From the Columbia Law School Blue Sky blog:
Davis Polk Discusses the New Populist Movement in Antitrust
In recent years, a new populist school of antitrust thinking has emerged, known as “Neo-Brandeisian” to its proponents and “hipster” to its detractors. There are varying formulations of this movement, but proponents generally point to the purported increase in economic concentration and corporate profits in the U.S. economy to advocate for more aggressive antitrust enforcement, with respect to both mergers and other conduct. One notable element of this movement is a push to expand or even replace the established “consumer welfare” standard—which focuses on prices and outputs in balancing potential competitive harms against procompetitive efficiencies—by adopting a more rigid presumption that corporate “bigness” and large market share in themselves harm consumers. Some proponents, moreover, advocate for consideration of nontraditional factors in antitrust analysis, such as wages, employment levels, or growing inequality.
Such approaches, which could significantly increase the burden on merging parties and allegedly dominant firms, have gained support from prominent figures on both the left and the right. Nevertheless, thus far, the new populism has not made notable inroads with antitrust practitioners, antitrust enforcement agencies, or the courts. The differences between long-standing practice and the new progressive antitrust proposals have come into sharp focus in recent weeks, taking center stage at the FTC’s ongoing “Hearings on Competition and Consumer Protection in the 21st Century.”
Could populist antitrust proposals replace the established consumer welfare framework for antitrust analysis in the United States? Whether the new populist antitrust agenda will take hold depends on the extent to which it can persuade the antitrust enforcement agencies, Congress, and the courts—all of which are interrelated and influence one another—of its underlying evidence and policy prescriptions. Indeed, the willingness of one of these government institutions to advance or reject populist perspectives could affect how open the others will be to revising antitrust thinking.
It is too early to tell whether any significant change will occur, or whether that change will reflect a fundamental departure from or just more aggressive enforcement within the existing framework. It is clear, however, that antitrust policy is in the midst of an important debate that could affect how antitrust agencies evaluate business conduct, potentially increasing burdens on merging parties, raising the likelihood of significant divestiture requirements, and limiting the business activities in which firms with large market share can engage. This client memorandum examines the core elements and growing influence of the progressive antitrust movement, reviews its possible acceptance by government institutions, and considers whether it could modify the consumer welfare standard as the framework for antitrust analysis in the U.S.
Introduction
Debate over the appropriate standard for evaluating the competitive effects of business transactions and business conduct has long existed in the United States, with the dominant ideology shifting over time. Antitrust sentiment emerged during the Gilded Age of the 1880s in the midst of populist concern over growing corporate concentration and power, with both Democrats and Republicans rallying against the “trusts” that had come to dominate commerce. During the Progressive Era that followed, Congress enacted the Sherman and Clayton Acts, and antitrust suits led to the breakup of corporate entities that restrained trade and manipulated markets. Following the First World War, however, American hostility to big business began to fade and antitrust enforcement ebbed.
By the 1960s, however, the pendulum had swung back to aggressive antitrust enforcement, especially against mergers. The leading perspective at the time was that consolidation was inherently bad and that efficiency provided scant justification in competition reviews. This thinking allowed the antitrust agencies to block mergers without putting forward much evidence that the mergers were likely to harm competition. For example, during this era the Supreme Court held that the merger of the 10th and 18th largest beer brewers in the U.S. (resulting in a combined national share of 4.49% and no higher than 24% in any state) was a violation of the merger laws in light of “a history of concentration in the beer industry.”[1]
In response to numerous enforcement actions that blocked business activities that would likely have benefited consumers, a new approach to antitrust thinking rose to prominence in the 1970s and 1980s. Known as the “Chicago School” because of its origin among economists and lawyers at the University of Chicago, this school of thought called for a greater emphasis on benefits to consumers and more rigorous economic analysis. It endorsed a “consumer welfare” standard for antitrust reviews, which balances an activity’s potential harm to consumers—generally experienced through higher prices, lower output, decreased quality, less choice, or reduced innovation—against procompetitive benefits such as lower prices, greater choice, or increased innovation.[2] Over time the consumer welfare standard, with its emphasis on economic benefits over structural presumptions, ultimately became the dominant approach, and it continues as the prevailing standard today, even as other elements of the Chicago School’s economic approach have been challenged from time to time.
Today’s emerging antitrust populism movement is a reaction to this post-Chicago status quo, which the movement criticizes as having resulted in under-enforcement, industry concentration, and greater wealth inequality. Accordingly, rather than emphasizing “consumer welfare,” measured by price and output levels, this loose-knit coalition promotes the incorporation of factors currently not included in antitrust analysis. These factors include loss of employment, increase in political influence, economic inequality, and impact on startup companies. Advocates point to the uneven recovery following the Great Recession as another catalyst for this new populist thinking—arguing that while stock markets and M&A activity have risen dramatically, ordinary Americans have been left behind....MUCH MORE
As in the 1880s, large corporations find themselves to be the populist antitrust movement’s primary target. This movement, limited until recently to a few academics and advocacy groups, has garnered more mainstream attention from practitioners and government actors, particularly members of Congress.
The Antitrust Enforcement Agencies
The populist movement appears to have developed an audience, at least, with U.S. antitrust enforcement agencies, especially the Federal Trade Commission (“FTC”). Indeed, at the FTC’s hearings on antitrust and consumer protection issues (which will run through January 2019), populist arguments have taken center stage during some sessions.[3] In his opening statement at the hearings, FTC Chairman Joseph Simons cited recent criticism of the consumer welfare standard as one of the primary challenges that the hearings were meant to address.[4] Thereafter, a variety of panelists cited corporate consolidation as a major driver of economic inequality and suggested that some proposals characterized as “populist” may not be all that unreasonable.[5] Even before the hearings began, FTC Commissioner Rohit Chopra (one of the Commission’s two Democratic members) published a comment letter proposing that the FTC use its rulemaking authority to “bolster antitrust enforcement.”[6]
In contrast, panelists at the second day of hearings generally leaned toward maintaining the status quo. While a few participants still made impassioned calls to scrutinize big companies more stringently (notably, Nobel-winning economist Joseph Stiglitz of Columbia University), panel discussions focused on practical steps for reform within the existing antitrust framework rather than adoption of new approaches. For instance, the panelists discussed more aggressive enforcement by agencies, the issuance of revised guidelines (e.g., vertical merger guidelines), the performance of industry-specific studies (e.g., on drug patents), and neglected facets of the consumer welfare standard (e.g., buy-side concentration, non-price effects, and encouraging innovative startups).[7] Panelists noted that the consumer welfare standard is flexible and can address an array of competitive harms, but that antitrust law is ill-suited to address broader policy concerns, such as inequality or unemployment. Such arguments regarding the appropriate criteria and presumptions for evaluating antitrust harm will likely resurface in future sessions—notably on panels that will discuss the competitive effects of mergers, measurement of market power and barriers to entry, and the interaction between large technology companies and antitrust....
Previously from CLS Blue Sky:
BigLaw: "Latham & Watkins Discusses SEC Charges Against BitFunder and the State of Digital Asset Trading"
"Are Private Equity Returns Too Good to Be True?"
"Perpetual Dual-Class Stock: The Case Against Corporate Royalty"
The author is a commissioner on the SEC and a recovering academic.Finance:Taking Modigliani-Miller To Court 60 Years On
(enough footnotes to make Matt Levine envious)
Columbia Law School: "Risks of Classifying Employees as Independent Contractors"
Governance: The Growing Concentration of ETF (and mutual fund) Voting Power
Something that doesn't come up in casual conversation but may be important. ...
