Seminar 6: Revitalising US Antitrust

We focus on the debate between Baker & Salop on the one hand and Crane on the other about the role of inequality in antitrust. As you will be aware recently inequality has become a trendy theme, these papers try and unpick how far this can be used in antitrust. Elizabeth Warren’s speech is one of many attempts to give antitrust greater political salience and is suggested for context.

Baker & Salop ‘Antitrust, Competition Policy and Inequality’ (2015) 104(1) Georgetown Law Journal 1

Crane ‘Antitrust and Wealth Inequality’ (2016) 101 Cornell Law Review 1171

Harrison ‘A Socioeconomic Approach to Antitrust: Unpacking Competition, Consumer Surplus, and Allocative Efficiency’ SSRN (2015)

Warren, ‘Reigniting Competition in the American Economy’ (29 June 2016)

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12 comments on “Seminar 6: Revitalising US Antitrust

  1. Katrine Lillerud says:

    Reaction paragraph to readings in course ‘Competition law: Conservative or Progressive’
    Katrine Lillerud 15 November 2016
    Session 6: Revitalizing US antitrust

    Reigniting Competition in the American Economy (Warren)
    The main concern is that US competition is dying and that too many mergers are allowed to happen to the deficit of consumer choice and price. Warren claims that not only consumers suffer from the amplified concentration of markets, but that the effect is much more detrimental, as also the economy and democracy in general suffers. In reality, Warren claims that market concentrations lead to the wealthier becoming even wealthier and the average man in the street even poorer. I lack the proof of the connection between concentration of markets and these rather bold statements of the decline of the welfare.

    A Socioeconomic Approach to Antitrust (Harrison)
    One scholar that in my view at least has a valid point is that indeed current legal scholarship lacks a consideration of all relevant factors, which influence a legal field, such as also looking at values, and polices in addition to the legal text. Maximizing consumer surplus is not the only factor of relevance. (p. 15) For instance, some consumer surplus, such as expensive brands, exists purely to make others (feel) worse off. Who to measure such a value in antitrust terms and market definitions?

    Wealth inequality (Crane)
    Crane finds that antitrust law is not there to solve wealth equality issues (p.59) this because enforcement of the antitrust laws and wealth inequality is far more complex than monopoly regressivity critics recognize (p.5) He even finds that an homogeneous increase in antitrust enforcement could without looking at the whole picture, could exacerbate rather than diminish inequality and related forms of social justice.

    Antitrust, Competition Policy and Inequality – the hidden agenda of antitrust – reduction of in (Baker & Salop)
    That public concerns about growing inequality might spark proposals to modify antitrust and competition policy and they try to identify various potential policy options. But the article strongly upholds that the continued application of a consumer welfare standard likely would lead to less inequality (p.17), but that it may be boosted by increased antitrust budgets and this might be more feasible than adopting policy alternatives redistributing wealth inequalities. Regulation could, however, face the “ox by its horns” and clearly state that the reduction of inequality is the main goal of antitrust (p.24). Like Warren their concern seems to be that the inequality is a consequence of likely emerge as part of a broader concern with inequality, middle-class economic stagnation, and the political and economic power of large firms. (p.26). Whilst recognizing that competition law is unable to resolve (all) problems of inequality alone it may be used to support more efficient regulatory tools like taxes, labor rights and trade policies.

    * * *

  2. Anna Nowak says:

    The difference in writers’ opinions is basically spelled out in the introduction to Crane’s paper where he claims: ‘antitrust law cannot be calibrated to help, but it can be calibrated not to harm.’ as opposed to the rest of authors’ hope invested in a more active antitrust policy. The other difference that determines the line of authors’ arguments, is that Crane apparently does not feel any dissatisfaction with the actual antitrust policy. His quite reluctant claim that wealth equality considerations could “maybe modestly” enter the antitrust analysis does not seem unreasonable. Indeed, one could ask whether the antitrust policy is the proper and such promising area to deal with such issues.

    As Baker and Salop made it clear, they wanted to enhance the discussion and do not offer ready-to-go solutions; it was more about making the point that there is a problem of inequality that could potentially be addressed through antitrust policy. But I am not sure to what extent such an ambitious project could work out even though I believe in more intervention and less reliance on an unlimited market self-correction. Nevertheless, the paper gave an interesting look at the competition law that there’s more to it than the universal supply-demand graph.

    As far as socioeconomics approach is concerned, I don’t see how it is employable in antitrust. I am not convinced about the arguments about negative externalities such as pollution or the fact that the buyers of cigarettes should not really buy them because it will cause their ‘misery’, or market failures. Instead of adapting the antitrust, these problems should be resolved through adequate tools, like regulations, education or state aid. Also, I didn’t understand the inclusion of the final dissatisfaction of the consumer with the product into the antitrust analysis – is it so important for assessing the firms’ conduct and how to put it into practice? Although, I found the questions asked at the end pertinent and worth the answer.

  3. Magdalen Reeder says:

    In his example of the cases in which firms fail to satisfy the market definition/market power requirement, I’m not sure Harrison convinces me that the filters aren’t working as they should be working. If we didn’t look at market power, might we just end up back at Brown Shoe, with two tiny companies foreclosed from merger? How (other than Senator Warren) do we know that “it was unlikely to be the case” that the 95% of companies that didn’t get to the balancing test were involved in activities with little competitive harm? Perhaps the definition of market power has gotten too broad?

    At the risk of sounding like a Luddite of antitrust law, Harrison’s discussion of different types of consumer surplus made me a little uncomfortable. As he mentions, it’s one thing to have an agency making decisions (with all of the procedures and consumer input that entails) and another to have the judiciary make them. Successful or not, the ostensible goal of the neoclassical approach is economic welfare. Introducing other types of welfare into the equation seems paternalistic.

    That said, Baker and Salop are correct, inequality threatens U.S. democracy, and antitrust may be a politically feasible way to begin to address it. Given the amount of congressional gridlock over the past few years, I especially appreciated that their approach emphasized ways to effect change without changing the antitrust laws. Since that the incoming administration will not face as much gridlock, but may differ in policy goals from people like Senator Warren, I wonder if they would advocate a different approach, or emphasize different aspects of their approach? On the one hand, the administration was elected on a populist wave, but on the other, it seems likely to favor big business.

    I’m more inclined to be skeptical of Daniel Crane’s article. To some extent, it seemed to argue that because we don’t know for sure if antitrust could step in to help reduce inequality, we’d better just leave it to the market. His notion that because some of the middle class owns stock through retirement plans, monopoly is good for their stock prices too, is absurd. Crane does, however, allow that Baker and Salop’s suggestion for more prosecutorial discretion could be a helpful tool. Crane claims that this wouldn’t be useful because so much of antitrust law is a result of private litigation. Why isn’t that an argument then, for more public enforcement?

  4. Maria Ana Barata says:

    Baker and Salop’s paper argues that inequality can be addressed through a wide range of different policies, suggesting several measures that could be adopted – in case of will for a change – without any antitrust legislation change. An interesting one is the adoption of a “consumer welfare standard” instead of an “aggregate welfare standard” (p. 16). Another example – and in contrast with current EU Antitrust law which includes the rule regarding “abuse of dominant position” – is the lack of prohibition, under US rules, of undertakings exploiting their market power.
    The authors conclude that there is much that Antitrust policies can do to change the current situation, but it will not be enough without further political coordination.

    Crane’s article focuses on presenting sceptical views to the following claims (I) monopoly and anticompetitive market conditions are the root of causes to wealth inequality, and (II) adoption of enhancing antitrust enforcement against mergers, monopolies and anticompetitive agreements, will address the inequality issue.
    The author explores several assumptions, such as (i) increasing market power influences income distribution, (ii) antitrust violations redirect wealth from the poor to the rich (e.g. shareholders and top managers), (iii) antitrust intervention helps building a more equitable/just society, (iv) monopoly profits revert in terms of executives’ compensations, rather than to employees’ higher wages.
    I found particularly interesting Crane’s argument that even if producers violate antitrust laws, it might not necessarily mean that consumers will pay the surplus, since the surplus may be supported by any of the intermediators (p. 1202).
    His conclusion is quite disappointing though “The storyline that monopoly is regressive and hence antitrust enforcement is progressive may be politically attractive, but it is misguided as a generality. There are instances when it is true and instances when it is false. In most instances, it is simply unknowable.” (p.1228).

    Harrison’s paper analyses from a socioeconomic perspective what, according to the neoclassical economics, are considered competition law goals: (i) maximisation of consumer surplus, and (ii) allocative efficiency. An interesting example – about the free riders’ problem– is given by the author to show how preferences (i.e. socioeconomic effects) may influence the markets and how hard is to cope both aspects (p.28).
    I especially appreciated that his approach emphasised that antitrust is driven by a purely political agenda about the appropriate role of government (p. 5).
    He also poses an interesting question about the “better measure of the likelihood of success”: (a) financial capacity of the firms, or (b) market shares? (p. 19)

    Senator Warren’s speech summarises very clearly the problem that US is suffering from: lax antitrust policy leads to market concentration, which means (1) less consumer choice, (2) entry market barriers, (3) wipe-out of small businesses, (4) concentrated political power and (5) decline of middle class (while “a handful of managers get richer, and richer, and richer”).

  5. Maria de la Cuesta says:

    To some extent, Warren, Harrison, and Baker & Salop seem to agree on attributing some type of short-sightedness to current antitrust law practice. Baker and Salop underline the connection between market power and inequality; Harrison, the inability of the definitions used by antitrust to capture relevant values to consumer beyond those merely economic; and Warren, highlights too the risks to democracy posed by ‘the big ones’. Apart from presenting the shortcomings of antitrust, the three papers suggest – some of them more explicitly than others – the possible way forward for antitrust, presenting different ways to fine-tune its mechanisms or to include, among the goals of antitrust, new social goals beyond mere economic welfare. In a way, as Crane suggests, this way of thinking of the way forward entails certain expansion of the application of antitrust laws. Crane’s paper takes some distance from this view. In particular, the connection between market power and antitrust in developed economies is not so clear to him, and he sees more problems than possible solutions in asking for the expansion of the role of antitrust. His way forward is thus much more modest: to protect genuine private attempts to increase social welfare from the strict application of antitrust.
    Ultimately, the debate behind the readings can be read as the debate over the best way to incorporate to the calculations of antitrust values that are not strictly measurable in economic terms. Can antitrust promise to deliver more than economic welfare or is it naïve to think so? And if it were technically possible to incorporate social, environmental or distributive concerns, is it desirable? Is it not the case that measuring in economic terms values that are not economic goes against the very idea of a social value, acting like this in its detriment, and masking behind technicalities what is inevitably a political choice?
    So the question remains if antitrust is apt to achieve objectives other than efficiency, or if these other objectives should be left to other tools: taxes to redistribute, contracts to control ‘fair’ bargaining, etc. Or finally, if all the tools available to a society should be better coordinated to avoid the schizophrenia of a legal system that pursues efficiency under antitrust laws and condemns efficient commercial practices under fair trading legislations.
    Discussing the connection between competition and inequality has made me wonder about a further aspect. If, as suggested in the readings, increasing inequality seems closely connected to the functioning of a global economy where businesses can profit from the lower wages or lower environmental protection of third countries, how can national competition law systems be effective tools against market power that transcends borders? In other words, I am curious to understand how competition law reaches beyond the borders of its own country to defend itself from the conditions of competition that exists in another.

  6. Zeynep Timocin Cantekin says:

    Reaction to Readings for Session 6: Revitalising US Antitrust

    Both Elizabeth Warren’s speech and the Baker and Salop article point to the political implications of the concentration of market power. At the heart of their contention actually lie two (and a half) fundamental dualisms of antitrust theory: (1) that inequality and economic social stratification creates ethical questions that require high levels of redistribution, or not; (2) that the federal government has to be active in keeping market power in check, or it is the market that has, and will do it (Bork); and (2 ½) monopoly is bad per se, or that its regulation should be conditional on their actual effect on consumers.

    That inequality is one of the most important drivers of political debate and political mobilisation should come as a surprise to anyone especially after the U.S. presidential elections, and perhaps the Brexit referendum. It is unquestionable that there is a perception especially among the working and middle classes that the consolidation of economic power in the hands of a few actors in many sectors including basic services, retail, and especially finance makes the little man in the working and middle classes insignificant and a perpetual loser in the system. Further than only perception, there seems to be economic evidence that in the last 30 years, at least in the U.S., the relative real wages and purchasing power of these layers of the population have plateaued at best, and actually decreased. On the other hand, higher income households saw rise in these indicators, while very-high-income households saw unprecedented (at least unprecedented in the period after the second world war) increase. That the high and very high income individuals gained more (political) power thanks to their economic power seems to be logical, as they are more advantaged in an environment without significant redistribution in purchasing education and political influence.

    As for my second point above concerning the role of the federal government’s role in reducing market power, see this article published in The Atlantic before the elections: https://www.theatlantic.com/politics/archive/2016/10/how-democrats-killed-their-populist-soul/504710/ I cannot discuss this article here, but I promise it is very interesting also for our course. A quick point that it gives rise could be that the demonisation of populist politics (as in politics that have (or promise) a visible effect on the lives of the masses) vis-à-vis technocratic economic administration should be also discussed in the context of democracy.

  7. Alexandre Ruiz says:

    The dialogue between Baker & Salop and Crane shows that, at least, there is a common point: certain anti-competitive conducts may have a regressive effect, and antitrust law may play a role in those cases. The main disagreement between these authors is what role antitrust law should play. Broadly speaking, whereas Baker & Salop suggest that a whole shift in focus of antitrust law towards social concerns would be needed and desirable, Crane argues that, at best, only a prosecutorial discretion may be considered (Crane’s article, p. 1225). Now, I think that this debate revolves around two main questions: first, whether concentration and market power provoke inequality, which would have very pernicious effects on society (see the five problems mentioned by Senator Warren); and second whether antitrust law can combat inequality.

    With regard to the first question – whether concentration causes inequality – I have some problems in seeing the link between both. As Crane says (p. 1184), here there are two assumptions that may not be true: that rich classes of producers capture the majority of the monopoly rents, and that poorer consumers bear the brunt of monopoly overcharges. Baker & Salop only seem to have in mind two scenarios: either producers are wealthier than consumers (likely); or consumers are wealthier than producers (unlikely) (page 16-17). However, these two scenarios are rather simple. I agree with Crane in that the structure of the society is more nuanced, and that there exists a broad middle class between the rich classes of producers and consumers. In any case, perhaps more research would be needed in order to see whether it is true that concentration is almost bad per se.

    Concerning the second question – the role of antitrust law – Baker & Salop suggest several measures, such as keeping the consumer welfare standard, increasing the budget of antitrust agencies, more enforcement in strategic sectors, combating monopsony, adopting better remedies, fighting excessive pricing, or the return to the ideas of no-fault monopoly and oligopoly. I think that the most interesting point is that one of taking a pro-plaintiff attitude by antitrust agencies. As Crane puts it (p. 1224), this is a debate between adopting regressivity as an inculpating factor and/or progressivity as an exculpating factor. My question here is how do these factors fit within US Antitrust and the functioning of the rule of reason. We said in previous seminars that the structure of the rule of reason is something like this: 1) analysis of prima facie restriction; 2) analysis of the pro-competitive effects; 3) see whether there is a less restrictive alternative; and 4) balancing. From the dialogue between these authors, I can see three options. They probably need more refinement, but here I my preliminary thoughts.

    First option is to include the regressivity as an inculpating factor in step (1) and progressivity as an exculpating factor in step (2). Thus, regressivity must be alleged by the plaintiff, whereas the progressivity argument is on the defendant. This would also imply that inequality is another antitrust goal among others. The good thing of this option is that antitrust law can fight inequality without punishing every firm for having market power. However, the ultimate result of this option is that only up to the firms to fight inequality. In other words, firms can choose whether they want to bridge the gap between the wealthier and the poorer when they plan their commercial strategies, so they would be able to use the progressive defence in an antitrust case. Now, using the words of Crane (p. 1227), this would be a ‘Robin Hood defence’, and I do not know to what extent firms are the most legitimate to address inequality.

    The second option is to create a new regressive/progressive filter between step (1) and (2). In this case, given that inequality is analysed before any other pro-competitive effect, social concerns would not be a mere antitrust goal, but a matter of public interest. I understand that when Baker & Salop say ‘public interest’ (p. 24), they mean to ‘constitutionalize’ equality. Thus, any progressive argument must be considered before looking at other pro-competitive effects in step (2). Progressivity then goes first than any other goal. In this option, plaintiff and defendant would engage in an exclusive regressive/progressive effects discussion. However, I am not sure whether antitrust law is in position to consider this hierarchy. By taking equality as a public interest goal, antitrust law would be putting aside any other beneficial impact on competition, which ironically could make consumers worse off. At the end of the day, the whole discussion between the plaintiff and the defendant will revolve around regressive/progressive considerations, and I am not sure whether this would be desirable in terms of legal certainty.

    Third option would be to include only regressivity in step (1) – but not progressivity in step (2) – or to create a very first step (1 bis maybe) devoted to regressive considerations. Here, once the plaintiff proves regressivity, antitrust law applies; and the defendant has no defence. The consequence of this option is that inequality would become practically the unique antitrust concern, given that the defendant would not have any defence. This option would make antitrust enforcement an ultra-pro-plaintiff system, and it would be very easy to incur in over-enforcement errors which, again, would make consumers worse off.

    To sum up, that inequality is increasing in advanced societies goes without saying. However, that concentrated markets contribute to inequality is not totally clear, and it is very difficult to see if antitrust law can play a role against inequality.

  8. Elena says:

    The debate of this week revolves around a main dilemma: whether antitrust can play a role in pursuing a concrete policy objective, namely putting an end to growing inequality. Figures are telling. Market concentration is extensively enlarging (Senator Warren presents illustrating examples of some regulated markets in the US, i.e. health insurance, drugs distribution, food market, and airlines), and this enlargement is likely to have had an effect on the increased wealth inequality around the world. Such effect is deemed by Thomas Piketty (or at least this is how I interpret his claim) as a natural development of the capitalist economies given that, when returns to capital exceed the economy’s growth, the only way of increasing wealth is possessing capital. As a logical consequence, this fact is capable of locking out those who do not possess capital (or means of production). As far as I understood (and please correct me if I am wrong), the exclusionary effects of concentration could also be a direct effect of the economies of scale themselves: if a firm is in a strong position (so its productive structure allows it to minimize average cost), even when the firm does not incur in an anticompetitive practice, it is capable of preventing competitors from achieving a minimum efficient scale.

    Crane’s article is an attempt (in my opinion, unsuccessful) to dismantle the theory that concentration brings inequality. In his opinion, the movements advocating for antitrust intervention for the sake of equality are reductive because they assume that ‘(1) relatively rich classes of producers, in particular shareholders and senior corporate managers, capture the majority of the monopoly rents generated by anticompetitive behavior and (2) relatively poorer consumers bear the brunt of monopoly overcharges.’. He then endeavors to dismantle these assumptions. All the arguments he proposes rely likewise on a main assumption: ‘in economically developed societies, the ownership of the means of productions is widely distributed (…) and there exist a broad middle class capable of appropriating monopoly rents.’ (page 1185). So, for example, when discussing who captures the monopoly rent, he implicitly argues that the existence of a monopoly wage premium is due to the position in which the working class is located: they have a bargaining power that allow them to make a profit from their employer monopoly rent. I assume that this is the explanation he has in mind, even if it is not clear from the text, because otherwise he would be denying the main axiom of the economic religion: undertakings are profit maximizers entities, so they are not going to pay higher wages if they can avoid it. However, the evidence that he gives for his argument that large firms pay higher wages could be challenged. Such evidence is listed in the footnotes: he points at four papers, three of which were written during the last century (1986, 1985, 1999). I beleive he is giving partial information, and his argument deliberately ignoring the developments of the last 20 years. This suspicion is confirmed if one analyses the fourth reference he gives, namely the article by Even & Macpherson, ‘Is Bigger Still Better? The Decline of the
    Wage Premium at Large Firms’. This study documents a significant decline in the wage premium paid by employers of large companies in the last 15 years. In my opinion, such type of inconsistencies can be found in many of Crane’s arguments.

    Having said that, I think it makes sense to side with Baker & Salop and Warren advocacy for antitrust policy solutions in order to address the imbalances of the economic system. In my view, economic theories present important limits that make it impossible to grab the wild economic world and build a scientific theory capable of giving unbiased antitrust solutions. Just think for example to Muller’s paper discussed some weeks ago. He demonstrated that, in strict economic terms, merger makes some people worse off without making anybody else better off so they are Pareto inefficient. Then, how can one explain the enormous and increasing number of mergers? As Senator Warren reveals, 2015 was the biggest year for mergers in U.S. history. The way one could articulate the endorsement of social values by antitrust practices is far from clear, although both Bake & Salop and Warren present some concrete proposals. The American case-law itself may be enlightening in leading the way forward. Just think of the Brown Shoe case and how the Court endorsed the political intent of the Congress when adopting the Clayton Act, citing the political concern about the danger to the American economy of corporate expansions through mergers (see page 315 Brown Shoe judgement).

  9. Agnieszka Jabłonowska says:

    Main premise of the authors discussing the relationship between antitrust and wealth redistribution is the observation that market power can contribute to inequality. Baker and Salop support this view and argue that the wealth of undertakings, which enjoy market power (and consequently – the wealth of their shareholders and executives), is increasing faster than the general economic growth. Unfortunately they do not elaborate on this point in more detail, but seem to take the relationship between market power and inequality for granted. Some of the parallels, which they mention (e.g. that market power may discourage innovation and therefore slow economic growth), do not seem as evident as the authors portray it. Similarly to the discussion about integrating behavioural economics into antitrust analysis, integrating equality considerations also seems to imply a more robust antitrust intervention. Even if Baker’s and Salop’s proposal should not be seen as concrete policy recommendations, but only a subject for discussion, they seem to go in this direction. Taking a closer look, however, it seems that also here including additional considerations into the antitrust assessment can support both a more restrictive and a more lenient approach, depending on the specific case (as rightly noted by Crane). Notwithstanding the above, I have found three of Baker’s and Salop’s proposals particularly worth discussing:

    1) Maintaining the consumer welfare standard – so how does the U.S. practice look like after al, in this standard indeed widely used?
    2) Reframing the monopolization offence so as to include exploitative practices of dominant companies, which did not acquire or maintain their monopoly power through anticompetitive means. Are there any data about the impact of EU policy in the field of abuse of dominance on inequalities?
    3) Integrating redistribution considerations into the merger policy. The authors cite the Canadian example (Superior Propane case), which was also discussed by Ware and Winder in their paper about merger efficiencies in Canada. Merger policy (perhaps also state aid) could indeed be the areas of competition law in which more pronounced redistribution considerations could have some positive impacts. However, as Ware and Winder noted, there is still plenty room for improvement in the development and application of such a test.

    Crane, in turn, questions the generality of the relationship between market power and inequality. He argues that such a relationship is much more ambiguous, if not impossible to prove. One would need to establish, for instance, that these are indeed shareholders that capture main part of the monopoly rents, which Crane considers doubtful. He makes an interesting observation according to which increases in market power are associated with higher wages of the workers. Perhaps this could support the adoption of the total welfare standard, but at the same time we cannot forget that in a different social context the same people (workers) also assume the role of consumers. At the same time, the author acknowledges that wealth redistribution considerations could be integrated into the analysis of specific cases, e.g. mergers between discount retailers. Crane also shows that in some cases antitrust intervention may be counter-productive (i.e. prevent private actors from taking actions that could improve the distribution of wealth). Based on this, he essentially reverses the proposals of Baker and Salop and argues for the inclusion of progressivity defence (yet with certain important limitations, which I find reasonable). I think that Crane has a point when he suggests that if we accept regressivity as a reason to find defendant liable or block a merger then why not also allow a progressivity defence. This could open the door to including also other values into the antitrust assessment and brings us back to the discussion whether achieving such aims should also be the role of antitrust law.

  10. stavros says:

    Warren offers a brief sketch of the current state of affairs of US markets together with a quite accurate (for a political speech) account of antitrust contemporary function and evolution. A stricter merger control seems to be a convincing and feasible policy option especially given the social costs of highly concentrated markets. This option is supported by studies showing that substantial proportion of big firms mergers actually reduce the efficiency of the merging firms and destroy portions of their assets and their owners’ wealth (Mueller, Merger Policy in the US). This policy option could be realized by modifying the existing standards (lower HHI thresholds, lower presumptions for finding a substantial lessening of competition) or by adopting merger guidelines that emphasize on the potential anticompetitive effects of vertical integration or conglomerate concentrations. Her third proposal needs to be more nuanced though: sometimes competition is the problem not the cure (Stucke, Is Competition Always Good?), while giving autonomy to a ‘competition norm’ will make markets and agencies autopoietic systems totally insulated from other kind of regulatory interventions. Put differently, antitrust immunity is a useful instrument for balancing competition as a public goal with other public values; sometimes promoting certain values may require excluding a market from competition.

    Warren’s fourth proposal for promoting competition could be broken down to three points: (a) equality of opportunity, (b) protecting the underdogs, (c) prohibiting abuses of economic dependency or (p. 7). Only the first and the second points could be valid points for a competition policy. To do so we need an appropriate framework that effectively eliminates incidents of applying the law in a populist or incoherent manner. For instance, competition authorities could advance a framework for protecting not only the equally efficient competitor (AECT) but also the less efficient competitor (LECT) when it is justified. Indicatively, the CJEU in Post Denmark II when tackled the question ‘under which conditions rebates that are not formally conditional upon exclusivity are likely to be abusive’ said that an AECT may be irrelevant. The Court based its claim on two reasons: first, the emergence of an as-efficient competitor was by all practical means impossible due to the structure of the relevant market; and, second, in a market such as the one in this case, the presence of even a less efficient competitor may contribute to intensifying the competitive pressure (Post Danmark II paras 59-60). Warren’s option (c) could be a supplement to deficient contract law enforcement but it is not an appropriate as antitrust policy (Wakui and Cheng, Regulating abuses of superior bargaining position).

    Warren’s main claim that left unchecked concentration will destroy innovation, small companies and start-ups while it will deepen the equality gap between the rich and the poor, obliterate the middle class and finally corrupt democracy is not an overstatement. This statement reveals the considerations that led to the creation of the Sherman Act. On the other side of the Atlantic and a bit later a group of thinker due to their historical experience (laissez faire trade, Weimar Republic, Nazi Regime) were led to the same conclusion: excessive concentration of economic power facilitates excessive concentration of political power. This explains why the ordoliberals forged a link between democracy and competition, and may also explain why the Chicago School theorizing and applying antitrust rules in a totally different economic and political setting (growing economy, political stability) advanced a very persuasive account towards a more light weighed antitrust and ignored the primary concern of the law, which is using competition as an ‘ingenious instrument for reducing power’ (Böhm, Democracy and Economic Power in Cartel and Monopoly in Modern Law).

    As Baker and Salop show market power should still be the main concern of antitrust especially in virtue of the increasing economic inequalities in US. Shockingly, the top 1% alone owns 40% the country’s wealth. Given that market power raises the return to capital it contributes to the development and perpetuation of inequality (p. 13). If the system continuously allows returns to capital to exceed the economy’s growth rate it w will collapse under the burden of pervasive inequalities. These observations suggest the value of distributive justice for modern capitalism. They also indicate the complementary role of antitrust in fighting against inequality representing a self-destructing irrational inclination of the system. These concern justify more aggressive antitrust enforcement. And most of Baker and Salop proposals are towards this direction. Be that as it may, a more aggressive and principled approach does not seem highly likely at the moment (http://www.recode.net/2016/11/9/13573926/donald-trump-amazon-jeff-bezos-antitrust-taxes)

    However, most part of the Baker and Salop agenda for reinvigorating antitrust, even though consistent with paying more attention on market power, is not necessarily related to distributive justice considerations. For instance, just stating that a consumer welfare standard is better than a total welfare standard from a distributive justice perspective does not really make the case of distributive justice stronger (pp. 15-18). Increasing agency budget (p. 18) or crafting remedies that benefit the less advantaged (pp. 20-21) are inadequate proposals to the extent that the normative goal of distributive justice is not adequately clarified. Moreover, Baker and Salop have to make the case that these options are more efficient and desirable that other forms of direct distribution. Channeling antitrust enforcement towards products that are purchased by middle and lower class consumers is a less good policy advice than prioritizing cases concerning basic goods (and this is what competition enforcers actually do). More interventionist antitrust approach is just compatible with increased concern about market power but it does not give independent value to distributive justice. In addition, already existing doctrines such as the De Minimis, the appreciable effect on trade, the Special Responsibility Doctrine together with a broad interpretation of Art. 101.3 exemption and a more robust interpretation and application of Art. 102 abuses (eg exploitative abuse) could both protect and benefit the middle-class and the poor by curtailing, constraining or prohibitions certain expressions of market power (this may also show why the European model contrary to what the proponents of the More Economic Approach say could be superior).

    Therefore much of Baker and Salop agenda is already in practice in US or already incorporated in the European model and in any case is not organically related to inequality concerns. Only the last part of the piece is essentially about distributive justice. They make three interesting proposals in this respect (a) merger control should engage in detailed distributional analysis, (b) distributive justice as antitrust defense for the cartelization offence (c) distributive justice as antitrust defense for the monopolization offence. One might wonder whether the proposal (a) is not just a more sophisticated total welfare standard that includes a multiple that incorporates to the welfarist analysis the potential costs and benefits of the merger as expected for each class of consumers (measuring the impact of the merger by its consequences to different-income groups). Regarding option (b) and (c) the difficulties of determining the passing on of overcharges (the latest Commission Report is 315 pages) makes me wonder if a distributional impact assessment as part of antitrust analysis is feasible. Notwithstanding that, options (b) and (c) imply that an authority may exempt a hardcore cartel or a monopoly that harms even equally efficient rivals as long as these arrangements are good price discriminator and benefit the less advantaged consumers. I am not sure that this is the best antitrust can do.

  11. Alice says:

    Baker and Salop’s paper is dealing with a very attractive subject: how to use antitrust to decrease inequality. However in my view, their proposals are not completely convincing. It is unclear how adopting a consumer welfare standard in antitrust analysis would reduce inequality. Crane stresses that it is not certain that such antitrust enforcement would redirect wealth from the rich to the poor. Developed economies are complex; it is complicated to control the redistribution of wealth trough antitrust law. The lines of exploitation and profit run in too many complicated and cross cutting directions. The consumers are not necessarily the poorest and their interests may be link to producers’ interests when they are shareholders.
    For Crane competition law enforcement should generate a larger pie, not merely redistribution within the pie. In other words, antitrust law can make everyone better off, but cannot reduce the gap between rich and poor.
    I don’t agree with this statement, but I think that Baker and Salop are missing an effective way to use antitrust law to decrease inequality.
    It is common in Europe to enforce competition law to curb market power of powerful firms. In this approach consumer welfare is not the objective of competition law enforcement, the objective is clearly to promote competition in markets by dampening the power of targeted firms.
    This enforcement’s objective may reduce the gap between rich and poor by reducing the power of the wealthier. In particular, it can reduce the return to capital and bring it closer to the economy growth rate. According to Piketty, a smaller divergence between the return to capital and the growth rate means less inequality.
    Reducing the economic power of giant firms also implies reducing their political power to influence public policies in their favour. As shown by Baker and Salop the interests of wealthy firms and poor or middle class citizens are not the same in terms of public policies. Poor citizens benefit from policies against unemployment and tend to be harmed by policies preventing inflation. In contrast the rich have less incentive to favour policies that tilt towards the reduction in unemployment relative to the prevention of inflation.
    Moreover, reducing the power of dominant firms and promoting competition can also decrease the ability of big firms to put pressure on wages and working conditions. Senator Warren in her speech take the example of Wal-Mart. Reducing Wal-Mart buyer power could improve the working conditions and wages of Wal-Mart employees as well as its suppliers’ employees.
    Finally, more competition and more competitors make it more difficult for firms to cartelize a market than when only few powerful firms are sharing the market among themselves. As a consequence, prices should be lower. In markets such as energy, health care or telephone operators, lower prices may reduce inequality to the extent that prices reduction of these basic services are comparatively more important for the poor than for the rich.

  12. Rodrigo Vallejo says:

    After embracing the consumer welfare paradigm, competition law has generally become aligned with the policy of promoting overall economic growth (i.e. “enlarging the pie”). The readings of this week essentially discuss whether and to what extent competition law is/could/should also address concerns about distribution of these wealth.

    Baker and Salop, Warren and Harrison are on the affirmative side. Market power/concentration is for them one of the main sources of the increasing social segregation (i.e. inequality) that our societies are currently experiencing, thus competition law could and should somehow retrieve its original aim of counteracting these forms of economic power in the name of innovation, consumer choice/well-being, democracy and overall egalitarianism. Among the means proposed for doing so are enhancing enforcement capacities of antitrust agencies by expanding their budgets, channeling their discretionary powers towards these type of aims (including stricter criteria for assessing mergers, prioritizing interests of middle-class and less advantage groups, or recognizing abuse of dominance as antitrust offence) and socializing these policy goals among all branches of government.

    Crane disagrees by challenging the very same foundations of these claims. First he challenges the idea that market power would necessarily produce regressive effects, by showing that it could actually produce progressive or neutral effects. As these could generally not be anticipated, the implicit warn is that false positives could be socially costlier than false negatives in this regard. This view is reaffirmed by his second argument concerning how antitrust interventions have actually impeded self-regulating efforts by market actors to secure a more equitable and just society. In other words, contrary to the “progressive” view, more antitrust activism against market power could ironically increase inequality (i.e. regressive effects) rather than diminish it. On these basis, Crane concludes that Competition Law could/should only assume a more modest aim of not increasing inequality rather than correcting it.

    Isn’t crane incurring in a “natural fallacy”? From the fact that antitrust enforcement have failed, can we legitimately sustain a normative argument that it will/should fail? Isn’t Crane incurring in what has been termed as an “statu quo bias”? In connection to the Chicago School dogma as a “religion”, is interesting how Harrison analyzes the US Supreme Court jurisprudence as actually sustained only in an act of faith. Is a more socio-economic approach promoting agnosticism in competition law or is it just an act of Protestantism?

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