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— Analysis —
A new antitrust era begins with a bang. Earlier this month, Christine Varney, the newly minted assistant attorney general for antitrust, announced that the Department of Justice would begin scrutinizing and challenging business practices in an aggressive fashion. And to mark the beginning of this new era, Varney announced, as well, that the DOJ was taking the drastic step of simply repudiating the collected wisdom of the antitrust community on how to assess the economic implications of big business' conduct. The summary withdrawal of the DOJ's "Section 2 Report" is a strong statement of a new direction and a radical break with past enforcement practice and its intellectual underpinnings. It is a real question who benefits from this bold reinvigoration of monopolization policy. The consensus in the antitrust community is that enforcers can much more successfully identify cartels and inefficient mergers, but the question of what large firms should be permitted to do so to defend their market position with aggressive competition is one that has vexed antitrust enforcers and scholars since the Sherman Act's origins more than a century ago. Indeed, the same 200-page report that Varney repudiated in a terse statement only four weeks after her confirmation was the product of more than two years of hearings and thousands of hours of work by both the Federal Trade Commission and DOJ staffs as well as experts from the academic, government and business communities and was designed to generate evidence and to identify consensus on issues that could lay the foundation of a sensible approach to monopolization law. The goal was an antitrust approach to monopolization that punished conduct that was likely to harm consumers without chilling aggressive competition from large firms.
The report was an imperfect document, to be sure, but the work that went into it was substantial, varied and engaged. The report itself assessed a range of policy positions, evaluating and interpreting the existing economic theory and evidence in support of competing positions, and it endorsed some of those positions. At its core the report adopted an approach to antitrust enforcement that was cautious and well informed by economics and the law, even while debate continues. But wholesale rejection of the document -- the most complete statement to date on the law and economics of Section 2 -- because of disagreement with some of its positions is irresponsible and premature. And the rejection of specific conclusions from among the range of possibilities discussed in the report without any discussion of which other policy positions the DOJ would support, and why, severely undermines the intellectual efforts that the DOJ and FTC staffs put into the original report by summarily dismissing them. Instead, Varney asserts that the report "loses sight of an ultimate goal of antitrust laws -- the protection of consumer welfare" -- but cites no evidence. (And the report, for its part, mentions "consumer welfare" 31 times.) Meanwhile, the mere reference in Varney's speech to the idea of returning to "tried and true" principles of Section 2 enforcement is meaningless, since no one knows what those are, and the whole point of the report was to define them. It is difficult to avoid the conclusion that the announcement dismisses the report and its intellectual bases simply because it was inconvenient to the agenda upon which the DOJ's antitrust division is about to embark. Regardless of the Justice Department's actions, the general consensus in the antitrust academy remains that while big can be bad, the harm that dominant firms can do needs to be demonstrated, not simply assumed in consequence of their sheer size. Moreover, the demonstration requires harm to competition (not merely competitors) and an acknowledgment that enforcement is far from perfect. And there is a cost to erroneous antitrust enforcement as other firms learn that aggressive competition -- even if efficient and welfare-enhancing -- might still result in costly litigation with government antitrust enforcers. Most of the recent antitrust activity in the U.S. has reflected this mainstream consensus that antitrust rules should seriously consider the cost to consumers of getting it wrong, or "error cost analysis." However, in lamenting that the report's test for anti-competitive conduct allowed "all but the most bold and predatory conduct to go unpunished and undeterred" and acted too strongly to restrain the interventionist impulses of the Justice Department, Varney seems to reject the error cost problem. Instead, she makes it quite clear in her statement that the existence of possible harm alone should be enough -- and implies that she and her staff will recognize anti-competitive conduct when they see it without mistakenly deterring beneficial conduct. It was to be expected that the new administration would move in the direction of more aggressive antitrust enforcement. It would have been nice, however, if the new policy emerged from a process that engaged the academic and policy arguments that counseled against hasty actions against dominant companies. But given the current environment, in which we see competitive concerns share the stage with a wide range of other concerns and motivations (ranging from fear of "too big to fail" to the return of "unfair" competition as a basis for intervention), intellectual engagement would serve only to restrain the enforcement agenda. The repudiated report envisioned predictable, principled and coherent enforcement. That's a noble, if tough, vision to achieve in any enforcement regime. But it is one that has no chance of materializing if antitrust shuns the limitations of economic analysis and adopts economic engineering based on simplistic industrial policy goals as its touchstone. Keith N. Hylton is the Paul J. Liacos professor of law at the Boston University School of Law and an affiliate of the International Center for Law and Economics. Geoffrey A. Manne is a director at LECG, lecturer in law at Lewis & Clark Law School and executive director of the International Center for Law and Economics, a global think tank producing scholarship to influence policy debates around the world. Joshua D. Wright is assistant professor at George Mason University School of Law, former scholar in residence at the Federal Trade Commission, and co-director of the Antitrust Research Center, a project of the International Center for Law and Economics devoted to developing evidence-based antitrust analysis. [Wright testified at the Section 2 Hearings that gave rise to the report.] Comments |
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A core problem, at least to me as a practicing lawyer, is that it was impossible to differentiate "statements on the law" from political policy preferences, tainting the entire document and sharply limiting its utility.
For example, whenever the report entered into an ambiguous area of the law, it generally ignored the cases contrary to the preferred political conclusion at the time, making it read more like a handbook for defense lawyers than a genuine, critical, objective review of the law and economics.
As such, there were few good reasons for Varney to let the document remain out there, and many good reasons to avoid the confusion that would have resulted from a partial retraction.