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Scholarship Abstract The Sherman Act establishes free competition as the rule governing interstate trade. Banning private restraints cannot ensure that competitive markets allocate the nation’s resources. . . .
The Sherman Act establishes free competition as the rule governing interstate trade. Banning private restraints cannot ensure that competitive markets allocate the nation’s resources. State laws can pose identical threats to free markets, posing an obstacle to achieving Congress’s goal to protect free competition.
The Sherman Act would thus override anticompetitive state laws under ordinary preemption standards. Nonetheless, the Supreme Court rejected such preemption in Parker v. Brown, creating the “state action doctrine.” Parker and its progeny hold that state-imposed restraints are immune from Sherman Act preemption, even if they impose significant harm on out-of-state consumers. Parker’s progeny also immunizes “hybrid” restraints—private agreements that states encourage or supervise.
Both the Supreme Court and numerous scholars have invoked federalism and state sovereignty to justify Parker’s state action doctrine. Some suggest that preemption would violate the Constitution. Others contend that these values manifest themselves as canons of construction that illuminate the statute’s original meaning. According to these scholars, the Act should not intrude upon traditional state prerogatives unless Congress plainly intended this result.
This article demonstrates that federalism and state sovereignty do not rebut the strong case for Sherman Act preemption of state-created restraints. Such preemption would be a garden-variety exercise of Congress’s commerce power. Moreover, Sherman Act preemption would not interfere with any constitutionally recognized attribute of state sovereignty.
Turning to canons of construction, the article concludes that such preemption is so plainly constitutional that the avoidance canon is inapposite. The federal-state balance and anti-preemption canons do protect traditional state regulatory spheres from inadvertent national intrusion. Neither supports Parker itself, which sustained a regime that directly burdened interstate commerce and injured out-of-state consumers. Application of these canons instead reveals that the Court’s invocation of federalism is selective at best. Indeed, the Court’s rejection of the federal-state balance canon and resulting application of the Act to local private restraints that produce no interstate harm created the very conflict between the Sherman Act and local regulation that the state action doctrine purports to resolve.
Consistent application of federalism principles bolsters the case for preemption, albeit within a much smaller sphere than the Sherman Act currently operates. Such considerations counsel retraction of the scope of the Act and concomitant allocation to states of exclusive authority over restraints that produce only intrastate harm. The resulting allocation of authority over trade restraints would nearly eliminate conflicts between local regulation and the Sherman Act and restore the uniform rule of free competition that best replicates the regulatory framework the 1890 Congress anticipated. Proponents of Parker who see states as laboratories for economic experimentation should welcome such reform, which would ironically result in less preemption of state-created restraints and strengthen the institution of competitive federalism.
Scholarship Abstract The policy initiatives announced on both sides of the Atlantic to complement competition rules focus on two key dimensions: the contestability of markets on . . .
The policy initiatives announced on both sides of the Atlantic to complement competition rules focus on two key dimensions: the contestability of markets on the one hand and fairness in their functioning on the other. The underlying idea is that the market positions of Big Tech would be inexpugnable – insofar as high barriers to entry protect them from self-regulating competition and insofar as they would have regulatory power over their respective ecosystems. Competition for the market would no longer be free, and competition in the market would be distorted. Our purpose in this working paper is to discuss these two dimensions. Are digital markets still contestable, and is the competition in them still competition on the merits? Finally, we discuss the remedies proposed to address these two alleged phenomena.
Scholarship Abstract On October 25, 2021, in a 3-to-2 vote, strictly along party lines, the Federal Trade Commission (“FTC”) announced a major policy shift in how . . .
On October 25, 2021, in a 3-to-2 vote, strictly along party lines, the Federal Trade Commission (“FTC”) announced a major policy shift in how the agency will review and settle mergers. Going forward, all parties who agree to a merger remedy order, including a divestiture, must also agree with the agency’s demand that, for at least a decade, they obtain “prior approval” from the agency before closing a future acquisition within the same relevant market. Further, buyers of any divested assets must also agree to a prior approval condition for a minimum of ten years. Finally, the agency “may decide,” at its discretion, to apply the prior approval condition even to markets beyond those in which the transaction at issue raised competitive concerns.
This new prior approval policy nontrivially weakens parties’ due process protections and puts the FTC more into a regulatory position, implicating significant ongoing costs to businesses and to the economy as a whole. While the Commission may defend its new policy as targeted only at “facially anticompetitive deals,” the practical effect is to trap both anticompetitive and procompetitive acquisitions in the agency’s regulatory net. This increases the cost of merger activity and likely will lead to consequences — whether intended or not — that are detrimental to economic efficiency and overall economic growth.
TOTM U.S. antitrust policy seeks to promote vigorous marketplace competition in order to enhance consumer welfare. For more than four decades, mainstream antitrust enforcers have taken . . .
U.S. antitrust policy seeks to promote vigorous marketplace competition in order to enhance consumer welfare. For more than four decades, mainstream antitrust enforcers have taken their cue from the U.S. Supreme Court’s statement in Reiter v. Sonotone (1979) that antitrust is “a consumer welfare prescription.” Recent suggestions (see here and here) by new Biden administration Federal Trade Commission (FTC) and U.S. Justice Department (DOJ) leadership that antitrust should promote goals apart from consumer welfare have yet to be embodied in actual agency actions, and they have not been tested by the courts. (Given Supreme Court case law, judicial abandonment of the consumer welfare standard appears unlikely, unless new legislation that displaces it is enacted.)
Read the full piece here.
ICLE White Paper Stian Westlake and Jonathan Haskel find that recent changes in interfirm competition are driven not by less competitive markets, but by the growing importance of intangible capital like R&D, brands, software, and organizational development.
Worried that competition between firms is lessening, many economists and policymakers have called for a return to the more aggressive competition policies of the 1960s and 1970s and for the breakup or nationalization of large business, such as tech platforms. We argue, on the contrary, that changes in inter-firm competition are significantly driven by the increasing importance of intangible capital: assets like R&D, brands, software, and organizational development. This has several implications:
Finally, we argue that there is a different aspect of the word “competition” that is affected by the shift to intangible capital: competition between individuals. An intangible-rich economy will see an increase in wasteful signaling. Mitigating this rat race should be a policy priority for educators and governments.
Read the full white paper here.
Presentations & Interviews ICLE Academic Affiliate Jeremy Kidd, a professor at Drake Law School, recently joined the Talking Legal Ed podcast to discuss law & economics and how . . .
ICLE Academic Affiliate Jeremy Kidd, a professor at Drake Law School, recently joined the Talking Legal Ed podcast to discuss law & economics and how it is useful in the law-school classroom. Kidd identifies “the three things about economics that every legal educator should know”:
He also discusses how these three ideas help professors teach and students understand the law. Kidd talks about his experience engaging students in a law & economics reading group, including how providing that kind of intellectual challenge can lift students out of the doldrums of memorizing the law and keep their minds engaged in true learning. Finally, he talks about bringing his own law & economics scholarship into the classroom, and the various ways to integrate current examples in lesson plans.
The full podcast is embedded below.
Scholarship Abstract How should competition agencies and courts consider acquisitions by “big tech” (that is, Amazon, Apple, Google, Facebook, and Microsoft) of smaller, startup companies? There . . .
How should competition agencies and courts consider acquisitions by “big tech” (that is, Amazon, Apple, Google, Facebook, and Microsoft) of smaller, startup companies? There are several competing visions. On one end of the spectrum is the view that these companies have strong incentives to engage in anticompetitive acquisitions of nascent and potential competitors; consequently, agencies and courts should implement strong presumptions of harm. On the other end of the spectrum is the view that there is little reason to change current merger presumptions or to treat acquisitions by big tech companies differently than “medium tech” or “small tech” companies.
To inform the issue, this Article reviews a recent FTC report on acquisitions by the largest technology platforms. While the report is largely descriptive using aggregated data and, therefore, offers modest insights, there is little in the findings that raise alarms. As a point of contrast, the Article examines several recent acquisitions by Spotify, a technology company that sits outside of the “big tech” classification. Specifically, Spotify has expanded beyond its core music streaming business through a series of startup acquisitions—namely, into podcasts and audiobooks. Interestingly, these acquisitions have not raised concerns from agencies, practitioners, or academics. Consequently, if Spotify’s recent series of acquisitions can reasonably be considered procompetitive, then why is the same not true for Apple and Amazon, who are chasing Spotify in music streaming services and podcasts? Administering antitrust laws based on the mere identity or market capitalization of a company—rather than on specific market factors—is engaging in what could be called “discriminatory antitrust.”
Regulatory Comments There are a host of reasons to expect higher prices in the current environment, but virtually none of the evidence points to anticompetitive conduct as one of them.
Dear Chair Khan and Commissioners Phillips, Slaughter, & Wilson:
The International Center for Law & Economics (ICLE) is a nonprofit, nonpartisan research center that promotes the use of law & economics methodologies to inform public-policy debates. We believe that intellectually rigorous, data-driven analysis will lead to efficient policy solutions that promote consumer welfare and global economic growth.
The Commission’s investigation of the impact of supply-chain disruptions on competition in consumer goods and retail coincides with recent interest in the topic demonstrated by some lawmakers. In particular, there have been concerns raised that rising concentration and alleged anticompetitive behavior by both suppliers (e.g., meat packers; oil & gas companies) and retailers (e.g., groceries; online retailers) has been the cause of sharp increases in consumer prices. Under this thinking, vigorous antitrust enforcement is an essential tool to stop the scourge of rising prices.
The most obvious problem with this thesis, however, is that while consumer prices have increased sharply this past year, concentration numbers in the relevant markets have been relatively unchanged for years or even decades. The best case that can be mustered for a linkage between concentration and rising consumer prices is that existing market structures may slightly exacerbate short-term price dislocations whose ultimate cause is exogenous supply and demand shocks brought about by the COVID-19 pandemic and government responses to it.
The purpose of antitrust law is to protect competition, not to guarantee low prices, in and of themselves. Indeed, high or rising prices are not an antitrust violation, as these prices may be the result of the undistorted competition that antitrust ultimately protects. It is widely understood that the price system is the most effective means of resource allocation, even when the process itself is painful. There are a host of reasons to expect higher prices in the current environment, but virtually none of the evidence points to anticompetitive conduct as one of them.
Take retail grocery prices, for example. Some have blamed rising grocery prices on market concentration, going so far as to propose breaking up Kroger.[1] But Kroger and its subsidiaries have less than 10% market share, and retail profit margins are generally minuscule: hardly consistent with monopoly exploitation. While 2020 saw grocery net margins approach 3.0%, in 2021, the margins moved closer to their long-run average of around 1.25%.[2] Over the longer term, U.S. consumers have also enjoyed marked improvements in their grocery shopping experience.[3] From 1990 to 2020, the number of items stocked in grocery stores nearly doubled from 16,500 to 31,119. From 1995 to 2020, the average store size grew by 30%.[4]
Moreover, while food prices have risen in recent years, it hasn’t been by appreciably more than overall consumer prices. The U.S. Department of Agriculture’s Economic Research Service (ERS) finds that all-food CPI rose by 7.8% from 2016 to 2020, the same as all-items CPI.[5] The ERS attributes recent sharp price rises to pandemic-related shifts in consumption patterns. In 2020, for example, food-at-home spending accounted for 51.9% of total food expenditures, the first year it has accounted for more than half of food spending since 2008.[6]
Not coincidentally (and inconsistent with a monopoly-exploitation story), price increases haven’t been homogenous. Much of the rise in beef prices, for example, has been driven by price increases of cuts of beef typically consumed at home, while prices of beef cuts typically consumed in restaurants have fallen. These changes have also closely tracked pandemic-related supply-chain disruptions, further suggesting the pandemic and the ensuing government-mandated lockdowns, and not excessive concentration, are to blame.
Some have also proposed reinvigorated enforcement of the Robinson-Patman Act of 1936, including President Joe Biden in his July 2021 Executive Order on Promoting Competition in the American Economy. But it should be noted that the stated intention behind Robinson-Patman—initially passed to protect smaller retailers and counter the perceived market power of then-dominant A&P—was to raise prices. It did this by constraining the kinds of efficiency enhancements that are seen in industries that enjoy economies of scale and network externalities. The largest grocery chains, for example, are vertically integrated. Many have their own logistics divisions that lead to supply-chain stability and lower prices. Breaking them up or constraining them could reduce their efficiency (and thus raise prices).
Reviving such outdated ideas would hurt, not help, consumers. Indeed, competition regulators have an inglorious history of misguided interventions in competitive retail markets. Consider U.S v. Von’s Grocery.[7] The case arose from the U.S. Justice Department’s challenge of the 1960 merger between Von’s and Shopping Bag, in which the combined firm would have had less than 8% of the market. Ignoring the economic environment of the time (the car-induced shift toward supermarkets drawing from a larger geographic area and supplanting small, local stores), the Supreme Court upheld the DOJ’s challenge to “prevent economic concentration” and “keep a large number of small competitors in business.”
There are many possible causes of recent food-price inflation, including increased demand driven by fiscal stimulus; disruptions arising from an unprecedented set of simultaneous supply and demand shocks; the incentive effects of government responses to the COVID-19 pandemic; and an increase in the money supply, among others. There are also any number of concerns arising from the food supply chain that may merit legislative or regulatory attention. It may be important to protect farmers in certain circumstances, or to protect the environment. There may even sometimes be countervailing benefits to regulations that have the effect of increasing prices.
But the specific characteristics of the responses to disruptions from the pandemic are consistent with competitive markets, and antitrust is an entirely inappropriate tool to address economy-wide inflation. Rather, vigorous antitrust enforcement in these markets will not stop the scourge of rising prices.
For a fuller treatment of this topic, we also attach here ICLE’s testimony to the recent hearing by the U.S. House Judiciary Committee’s Antitrust Subcommittee on “Addressing the Effects of Economic Concentration on America’s Food Supply.”[8]
Read the full comments here.
[1] Elizabeth Warren (@SenWarren), Twitter, (Jan 7, 2022, 9:49 AM), https://twitter.com/senwarren/status/1479465304795324422.
[2] Grocery Stores Industry Profitability, CSIMarket, https://csimarket.com/Industry/industry_Profitability_Ratios.php?ind=1305.
[3] Leonard I. Nakamura, The Measurement of Retail Output and the Retail Revolution, Federal Reserve Bank of Philadelphia, Working Paper No. 97-4, (May 1997), available at https://www.philadelphiafed.org/-/media/frbp/assets/working-papers/1997/wp97-4.pdf.
[4] Supermarket Facts, The Food Industry Association, https://www.fmi.org/our-research/supermarket-facts.
[5] Food price inflation over 2017–2021 slower than only housing and transportation, U.S. Department of Agriculture Economic Research Service, (Feb. 23, 2022), https://www.ers.usda.gov/data-products/chart-gallery/gallery/chart-detail/?chartId=58350.
[6] U.S. food-at-home spending surpasses food-away-from-home spending in 2020, U.S. Department of Agriculture Economic Research Service, (Aug. 20, 2021), https://www.ers.usda.gov/data-products/chart-gallery/gallery/chart-detail/?chartId=58364.
[7] Joshua Wright, Von’s grocery and the concentration-price relationship in grocery retail, 48 UCLA Law Rev. 743-771, (February 2001), https://www.researchgate.net/publication/294851918_Von’s_grocery_and_the_concentration-price_relationship_in_grocery_retail.
[8] Geoffrey A. Manne, Written Testimony of Geoffrey A. Manne, Hearing on “Reviving Competition, Part 5: Addressing the Effects of Economic Concentration on America’s Food Supply,” U.S. House Committee on the Judiciary, Subcommittee on Antitrust, Commercial, and Administrative Law, (Jan. 19, 2022), available at https://docs.house.gov/meetings/JU/JU05/20220119/114345/HHRG-117-JU05-Wstate-ManneG-20220119.pdf.
TOTM The acceptance and implementation of due-process standards confer a variety of welfare benefits on society. As Christopher Yoo, Thomas Fetzer, Shan Jiang, and Yong Huang explain, strong . . .
The acceptance and implementation of due-process standards confer a variety of welfare benefits on society. As Christopher Yoo, Thomas Fetzer, Shan Jiang, and Yong Huang explain, strong procedural due-process protections promote: (1) compliance with basic norms of impartiality; (2) greater accuracy of decisions; (3) stronger economic growth; (4) increased respect for government; (5) better compliance with the law; (6) better control of the bureaucracy; (7) restraints on the influence of special-interest groups; and (8) reduced corruption.
