The Globalization of Antitrust: A Cost-Benefit Appraisal - International Center for Law & Economics
Focus Areas:    Antitrust | Competition | Consumer Protection | monopolization

The Globalization of Antitrust: A Cost-Benefit Appraisal

Truth on the Market View Original

Virtually all countries in the world have adopted competition laws over the last three decades. In a recent Mercatus Foundation Research Paper, I argue that the spread of these laws has benefits and risks. The abstract of my Paper states:

The United States stood virtually alone when it enacted its first antitrust statute in 1890. Today, almost all nations have adopted competition laws (the term used in most other nations), and US antitrust agencies interact with foreign enforcers on a daily basis. This globalization of antitrust is becoming increasingly important to the economic welfare of many nations, because major businesses (in particular, massive digital platforms like Google and Facebook) face growing antitrust scrutiny by multiple enforcement regimes worldwide. As such, the United States should take the lead in encouraging adoption of antitrust policies, here and abroad, that are conducive to economic growth and innovation. Antitrust policies centered on promoting consumer welfare would be best suited to advancing these desirable aims. Thus, the United States should oppose recent efforts (here and abroad) to turn antitrust into a regulatory system that seeks to advance many objectives beyond consumer welfare. American antitrust enforcers should also work with like-minded agencies—and within multilateral organizations such as the International Competition Network and the Organisation for Economic Cooperation and Development—to promote procedural fairness and the rule of law in antitrust enforcement.

A brief summary of my Paper follows.

Discussion

Widespread calls for “reform” of the American antitrust laws are based on the false premises that (1) U.S. economic concentration has increased excessively and competition has diminished in recent decades; and (2) U.S. antitrust enforcers have failed to effectively enforce the antitrust laws (the consumer welfare standard is sometimes cited as the culprit to blame for “ineffective” antitrust enforcement). In fact, sound economic scholarship, some of it cited in chapter 6 of the 2020 Economic Report of the President, debunks these claims. In reality, modern U.S. antitrust enforcement under the economics-based consumer welfare standard (despite being imperfect and subject to error costs) has done a good job overall of promoting competitive and efficient markets.

The adoption of competition laws by foreign nations was promoted by the U.S. Government. The development of European competition law in the 1950s, and its incorporation into treaties that laid the foundation for the European Union (EU), was particularly significant. The EU administrative approach to antitrust, based on civil law (as compared to the U.S. common law approach), has greatly influenced the contours of most new competition laws. The EU, like the U.S., focuses on anticompetitive joint conduct, single firm conduct, and mergers. EU enforcement (carried out through the European Commission’s Directorate General for Competition) initially relied more on formal agency guidance than American antitrust law, but it began to incorporate an economic effects-based consumer welfare-centric approach over the last 20 years. Nevertheless, EU enforcers still pay greater attention to the welfare of competitors than their American counterparts.

In recent years, the EU prosecutions of digital platforms have begun to adopt a “precautionary antitrust” perspective, which seeks to prevent potential monopoly abuses in their incipiency by sanctioning business conduct without showing that it is causing any actual or likely consumer harm. What’s more, the EU’s recently adopted “Digital Markets Act” for the first time imposes ex ante competition regulation of platforms. These developments reflect a move away from a consumer welfare approach. On the plus side, the EU (unlike the U.S.) subjects state-owned or controlled monopolies to liability for anticompetitive conduct and forbids anticompetitive government subsidies that seriously distort competition (“state aids”).

Developing and former communist bloc countries rapidly enacted and implemented competition laws over the last three decades. Many newly minted competition agencies suffer from poor institutional capacity. The U.S. Government and the EU have worked to enhance the quality and consistency of competition enforcement in these jurisdictions by supporting technical support and training.

Various institutions support efforts to improve competition law enforcement and develop support for a “competition culture.” The International Competition Network (ICN), established in 2001, is a “virtual network” comprised of almost all competition agencies. The ICN focuses on discrete projects aimed at procedural and substantive competition law convergence through the development of consensual, nonbinding “best practices” recommendations and reports. It also provides a significant role for nongovernmental advisers from the business, legal, economic, consumer, and academic communities, as well as for experts from other international organizations. ICN member agency staff are encouraged to communicate with each other about the fundamentals of investigations and evaluations and to use ICN-generated documents and podcasts to support training. The application of economic analysis to case-specific facts has been highlighted in ICN work product. The Organization for Economic Cooperation and Development (OECD) and the World Bank (both of which carry out economics-based competition policy research) have joined with the ICN in providing national competition agencies (both new and well established) with the means to advocate effectively for procompetitive, economically beneficial government policies. ICN and OECD “toolkits” provide strategies for identifying and working to dislodge (or not enact) anticompetitive laws and regulations that harm the economy.

While a fair degree of convergence has been realized, substantive uniformity among competition law regimes has not been achieved. This is not surprising, given differences among jurisdictions in economic development, political organization, economic philosophy, history, and cultural heritage—all of which may help generate a multiplicity of policy goals. In addition to consumer welfare, different jurisdictions’ competition laws seek to advance support for small and medium sized businesses, fairness and equality, public interest factors, and empowerment of historically disadvantaged persons, among other outcomes. These many goals may not take center stage in the evaluation of most proposed mergers or restrictive business arrangements, but they may affect the handling of particular matters that raise national sensitivities tied to the goals.

The spread of competition law worldwide has generated various tangible benefits. These include consensus support for combating hard core welfare-reducing cartels, fruitful international cooperation among officials dedicated to a pro-competition mission, and support for competition advocacy aimed at dismantling harmful government barriers to competition.

There are, however, six other factors that raise questions regarding whether competition law globalization has been cost-beneficial overall: (1) effective welfare-enhancing antitrust enforcement is stymied in jurisdictions where the rule of law is weak and private property is poorly protected; (2) high enforcement error costs (particularly in jurisdictions that consider factors other than consumer welfare) may undermine the procompetitive features of antitrust enforcement efforts; (3) enforcement demands by multiple competition authorities substantially increase the costs imposed on firms that are engaging in multinational transactions; (4) differences among national competition law rules create complications for national agencies as they seek to have their laws vindicated while maintaining good cooperative relationships with peer enforcers; (5) anticompetitive rent-seeking by less efficient rivals may generate counterproductive prosecutions of successful companies, thereby disincentivizing welfare-inducing business behavior; and (6) recent developments around the world suggest that antitrust policy directed at large digital platforms (and perhaps other dominant companies as well) may be morphing into welfare-inimical regulation. These factors are discussed at greater length in my paper.

One cannot readily quantify the positive and negative welfare effects of the consequences of competition law globalization. Accordingly, one cannot state with any degree of confidence whether globalization has been “good” or “bad” overall in terms of economic welfare.

Conclusion

The extent to which globalized competition law will be a boon to consumers and the global economy will depend entirely on the soundness of public policy decision-making.  The U.S. Government should take the lead in advancing a consumer welfare-centric competition policy at home and abroad. It should work with multilateral institutions and engage in bilateral and regional cooperation to support the rule of law, due process, and antitrust enforcement centered on the consumer welfare standard.