What is Antitrust Populism? Part Two
Yesterday, we took a look at the conceptual foundation of antitrust populism, as presented by Joshua Wright and Aurelien Portuese in their new paper Antitrust Populism: Towards a Taxonomy. Today, we explore Wright’s and Portuese’s arguments against populist antitrust doctrines, including:
— Antitrust populism is an inadequate framework by which to evaluate today’s dynamic, innovative markets.
— The consumer welfare standard remains the most effective way to keep antitrust enforcement objective.
Antitrust populism is an inadequate framework by which to evaluate today’s dynamic, innovative markets.
By relying on antitrust remedies to solve a range of issues beyond competition policy, populists muddy antitrust law’s purpose and jeopardize the mission of maximizing consumer welfare. “When antitrust focuses upon socio-political goals, it detracts from this mission, likely slowing economic growth and depriving consumers of goods and services. As antitrust populists propose making consumers worse off by trading away some of these benefits, it is appropriate to ask what offsetting benefits (if any) their proposals will generate. Economics can tell us much about the likelihood and magnitude of the effects at work in these tradeoffs. For example, multiple economists reject the confident populist proclamations that U.S. competition is declining due to widespread increased market concentration.”
An overreliance on static market structure as a measure of market power once pushed antitrust populists to call for the breakup of Walmart, a remedy that now seems “inappropriate” due to competition from more innovative e-commerce firms. “Years ago, the antitrust populists called for the break-up of Walmart, the then retail giant. The reasons beneath the alleged need to break-up Walmart were that Walmart’s power was so vast that there was ‘little need to recount at any length the retailer’s power over America’s marketplace’ and that Walmart ‘does not participate in the market so much as use its power to micromanage the market, carefully coordinating the actions of thousands of firms from a position above the market.’ For these reasons, despite a development through ‘smart innovation, a unique culture, and a focus on serving the customer,’ the ‘goliath’ Walmart had to be broken up ‘into pieces’ because, as suggested by Lynn, ‘we should be confident that [in so doing] we act squarely in the American tradition, as illuminated by the cases against Standard Oil and the A&P.'”
Without taking into account the complexities of evolving tech markets, simplified market definitions lead to “monopolization bias.” “As a ‘necessary first step’ of evidencing market power in antitrust analysis, market definition is weakly carried out in an antitrust analysis involving digital platforms and other tech giants. Indeed, new practices, novel products and services, and innovative business models are the very characteristics of what makes a tech giant a competitive and innovative firm. However, flawed definitions of relevant markets by regulators lead to monopolization bias, as explained famously by Nobel laureate economist Ronald Coase: ‘If an economist finds something—a business practice of one sort or another—that he does not understand, he looks for a monopoly explanation. And as in this field we are very ignorant, the number of un-understandable practices tends to be very large, and the reliance on a monopoly explanation, frequent.'”
The consumer welfare standard remains the most effective way to keep antitrust enforcement objective.
As evidenced by the Walmart case, concentration alone is an insufficient way to measure competition: “[T]hey look at concentration level in order to conclude to market power, irrespective of the study (and evidence) of the firms to act independently from competitors. However, market power is an antitrust issue only if anticompetitive means enable firms to increase or maintain such market power. Additionally, the evidence supplied to conclude an unprecedented rise of market power fails to take into consideration the expenses on R&D by firms which are evolving into an economic environment where innovation has become the determinant parameter over price.”
Populism as the framing principle of antitrust enforcement would be detrimental to consumers. “The antitrust world should welcome the debate between antitrust populism and economic welfare. Territory earned by the populists in this debate will be taken from consumers. The stakes are high. A return to antitrust populism signals a potential return to market share and conduct presumptions that protect small firms from their more efficient rivals. Using antitrust law to tackle socio-political objectives threatens to stifle innovation and inflate prices, as it has done in the past.”