Antitrust Should Not Punish Success in the Marketplace – conversation with Joshua D. Wright

The impact of the internet and large tech companies has is increasingly a point of controversy. What is your view of the effect of new technology on the market?

These technologies have changed our lives inescapably, and their full impact is more than I can speak to.  There are important questions for us to decide as a society about how we interact with the technology in our lives.  But these are largely not antitrust questions.

From the market perspective,

consumers want innovative products that work well and improve their lives. 

The products made by the big technology companies – U.S. companies including Google, Amazon, Apple, and Facebook – have billions of users and have revolutionized their industries repeatedly.  All that innovation offers consumers tremendous value, generating billions in consumer surplus across the entire economy. Consider that the introduction of the minivan by automobile manufacturers between 1984 and 1988 alone generated an estimated $2.8 billion in consumer welfare gains.

Many of the recent antitrust questions posed are on the margins or pushed on very aggressive theories; for the most part, the Digital Revolution is a testament to U.S. innovation and dynamic competition: it is a signal that consumers reward the company that creates the best product.

Just a little more than a century ago, under the Presidencies of Theodore Roosevelt and William Howard Taft, the first antitrust prosecutions were initiated against large trusts in the steel, oil and other industries.  These lawsuits were trying to put an end to the “Gilded Age” of the late 19th century that was marked by the rise of corporate giants who stifled competition.  What, in your view, are the parallels between the “Gilded Age” and today’s rise of Big Tech such as Amazon, Apple, Google, Facebook and Microsoft?

There are very few useful parallels.  First off, antitrust law is now different—today’s antitrust is grounded in sound economic principles, with an articulate, measurable standard against which conduct is evaluated.  Antitrust now is largely focused upon a singular question guided by economic analysis: Are consumers better or worse off because of the behavior in question?  Modern economic theory and evidence make clear that firm size alone is an awful predictor when it comes to answering that question. That makes any parallel between Gilded Age trustbusting and the current moment hard to make.  We know more now, and antitrust and competition law generally are on much better footing today.  The days of per se illegality for mergers over certain thresholds and counting the number of firms on our fingers has been supplanted – at least for now – by rigorous economics and market analysis.

The “Gilded Age” lawsuits were untethered from the rule of law, with vague “public interest” tests, multiple conflicting goals, and arbitrary thresholds.  Antitrust law didn’t really know what it was trying to achieve at that time. 

It might have been the “Gilded Age” of industry, but it was the Stone Age of antitrust law;

the law was more of a political bat against enemies than a rigorously economic inquiry.

But we do see toxic examples of a call to return to this untethered standard.  The so-called “Neo Brandeisian Antitrust,” wants to return to the antitrust standards of the 1960s, including arbitrary size thresholds, bright lines rules of illegality for conduct that is currently, in many cases, considered competitive or benign, and a general distrust for the consumer welfare standard. There have been calls to ban nearly all mergers, with FTC Chair Lina Khan describing the current merger guidelines as “overly permissive,” and agreeing with Senator Elizabeth Warren that U.S. antitrust enforcement agencies should be blocking more deals from going through—including challenging consummated mergers.

This “Neo Brandeisian Antitrust” movement you referred to argues that antitrust law should serve a wide variety of interests and it is considered to be a “charter of liberty” similar to the Bill of Rights. President Biden seems to back this approach in his July executive order on Promoting Competition in the American Economy. Why do you think that this approach is misguided?

Because we have been here before. Prior to the modern economic approach to antitrust embodied within the consumer welfare standard, antitrust pursued a hodgepodge combination of populist social, economic, and political goals through disordered and often conflicting doctrines.  The result was both failure to achieve those goals or to protect consumers.  The consumer welfare standard introduced a coherent doctrine, grounded in economics, that could be applied predictably and consistently to the benefit of competition and American consumers.  While the Neo-Brandeisians seek to address what they see as problems in modern antitrust law,

they will do so at the expense of coherent doctrine and measurable results. 

Their renewed call for a “charter of liberty” is, in my view, a thinly veiled proposal to return to an antitrust regime that rejects a commitment to economic methodology and evidence-based policy, ultimately deprives consumers of liberty, and makes Americans worse off.  History tells us that this is a ruinous idea.

How should antitrust policy react to the rise of Big Tech?  Different schools of thought such as the Harvard or the Chicago schools have different approach to antitrust law.  What should be the priority in digital markets: price, innovation, competition or something else?  Which approach would you prefer applying to these markets?

Antitrust policy should not diverge from its current path when regulating Big Tech or any other industry.  The consumer welfare standard has kept antitrust grounded in clear, articulated theories of liability.  Deviating from that course now would undo decades of progress in Antitrust policy and create lasting harm to the economy.

Big Tech does not need special treatment.

The antitrust laws generally, and the consumer welfare standard specifically, are sufficiently flexible to weed out and deter anticompetitive conduct while preserving the benefits of competition. Antitrust is not suited as a tool to redesign tech companies and their products.  Judicial decrees make for poor substitutes to product design engineers and tech CEOs.  It is no surprise such remedies are disfavored by the courts.  And ultimately the courts check those eager to advance political agendas through antitrust by making them prove economic harm.

Grounding antitrust law in a disciplined and tractable framework not only promotes the rule of law while preventing arbitrary and capricious enforcement, it also creates a stable and predictable environment for private actors and firms to invest and innovate.  In other words, when you have a clear and measurable a standard, like the Consumer Welfare Standard, you create an environment which is predictable for firms in terms of what is and is not a violation of the law, allowing them to innovate without risking surprise liability.  It’s also worth mentioning that under the current consumer welfare standard, innovation, and the efficiencies it creates, are a factor weighed in both agency and court analyses that can help offset otherwise anticompetitive conduct.

The famous American Justice, Louis Brandeis warned against the “curse of bigness” as he pointed out, when dominant trusts are not only economically inefficient but their concentrated power also poses a menace to the rights and to the political system itself.  How do you see the role of antitrust regulation in remedying the adverse impacts of Big Tech constitutional values such as free speech, privacy or the constitutional system itself?

Constraining the negative economic consequences that arise from the acquisition and exercise of market power is the realm of antitrust law.  Political questions are not.  If large tech companies pose privacy concerns, First Amendment concerns, or even larger structural constitutional concerns, then they absolutely are still subject to the statutory or constitutional limitations on those concerns.  But the

antitrust laws were not designed to micromanage the competitive process. 

When they are abused in that way, it gives the government a license to pick winners and losers in their antitrust enforcement, encourages rent-seeking, and depreciates the value of the competitive process. Antitrust, so applied, offers a much lower or often negative rate of return for consumers.

The antitrust laws exist to police abuses that create monopoly power.  At a visceral level, there are critics of the modern antitrust system that seek to use it as a political weapon.  According to them, you can use antitrust as a nuclear option for the economy.  You can break up firms, interfere with pricing or design decisions, and beyond.  You can do a lot of things because there is this attractive set of remedies.  But ultimately that is not the purview of antitrust law, and to use antitrust in that way would be against the law and likely fail in the courts.

How should the law react to and regulate private and especially tech enterprises that have public concerns and control over essential infrastructures?

I think the answer depends on how well you think the existing antitrust laws are performing and my view is that they are performing quite well.  The existing laws are fully capable of addressing anticompetitive conduct and distinguishing between anticompetitive conduct and competition.  The real issue is whether these tech enterprises harm competition.  The consumer welfare standard can answer that question in a systematic, evidence-based manner, and in doing so, continue to encourage innovation and growth.  Bright-line legal rules like those proposed—for example, outright bans that prohibit firms of a certain size from selling products on their own platforms—would presume harm to competition, rather than use data to study and evidence to establish such harm.  Such a regime would potentially prohibit conduct that is procompetitive and thus, stifle innovation and growth to the detriment of American consumers.  The existing antitrust laws under the consumer welfare standard are superior to any of the proposed new regulatory regimes.  To the extent that there are questions of harm involving tech enterprises, the consumer welfare standard, as the lodestar of antitrust analysis, is both satisfactory and preferable to the alternatives.

Both the FTC in the US and the European Commission in the EU recently launched several antitrust lawsuits against large tech companies such as Google or Facebook because they are monopolizing certain markets by driving competitors out of business and thus harming competition. Can you shed light on the main challenges and major differences between the American and the European approach?

When assessing the two regimes, keep in mind that the world’s most successful innovative companies are U.S. firms.  That is in large part because the U.S. antitrust regime focuses on the behavior of a firm and not on a firm’s size, which can be the result of the competitive process.  In other words,

the U.S. antitrust laws do not punish companies for successfully competing to have the best product;

a monopolist of mousetraps is permitted to charge the monopoly price because it competed with its rivals to earn that monopoly position.  In the U.S., antitrust liability only attaches when the monopolist abuses its position or acquired it by nefarious means.  With this conduct-focused approach,

the U.S. antitrust laws incentivize firms to innovate against the backdrop of antitrust liability,

which attaches only if their monopoly position is driven or maintained, not by competition on the merits, but by anticompetitive conduct.

Contrast the U.S. approach with the European approach.  In Europe, and other countries following the European approach, firm size alone is either sufficient to establish liability or to impose strict rules on firm behavior regardless of whether a company’s monopoly position was earned by innovating and competing to produce the best product.  Under that approach, success in the marketplace is often and more easily punished without requiring proof of harm to competition.  That’s not the case in the U.S.  The European approach gives regulators more control over the inner workings of European companies.  That control dulls the incentive of those companies to innovate and compete to produce the best product.  The issue is that antitrust laws are not supposed to micromanage the competitive process.  They are intended to police abuses that create monopoly power.

Like the U.S., the proffered goal of the antitrust laws in Europe is protecting consumer welfare, but the application of those laws benefits competitors and comes at a cost to European consumers, who no longer have access to the best products because there is no incentive for companies to produce them in the first place.  Why compete to produce the best product if the ultimate outcome is to declare that competition unlawful?

The positive economic impact of the U.S. antitrust laws is not merely theoretical.  The U.S. leads the world in research and development spending, with tech companies representing the nation’s top five spenders with investments totaling more than $75 billion in 2018.  Overall, tech companies – fueled by innovation, investment, and entrepreneurship – have substantially contributed to economic growth in the U.S.  These companies continually invest in research and development to innovate, introduce new products, and stay competitive.  Tech companies rank second (behind the U.S. telecom sector) in U.S. capital expenditures.  And there is no end in sight to these investments.  Venture capital investing has also soured in the U.S., providing startups with the capital required to innovate, compete, and grow.  Over half of the world’s startups valued at more than $1 billion call the U.S. home; no other country in the world can make such a claim.