer welfare paradigm falters in the former, the push for convergence toward the “economic approach” to antitrust could take a wild turn.

As a final consideration, it is important to keep in mind that each one of the new ideas and views in hipster antitrust analysis deserve their own individual trial. I, for one, do not question the merits of the law on vertical restrictions in the US compared to that in the EU. Another story is that of the relationship between political economy considerations and market dominance, topic on which I have already written before. Therefore, the doom of one hipster idea should not be taken to mean that all hipster points of views are baseless.

[1] See Markowitz, Richard (2014). Economics and the Interpretation and Application of U.S. and E.U. Antitrust Law (Vol. I). United States of America: Springer.

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U.S.: It looks like Democrats want a public interest clause in merger control

Public interest clauses are somewhat controversial. They introduce non-competition considerations into the evaluation of the desirability of a merger and, therefore, give a queasy feeling to the neoclassical orthodoxy. In short, such clauses allow the competition authority or another regulator to evaluate the effects that the merger will have in aspects of the economy other than market power––for example, employment. In practice, these clauses can introduce uncertainty to the merging parties as to what they can expect in a final decision and can make the proceedings susceptible to political calculations.

Public interest clauses can be found in legislations of many a developed and developing country. Recent prominent examples where such a consideration played a key role are the SAB Miller-AB InBev merger in South Africa and the takeover of Tengelmann by Edeka in Germany (in this latter case, the approval of the merger by the Finance Minister led the chief of the Monopolies Commission to resign).

Now, Democrats in the United States are giving competition law a prominent position in their economic policy plans. According to an article in Bloomberg Law, the antitrust part of the plan says that “large mergers that would harm consumers, workers, and competition via higher prices and lower wages should be blocked.” (emphasis added) For this, Democrats want to establish “new merger standards that require regulators to review how the deal may impact wages and jobs, among other criteria”. This would arguably need an amendment to introduce a public interest clause, at least to be on the safe side (courts would in all likelihood strike down any agencies’ attempt to introduce such considerations based only on the Clayton Act).

The US has always been a champion of convergence of competition law around the world. An important part of this convergence effort is the urge to use an economic approach to enforce the law. What scholars and practitioners mean by economic approach is to focus on consumer welfare or efficiency as the sole concern. Hence the economic part of the term is somewhat confusing because this discipline is so much broader. But putting this discussion aside, it is somewhat ironic to see that convergence may ultimately go the other way around, with the US converging to other countries.

What are the driving forces behind this political movement? As I shared with you last week, some academics are increasingly worried with the effects of concentration on equitable growth, which has led them to start exploring their association. This will be perhaps one of the most crucial areas of research in antitrust analysis. It is of course a highly ideological subject but let’s hope that the availability of data in more and more countries around the world and the empirical research that they allow will ground the debate on more objective terms.

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