In Brief: New Research On Competition Policy
In our effort to keep you apprised of the newest research from experts across the competition field, we’ve compiled some of the best you may have missed. From merger enforcement rates to the merits of the consumer welfare standard, recent research in the antitrust field bolsters support for the current antitrust standard and busts some myths about concentration and competition.
Jeffrey Macher and John Mayo: The Evolution of Merger Enforcement Intensity: What Do the Data Show?
Macher and Mayo bust the popular Neo-Brandeisian narrative that there has been a decline in antitrust enforcement over time. Using merger cases from the FTC and DOJ since 1979, their analysis reveals the likelihood of merger enforcement in the U.S. has more than doubled over the last few decades.
Contrary to popular narratives, the data show antitrust enforcement has ramped up–not slowed down–over the last three decades: “Our results indicate that, contrary to the popular narrative, the Agencies have become more likely to challenge proposed mergers over 1979-2017. Controlling for the number of merger proposals submitted under HSR, we find that the likelihood of a merger challenge has more than doubled over this period.”
Increased agency funding and heightened attention toward larger mergers contributed to the jump in merger enforcement over time: “Indeed, the data indicate that the Agencies have become more likely to challenge mergers filed over time. While this increase may be due to numerous factors, we identify two likely drivers. First, we find that merger enforcement intensity is directly related to the antitrust Agencies’ annual budgets. The data indicate that a 10 percent increase in current Agency budgets increases both merger enforcement intensity and, for a given number of HSR-filed mergers, merger challenges. Second, Congress modified the HSR filing thresholds in 2000, with the result that the Agencies have focused more of their efforts on larger mergers. These larger mergers are, on average, more likely to be problematic and, as a consequence, increase the propensity to challenge the set of HSR-filed mergers in any given year.”
Read Macher and Mayo’s research here via SSRN.
Herbert Hovenkamp: Antitrust’s Borderline
Hovenkamp, the “dean of antitrust,” emphasizes why antitrust focuses on economic considerations, pointing out the ineffective and misguided use of antitrust to pursue social goals. He argues that the standard definition of “consumer welfare” in judicial cases should consider output, rather than price, when looking to measure consumer welfare.
The consumer welfare standard is bound by economics and shouldn’t be utilized to pursue social goals in court: “The temptation to use antitrust to achieve broad social goals is understandable. The antitrust laws’ spare language provides an elastic mandate and is directed at the courts. They can become a vehicle for achieving goals through the judicial system that are more difficult to achieve legislatively. By contrast, the consumer welfare principle is a way of limiting the boundaries of antitrust to economic goals, with consumers identified as important beneficiaries. It recognizes that, while the words of the antitrust laws sweep broadly, they are nevertheless limited to fundamentally economic concerns.”
The more accurate measure of consumer welfare is output, not price: “The consumer welfare principle in antitrust is best understood as pursuing maximum output consistent with sustainable competition. In a competitive market this occurs when prices equal marginal cost. More practically and in real world markets, the principle tries to define and identify anticompetitive practices as ones that reduce market wide output below the competitive level. To be sure, output can sometimes go higher than the competitive level, but this would require that at least some prices be below cost. As a result, the definition refers to ‘sustainable’ but competitive levels of output. If output is too high, some firms will be losing money and must eventually raise their prices or exit.”
Read Hovenkamp’s research here via SSRN.
Elyse Dorsey, Geoffrey Manne, Jan Rybnicek, Kristian Stout, Joshua Write: Consumer Welfare & the Rule of Law: The Case Against the New Populist Antitrust Movement
Dorsey et al. walk through the history of antitrust law in the United States, detailing how we landed at the consumer welfare model and the consistency, flexibility, and simplicity it provides. They go on to challenge three myths the populist antitrust movement promotes: first, that the consumer welfare standard has caused an increase in concentration and decrease in competition; second, that lax antitrust enforcement has allowed prices to rise and output to drop; and third, that increased antitrust enforcement would remedy inequality.
The consumer welfare standard is grounded in economics and ensures consistency in antitrust enforcement, unlike past approaches: “The consumer welfare standard is widely recognized across the political spectrum as the superior model for antitrust enforcement because it is clear, consistent, and coherent. Today, the consumer welfare standard is well developed, and its meaning and the evidence required to show harm is well established. As a result, a key benefit of the consumer welfare standard is that it offers an objective and concrete framework for evaluating whether a challenged conduct has harmed competition. It does so by examining a singular factor: whether consumers have been made better or worse off as a result of the conduct. The consumer welfare standard therefore stands in sharp contrast to earlier multi-pronged approaches that sought to weigh a variety of vague sociopolitical factors that were at the decision-maker’s discretion and often led to inconsistent and incoherent results. This earlier approach had the result of weaponizing antitrust against the competitive process and, paradoxically, not only failed to promote competition but actively dissuaded lower prices, increased innovation, and other competitive benefits.”
Market concentration is often an outcome of healthy and rigorous competition, not a failure of antitrust enforcement: “In summation, market concentration can be viewed as an outcome of the competitive process. While market concentration may indicate the type or nature of competition that exists in an industry, it is equally possible that the type of competition can generate the market concentration. This is why the U.S. deliberately opted to foster a free-market economy and not to outlaw monopolies per se. In fact, the Supreme Court and the lower courts have repeatedly recognized that the draw of monopoly profits is what drives firms to enter, compete, and innovate. Counting firms and calculating concentration cannot by itself distinguish meritorious wins from suspicious ones. In other words, identifying an increase in concentration—particularly an increase in industry-level concentration rather than in antitrust-market concentration—is not in any way the same as identifying a failure of antitrust enforcement.”
Read Dorsey et al.’s research here via SSRN.