California’s Ill-Advised Turn Toward Europeanized Theories of Harm For Single-Firm Conduct

I. Introduction

In 2022 the California legislature tapped the California Law Revision Commission (“CLRC”) to study certain aspects of California’s antitrust law (the Cartwright Act^[2]) with an eye toward potentially revising the law. In particular (and among other things), the legislature tasked the CLRC with review of the Cartwright Act’s approach to single firm conduct (“SFC”). Following the issuance of a commissioned expert report on the issue,^[3] the collection of public comments,^[4] and several public hearings,^[5] the CLRC Antitrust Study’s staff issued a memorandum conveying and explaining its recommendations for draft legislation to address SFC in California.^[6]

The SFC Staff Memorandum outlines three options for a Cartwright Act amendment targeting single-firm monopolistic conduct:

• Option One would mirror the traditional language of Section 2 of the federal Sherman Antitrust Act (prohibiting monopolization and attempts to monopolize) with an added clause to encompass monopsonization theories of harm “intended to help address the historical underenforcement of buyer-side monopolies that impact labor, among others.”^[7]
• Option Two’s “Enhanced SFC Provision” would expand the basic provision to include “a prohibition on unilateral ‘restraints of trade’ [] intended to capture the broad range of anticompetitive conduct that may not fall within the currently restricted scope of federal law.”^[8] This provision is aimed at “defus[ing] the Sherman Act § 2’s singular focus on monopolistic behavior, with its high market thresholds and its decades of narrow interpretations and applications.”^[9]
• Option Three, labeled “‘Exclusionary Conduct’ Provision,” would entail “a clean break from existing federal SFC law and its decades of restrictive federal jurisprudence.”^[10] It uses “new terminology and a different analytical framework”^[11] and “draws on the ‘exclusionary conduct’ provision recommended by the SFC Working Group Report.”^[12] This provision would define unlawful SFC in terms of harm to a firm’s “trading partners” (customers or suppliers), rather than focusing primarily on harm to competition or consumers.

Each option would also incorporate proposed legislative findings and declarations intended to “explicitly untether[] California’s law from federal law and certain narrow precedents that might limit California’s ability to effectively control competition.”^[13] This seems to entail rejecting the holdings in, among others, Brooke Group,^[14] Trinko,^[15] and Amex.^[16]

Unfortunately, there are important reasons to believe that it would be unwise to untether California antitrust law from U.S. antitrust law’s error-cost framework, effects-based analysis, and consumer welfare standard. Abandoning these principles in favor of a more interventionist (or European-inspired) approach would likely chill innovation and harm consumers in the long run.^[17] Moreover, expanding antitrust enforcement to shield an idiosyncratic selection of rivals and other trading partners, rather than focusing on protecting competition and consumers, would risk politicizing enforcement and undermining economic efficiency. At the same time, incorporating monopsony (buyer-power) or novel “dominant buyer” considerations into an SFC rule absent a sound empirical and legal framework would be premature. There is currently a lack of consensus on such fundamental issues as market definition, competitive effects, and how to balance harms to workers versus consumers.^[18] Enshrining into law sweeping new prohibitions aimed at employer market power or other monopsonistic conduct before these complex economic and policy questions are resolved could be disastrous for California’s labor markets and broader economy.

II. The Risks of Untethering California Antitrust Law from Established US Antitrust Principles

The SFC Staff Memorandum indicates that California wishes to “free” itself from decades of restrictive jurisprudence by the U.S. federal courts. It would do so by nullifying rulings of the U.S. Supreme Court that limit its ability to find antitrust liability^[19] and by disavowing the error-cost framework’s preference for false negatives over false positives in antitrust analysis.^[20]

Of course, no one believes that markets are perfect, or that antitrust enforcement can never be appropriate. The question is, instead, marginal and comparative: Given the realities of politics, economics, the limits of knowledge, and the errors to which they can lead, which imperfect response is preferable at the margin? Or, phrased slightly differently, should we give California antitrust enforcers and private plaintiffs more room to operate, or should we continue to cabin their operation in careful, economically grounded ways that are aimed squarely at optimizing (not minimizing) the extent of antitrust enforcement?

Allegations that the modern antitrust regime is insufficient take as a given that there is something wrong with antitrust doctrine or its enforcement and cast about for policy “corrections.” The common flaw with these arguments is that they are not grounded in robust empirical or theoretical support.^[21] Indeed, as one of the influential papers that (ironically) is sometimes cited to support claims for more antitrust puts it:

An alternative perspective on the rise of [large firms and increased concentration] is that they reflect a diminution of competition, due to weaker U.S. antitrust enforcement. Our findings on the similarity of trends in the United States and Europe, where antitrust authorities have acted more aggressively on large firms, combined with the fact that the concentrating sectors appear to be growing more productive and innovative, suggests that this is unlikely to be the primary explanation, although it may be important in some industries.^[22]

Rather, such claims are little more than hunches that something must be wrong, conscripted to serve a presumptively interventionist agenda. Because they are merely hypotheses about things that could go wrong, they do not determine — and rarely even ask  — if heightened antitrust scrutiny and increased antitrust enforcement are actually called for in the first place.

Although it is fashionable to do so, by decrying the consequences of presumed antitrust under-enforcement, the SFC Staff Memorandum and the SFC Working Group Report shun the now-copious evidence demonstrating that U.S. markets have become more, not less, competitive.^[23] Instead, the documents present a woefully misguided implicit picture of the state of competition (and the effects of the past 50 years of enforcement policy) that, inexplicably, directly contradicts the assessment of one of the SFC Working Group Report’s authors himself:

[T]he empirical evidence relating to concentration trends, markup trends, and the effects of mergers does not actually show a widespread decline in competition. Nor does it provide a basis for dramatic changes in antitrust policy. To the contrary, in many respects the evidence indicates that the observed changes in many industries are likely to reflect competition in action.^[24]

The SFC Staff Memorandum’s proposal to tolerate erroneously condemning procompetitive behavior in exchange for avoiding the risk of erroneously accepting anticompetitive conduct^[25] presupposes that the risk of antitrust underenforcement is greater than the risk of overenforcement. Of course, it is possible that, in some markets, there are harms that are missed for which enforcers should have been better equipped. But advocates of reform have yet to adequately explain much of what we would need to know to make such determinations, let alone to craft the right approach if we did.

The claim that concern for Type I errors is overblown rests significantly on the assertion that “more up-to-date economic analysis” has identified new theories of harm that undermine that position.^[26] But that learning is, for the most part, theoretical — constrained to “possibility theorems” divorced from realistic complications and the real institutional settings of decision-making. For a wide swath of conduct called into question by these theories, the evidence of systematic problems is virtually nonexistent.^[27] Indeed, the proliferation of such theories may actually increase — rather than decrease — uncertainty by further complicating the analysis and asking generalist judges to choose from among competing theories without any realistic means to do so.^[28]

Moreover, contrary to the SFC Staff Memorandum’s implications, U.S. antitrust law has not ignored potentially anticompetitive harm, and courts certainly aren’t blindly deferential to conduct undertaken by large firms.^[29] It is impossible to infer from the general “state of the world” or from perceived “wrong” judicial decisions that the current antitrust regime has failed, or that California, in particular, would benefit from a wholesale shift of its antitrust error-cost presumptions.

The SFC Staff Memorandum seeks to overturn these presumptions by nullifying three pillars of U.S. antitrust law: the U.S. Supreme Court’s decisions in Trinko, Amex, and Brooke Group.^[30] As we explain in the following subsections, this approach is misguided on both legal and economic grounds.

III. Trinko Prevents Inefficient Free Riding that Risks Chilling Innovation

In dispensing with Trinko, the SFC Staff Memorandum would bring the Cartwright Act closer to the EU’s approach to refusals to deal. U.S. and EU antitrust laws differ greatly when it comes to refusals to deal, however, and for good reason. While the United States has imposed strenuous limits on enforcement authorities or rivals seeking to bring such cases, EU competition law sets a far lower threshold for liability, thereby facilitating free riding by self-interested parties.

The U.S. approach is firmly rooted in the error-cost framework and, in particular, the conclusion that avoiding Type I (false-positive) errors is more important than avoiding Type II (false-negative) errors. As the Supreme Court held in Trinko, “[enforced sharing] may lessen the incentive for the monopolist, the rival, or both to invest in those economically beneficial facilities. Enforced sharing also requires antitrust courts to act as central planners, identifying the proper price, quantity, and other terms of dealing — a role for which they are ill suited.”^[31]

U.S. antitrust law generally does not apply the “essential facilities” doctrine — indeed, as the Court held in Trinko, “we have never recognized such a doctrine.”^[32] Accordingly, in the absence of exceptional facts, upstream monopolists are rarely required to supply their product to downstream rivals, even if that supply is “essential” for effective competition in the downstream market.

As in most areas of antitrust policy, EU competition law is much more interventionist. Refusals to deal are a central theme of EU enforcement efforts, and there is a relatively low threshold for liability.^[33] In theory, for a refusal to deal to infringe EU competition law, it must meet a set of fairly stringent conditions: the input must be indispensable, the refusal must eliminate all competition in the downstream market, and there must not be objective reasons that justify the refusal.^[34] In practice, however, all of these conditions have been significantly relaxed by EU courts and the Commission’s decisional practice.^[35] This is best evidenced by the lower court’s Microsoft ruling.^[36] As John Vickers notes:

[T]he Court found easily in favor of the Commission on the IMS Health criteria, which it interpreted surprisingly elastically, and without relying on the special factors emphasized by the Commission. For example, to meet the “new product” condition it was unnecessary to identify a particular new product… thwarted by the refusal to supply but sufficient merely to show limitation of technical development in terms of less incentive for competitors to innovate.^[37]

The “coup de grace” to the limiting principles laid down in Bronner was arguably the European Court of Justice’s recent ruling in Android Auto, in which the court refused to apply Bronner in the context of digital platforms. The court discarded the indispensability criterion and found that mere convenience was sufficient to create an access obligation on the part of the dominant undertaking.^[38] In general, but especially after the Android Auto ruling, it is apparent that EU competition law is far less concerned about the potential chilling effect on firms’ investments than is U.S. antitrust law.

IV. Amex Correctly Updates Antitrust Law for Two-Sided Markets

In the face of evolving facts, procedural consistency and substantive accuracy require that legal doctrines change. Two-sided markets present novel business arrangements, the competitive dynamics and implications of which are incompletely captured by existing antitrust doctrines. In this context, the U.S. Supreme Court’s decision in Amex is uniquely important for the antitrust analysis of firms in the modern platform economy.^[39] In a nutshell, Amex held that, in cases involving two-sided markets, plaintiffs must show harm on both sides of the market.

The Memorandum attempts to reverse the Supreme Court’s holding on platform vertical restraints in Amex by positing instead that showing harm on only one side of a multi-sided market suffices to prove antitrust liability.^[40] As Greg Werden notes, however, “[a]lleging the relevant market in an antitrust case does not merely identify the portion of the economy most directly affected by the challenged conduct; it identifies the competitive process alleged to be harmed.”^[41]

Particularly where novel conduct or novel markets are involved — and the relevant economic relationships are therefore poorly understood — market definition is crucial to determine “what the nature of [the relevant] products is, how they are priced and on what terms they are sold, what levers [a firm] can use to increase its profits, and what competitive constraints affect its ability to do so.”^[42] This is the approach the Supreme Court employed in Amex.

The SFC Staff Memorandum’s proposal to overrule Amex in California is deeply misguided. The economics of two-sided markets are such that “there is no meaningful economic relationship between benefits and costs on each side of the market considered alone…. [A]ny analysis of social welfare must account for the pricing level, the pricing structure, and the feasible alternatives for getting all sides on board.”^[43] Assessing anticompetitive harm with respect to only one side of a two-sided market will arbitrarily include and exclude various sets of users and transactions and incorrectly assess the extent and consequences of market power.^[44]

Evidence of a price effect on only one side of a two-sided platform can be consistent with either neutral, anticompetitive, or procompetitive conduct.^[45] “Only when output is defined to incorporate the two-sidedness of the product, and where price and quality are assessed on both sides of a sufficiently interrelated two-sided platform, is it even possible to distinguish between procompetitive and anticompetitive effects.”^[46] In fact, “[s]eparating the two markets allows legitimate competitive activities in the market for general purposes to be penalized no matter how output-enhancing such activities may be.”^[47]

Notably, while some scholars have opposed the Amex holding that both sides of a two-sided market must be included in the relevant market in order to assess anticompetitive harm, some of these critics appear to note that the problem is not that both sides should not be taken into account at all, but only that they should not be included in the same relevant market (thus, permitting a plaintiff to make out a prima-facie case by showing harm to just one side).^[48] The language proposed in the SFC Staff Memorandum, however, would go even further, seemingly permitting a finding of liability based solely on harm to one side of a multi-sided market, regardless of countervailing effects on the other side.^[49]

As in the Amex case itself, such an approach would confer benefits on certain platform-business users (in Amex, merchants) at the direct expense of consumers (in Amex, literal consumers of retail goods purchased by credit card).

At a higher level, the Memorandum’s hostility toward the Amex ruling appears to be a function of a more generalized rebuke of current antitrust doctrine’s limited theories of harm from vertical integration.^[50] According to the Memorandum, federal antitrust law has been distorted by the misguided presumption that vertical arrangements and unilateral conduct are unlikely to harm competition.^[51] There are, however, sound empirical (to say nothing of theoretical^[52]) reasons why U.S. antitrust law treats vertical restraints more favorably than horizontal ones.

On the one hand, the Supreme Court’s permissive stance toward vertical restraints since Leegin^[53] is consistent with the overwhelming weight of the economic literature. As Patrick Rey & Jean Tirole saw as long ago as 1986: “Another major contribution of the earlier literature on vertical restraints is to have shown that per se illegality of such restraints has no economic foundations.”^[54]

Some theoretical literature (rooted again in “possibility theorems”) suggests firms can engage in anticompetitive vertical conduct. However, empirical evidence indicates that such conduct is rare and often has procompetitive or neutral effects. Innumerable studies have explored vertical integration and contractual arrangements, finding mostly positive or neutral outcomes.^[55] Accordingly, neither the change of stance toward vertical conduct nor the abandonment of Amex are justified on the basis of sound evidence.

V. Forfeiting Brooke Group Risks Castigating Procompetitive Conduct

There is a reason why the evidentiary bar for proving predatory pricing is so high: antitrust law encourages high output and low prices. Reflecting a proper reading of the error-cost framework, U.S. antitrust law errs on the side of underenforcement due to a justified concern that punishing low prices may deter precisely the sort of conduct that antitrust law is meant to promote. As such, the standard of proof for predatory pricing — i.e. claims of exclusionary conduct resulting from pricing below cost — is rightly set high. This is, in part, to dissuade self-interested plaintiffs who may look to shield themselves from a more efficient competitor.

In Brooke Group, the Supreme Court thus subjected allegations of predatory pricing to two strict conditions: 1) monopolists must charge prices that are below some measure of their incremental costs; and 2) there must be a realistic prospect that they will be able to recoup these first-period losses.^[56] In laying out its approach to predatory pricing, the Supreme Court identified the risk of false positives and the clear cost of such errors to consumers. It therefore particularly stressed the importance of the recoupment requirement because, without recoupment, “predatory pricing produces lower aggregate prices in the market, and consumer welfare is enhanced.”^[57]

Accordingly, under current U.S. law authorities must prove that there are constraints that prevent rival firms from entering the market after the predation scheme, or that the scheme itself would effectively foreclose rivals from entering in the first place.^[58] Otherwise, competitors would undercut the predator as soon as it attempts to charge supracompetitive prices to recoup its losses. In such a situation — without, that is, the strong likelihood of recouping the lost revenue from underpricing — the overwhelming weight of economic learning (to say nothing of simple logic) makes clear that predatory pricing is not a rational business strategy.^[59] Thus, apparent cases of predatory pricing (in the absence of the likelihood of recoupment) are most likely not, in fact, predatory. Deterring or punishing them would likely actually harm consumers.

Once again, the SFC Staff Memorandum attempts to approximate EU competition law,^[60] where the standard applied to predatory pricing is much stricter and therefore more likely to injure consumers. Authorities must prove only that a company has charged a price below its average variable cost, in which case its behavior is presumed to be predatory.^[61] Even when a firm imposes prices that are between average variable and average total cost, it can be found guilty of predatory pricing if authorities show that its behavior was part of “a plan to eliminate competition.”^[62] Most significantly, in neither case is it necessary for authorities to show that the scheme would allow the monopolist to recoup its losses.^[63]

By affirmatively dispensing with the limitations laid down in Brooke Group, the SFC Staff Memorandum effectively recommends that California legislators shift California predatory-pricing law toward the European model. Unfortunately, such a standard has no basis in economic theory or evidence — not even in the “strategic” economic theory that arguably challenges the dominant “Chicago School” understanding of predatory pricing.^[64] Indeed, strategic predatory pricing still requires some form of recoupment and the refutation of any convincing business justification offered in response.^[65] As Bruce Kobayashi & Tim Muris emphasize, the introduction of new possibility theorems, particularly uncorroborated by rigorous empirical reinforcement, does not necessarily alter the implementation of the error-cost analysis:

While the Post-Chicago School literature on predatory pricing may suggest that rational predatory pricing is theoretically possible, such theories do not show that predatory pricing is a more compelling explanation than the alternative hypothesis of competition on the merits. Because of this literature’s focus on theoretical possibility theorems, little evidence exists regarding the empirical relevance of these theories. Absent specific evidence regarding the plausibility of these theories, the courts… properly ignore such theories.^[66]

The case of predatory pricing illustrates a crucial distinction between European and American competition law. The recoupment requirement embodied in U.S. antitrust law essentially differentiates aggressive pricing behavior that improves consumer welfare by leading to overall price decreases from predatory pricing that reduces welfare due to ultimately higher prices. In other words, it is entirely focused on consumer welfare.

The European approach, by contrast, reflects structuralist considerations that are far removed from a concern for consumer welfare. Its underlying fear is that aggressive pricing by dominant companies — even to the benefit of consumers — could, by their very success, engender more concentrated market structures. It is simply presumed that these less-atomistic markets are invariably detrimental to consumers. Both the Tetra Pak and France Télécom cases (and the recent Qualcomm judgment) offer clear illustrations of the European Court of Justice’s reasoning on this point.^[67]

In short, the European approach leaves much less room for analysis of a pricing scheme’s concrete effects, making it much more prone to false positives than the Brooke Group standard in the United States. It ignores not only the benefits that consumers may derive from lower prices, but also the chilling effect that broad predatory-pricing standards may exert on firms that attempt to attract consumers with aggressive pricing schemes. There is no basis for enshrining such an approach in California law.

VI. The Broken Mirror of Monopoly and Monopsony Power

The potential amendments described in the SFC Staff Memorandum suggest that antitrust law has traditionally obviated monopsony power.^[68] They also appear to assume that there is no reason to treat monopsony power any differently than monopoly power; indeed, in many parts of the SFC Staff Memorandum, “monopoly” and “monopsony” are placed on equal footing.^[69]

There are, however, important differences between monopoly and monopsony power that militate against their equivalent treatment under antitrust law. Indeed, despite the growing interest among economists, lawyers, and policymakers in the concept of monopsony power — particularly in labor markets — significant empirical and conceptual challenges remain in the use of antitrust law to address labor monopsony.

On the empirical front, the evidence on the extent and impact of labor monopsony is mixed.^[70] While some studies have found evidence of labor-market concentration and its effects on wages, these studies often rely on indirect measures that have limited applicability to antitrust cases. More direct estimates of monopsony power are rare and often rely on stylized economic models that may not capture the complexities of real-world labor markets.^[71] Moreover, the economics literature has not reached a clear consensus on the appropriate framework to assess labor-market power in antitrust contexts.^[72]

Conceptual challenges also abound. Unlike monopoly (seller power), which directly affects final consumer prices, monopsony power is exerted upstream (e.g. an employer paying lower wages, or a buyer paying lower input prices). This means any assessment of competitive harm must grapple with effects at multiple levels of the supply chain. For instance, if a dominant buyer (like a large employer) uses its power to push wages down, while there is direct harm to workers, downstream consumers might benefit, at least in part, from lower prices (due to the firm’s lower costs). Traditional antitrust doctrine and existing enforcement tools are not (yet) well-equipped to balance these cross-market effects.^[73]

As a result, when applying antitrust law to monopsony situations, policymakers must consider the “pass through” of upstream cost savings to downstream prices. This complexity is not present in-run-of-the-mill monopoly cases. There is also no established consensus on how to weigh a dollar of harm to workers against a dollar of benefit to consumers, or how much pass through might be sufficient to offset a monopsony harm. This is an area of ongoing economic debate, which is one reason courts have been cautious in pure labor-monopsony cases.^[74]

Crucially, there remains no clear legal standard for how to treat harms to workers or suppliers vis-à-vis consumers under the antitrust laws. Under the prevailing consumer welfare standard, antitrust plaintiffs must typically show that the challenged conduct harms consumers or overall competition, not just that it harms a subset of suppliers or workers. In practice, this has meant that cases purely alleging harm to workers (like wage-fixing or no-poach agreements) often struggle unless they can connect that harm to reduced output or quality in a consumer market.

Changing the law to explicitly recognize harm to workers as sufficient by itself would be a major departure from the consumer welfare principle, essentially redefining the goal of antitrust. If California were to outlaw SFC that harms workers (e.g. wage suppression) without regard to consumer impact, it would need to confront how to trade off these interests. Should a practice that moderately harms workers but greatly benefits consumers be unlawful, or vice versa? There is no consensus on this normative question. The SFC Staff Memorandum does not provide an answer, and neither does the academic literature on the topic.

Defining the relevant labor or input market also poses thorny issues. Defining a labor market involves drawing boundaries around job types, skills, industries, and geographic areas, which can be highly “blurry” and fact dependent. Is an assembly-line worker at a grocery warehouse in the same market as an assembly-line worker at a car factory? Does a tech engineer in San Francisco compete in the same labor market as one in Los Angeles or Bangalore? These questions illustrate why labor markets do not always map neatly onto product markets, and why antitrust law’s conventional tools may not translate cleanly.

Given these uncertainties, it would be premature to explicitly incorporate monopsony considerations into a new SFC. This is not to say antitrust should ignore labor issues entirely — rather, the state of economic knowledge militates against a rush to condemn conduct based on simplistic models or incomplete evidence.^[75] While concerns about labor monopsony are real and worth studying, “they are not supported by empirical and theoretical foundations sufficient to bear the weight of these galvanized efforts” at aggressive enforcement.^[76]

Furthermore, remedies for monopsony are not straightforward. In monopoly cases, a successful suit can result in lower prices for consumers or structural changes that foster competition. In monopsony (e.g. labor) cases, a remedy might involve raising wages. But regulators must ensure that such remedies don’t unintentionally harm downstream consumers or induce other distortions. There’s also the question of whether antitrust is the optimal tool: labor issues can often be addressed by labor-specific regulation (minimum-wage laws, collective-bargaining rights, job-mobility policies like noncompete-clause bans), which may target the problem more directly than antitrust litigation could.

All of this suggests that California should not jump ahead of the evolving research and federal enforcement efforts by embedding unproven monopsony theories into its law. At this juncture, developing better measures of labor-market power, studying specific instances of monopsony harm, refining economic models, and clarifying enforcement priorities would be more productive policy avenues.

VII. Protecting ‘Trading Partners’ Instead of Consumers

Protecting “trading partners” — defined as “parties with which the defendant deals, either as a customer or supplier” — has attracted growing interest in antitrust law in recent years.^[77] While this approach may reflect legitimate concerns about power imbalances, it risks undermining the coherence, neutrality, and effectiveness of antitrust enforcement centered on the consumer welfare standard.

The consumer welfare standard, long the cornerstone of U.S. antitrust policy, focuses on such economic outcomes as lower prices, higher output, improved quality, and innovation. It offers a relatively objective and administrable framework for courts and agencies.^[78] In contrast, protecting trading partners introduces a pluralistic and often conflicting set of aims. Suppliers may benefit from higher input prices, while consumers suffer; protecting business customers may enhance their profits, but at the expense of costs to consumers. These tradeoffs make it difficult to formulate a consistent enforcement standard.

One major risk is the politicization of antitrust law. Antitrust law depends on a stable and principled basis for meaningful and effective enforcement. Broadening its purpose to protect trading partners opens the door to more discretionary and potentially more politicized decision-making. Imbuing antitrust with open-ended objectives would risk creating a sort of “meta-legislation” that, as a result, increases the returns to influencing enforcement policy and outcomes. In turn, this raises firms’ incentives to expend their resources on “destructive” rather than “productive” entrepreneurship — i.e. rent seeking.^[79]

Another major risk that flows from the politicization of antitrust relates to protecting inefficient firms at the expense of consumer welfare. Protecting the fortunes of firms under the rubric of “trading partner welfare” may provide a lifeline to less-efficient firms, who may be encouraged to acquire through litigation what they could not through competition.^[80] But antitrust law is not meant to insulate businesses from competition simply because they are small or disadvantaged — quite the contrary. Under a trading-partner theory, enforcement actions could target practices like aggressive pricing or exclusive dealing — not because they harm competition, but because they harm specific upstream or downstream partners. This would represent a dramatic and unjustified break from established antitrust principles.

Finally, incorporating trading-partner protection into antitrust enforcement risks conflating it with other legal domains better suited to address such concerns. Contract law and regulatory policy already provide avenues to address imbalances in supplier or customer relationships. Antitrust law is “comparatively disadvantaged” to adjudicate questions in these legal domains, especially when such cases involve difficult questions that may prejudice consumer welfare.

To be clear, existing antitrust frameworks that protect consumers are often perfectly adequate to address practices that may also harm trading partners. For instance, the rule-of-reason analysis under antitrust law frequently incorporates considerations on trading partners when consumer harm is also present. Expanding the scope of antitrust to protect trading partners in isolation would dilute its doctrinal rigor and increase the risk of regulatory and judicial overreach.^[81]

Reorienting antitrust law around the protection of trading partners may appear appealing when combined with (misguided) perceptions about rising corporate concentration.^[82] Besides lacking a solid empirical basis, however, such a shift would destabilize the objective foundation of antitrust enforcement, politicize regulatory discretion, and entangle antitrust with redistributive aims, rather than policing inefficient conduct that harms consumers. A more prudent approach would retain the consumer welfare standard while using complementary policies — such as tax reforms or contract law — to address broader concerns.

VIII. Conclusion

Antitrust law can and should evolve to address modern economic realities. That evolution must, however, be informed by rigorous analysis and respect for the lessons learned over decades of antitrust enforcement. To achieve this, antitrust law and enforcement policy should, above all, continue to adhere to the error-cost framework, which informs antitrust decision-making by comparing the relative costs of mistaken intervention with mistaken nonintervention. The overall stance should be one of restraint, reflecting the state of our knowledge.^[83] We may well be able to identify novel anticompetitive theories of harm in certain cases, and when we do, we should enforce the current laws. But we should not overestimate our ability to fine-tune market outcomes without causing more harm than benefit. Once antitrust is expanded beyond its economic constraints it inevitably becomes imbued with political content and ceases to be a uniquely valuable tool for addressing real economic harms to consumers.

[2] Cal. Bus. & Prof. Code §§ 16700, et seq.

[3] Aaron Edlin, Doug Melamed, Sam Miller, Fiona Scott Morton & Carl Shapiro, Single-Firm Conduct Working Group Report, Calif. Law Revision Comm’n Study of Antitrust Law B-750 (Jan. 25, 2024), available at https://www.clrc.ca.gov/pub/Misc-Report/ExRpt-B750-Grp1.pdf [hereinafter “SFC Working Group Report”].

[4] Available at https://drive.google.com/drive/folders/12RUtXddI3-BRREOmYPN7eCQoUjlcs6kt.

[5] Available at Antitrust Law – Study B-750, CLRC (last revised Apr. 7, 2025), https://clrc.ca.gov/B750.html.

[6] Draft Language for Single Firm Conduct Provision, Calif. Law Revision Comm’n Study of Antitrust Law B-750, Staff Memorandum 2025-21 (Mar. 24, 2025), available at https://clrc.ca.gov/pub/2025/MM25-21.pdf [hereinafter “SFC Staff Memorandum”].

[7] Ibid. at n. 7.

[8] Ibid. at 4.

[9] Ibid.

[10] Ibid. at 5.

[11] Ibid.

[12] Ibid.

[13] Ibid. at 3.

[14] Brooke Group v. Brown & Williamson Tobacco, 509 U.S. 209 (1993).

[15] Verizon Communications v. Law Offices of Curtis v. Trinko, 540 U.S. 398 (2004).

[16] Ohio v. American Express Co. (“Amex”), 585 U.S. 529 (2018).

[17] See Geoffrey Manne & Dirk Auer, Against the ‘Europeanization’ of California’s Antitrust Law, Comments of the Int’l Center for Law & Econ. on the Single-Firm-Conduct Expert Report, submitted to the Calif. Law Revision Comm’n Study of Antitrust Law B-750 (May 7, 2024), available at https://laweconcenter.org/resources/against-the-europeanization-of-californias-antitrust-law.

[18] See Geoffrey A. Manne, Brian C. Albrecht & Dirk Auer, Labor Monopsony and Antitrust Enforcement: A Distorting Mirror, 74 DePaul L. Rev. 1119 (2025).

[19] SFC Staff Memorandum, supra note 6, at 12-13.

[20] Ibid. at 11.

[21] The same goes for arguments that markets have failed us in ways that go beyond the competition concerns central to well-established antitrust policy. Among other things, the SFC Working Group Report leading up to the SFC Staff Memorandum argued that antitrust should be used to address purported policy concerns broader than protecting competition and should accept reductions in competition to do so. See SFC Working Group Report, supra note 3, at 2 (“Nonetheless, these important values [‘broader social and political goals’] can influence the evidentiary standards that the Legislature instructs the courts to apply when handling individual antitrust cases. For example, the California Legislature could instruct the courts to err on the side of enforcement when the effect of the conduct at issue on competition is uncertain.”). But as one of the authors of the SFC Working Group Report has noted elsewhere, “while antitrust enforcement has a vital role to play in keeping markets competitive, antitrust law and antitrust institutions are ill suited to directly address concerns associated with the political power of large corporations or other public policy goals such as income inequality or job creation.” Carl Shapiro, Antitrust in a Time of Populism, 61 Int’l J. Indus. Org. 714, 714 (2018).

[22] David Autor, David Dorn, Lawrence F. Katz, Christina Patterson & John Van Reenen, The Fall of the Labor Share and the Rise of Superstar Firms, 135 Q.J. Econ. 645, 651 (2020) (emphasis added).

[23] See e.g. C. Lanier Benkard, Ali Yurukoglu & Anthony Lee Zhang, Concentration in Product Markets, Working Paper (Sep. 2023), at 5 (finding that “the vast majority of U.S. product markets are highly unconcentrated and therefore likely to be fairly competitive” and that “the decreases in concentration over time are broad-based”); id. (“If we were to take seriously the concentration measures computed from the Census, then one conclusion would be that the scope for antitrust policy in the U.S. is likely very narrow, regardless of its upward trend.”); Sharat Ganapati, Growing Oligopolies, Prices, Output, and Productivity, 13 Am. Econ. J. Micro. 309, 323-24 (2021) (“[C]oncentration increases do not correlate to price hikes and correspond to increased output. This implies that oligopolies are related to an offsetting and positive force — these oligopolies are likely due to technical innovation or scale economies. My data suggest that increases in market concentration are strongly correlated with innovations in productivity.”); Chang-Tai Hsieh & Esteban Rossi-Hansberg, The Industrial Revolution in Services, 1 J. Pol. Econ. Macro. 3 (2023) (“Market concentration at the local level has decreased in all US cities, particularly in cities that were initially small. These facts are consistent with the availability of new fixed-cost-intensive technologies that yield lower marginal costs in service sectors. The entry of top service firms into new local markets has led to substantial unmeasured productivity growth, particularly in small markets.”); David Berger, Kyle Herkenhoff & Simon Mongey, Labor Market Power, 112 Am. Econ. Rev. 1147, 1148-49 (2022) (finding that most labor markets are more competitive today than they were in the 1970s).

[24] Carl Shapiro & Ali Yurukoglu, Trends in Competition in the United States: What Does the Evidence Show?, J. Pol. Econ. Micro., forthcoming (accepted Oct. 10, 2024), at 1.

[25] See SFC Staff Memorandum, supra note 6, at 11 (proposing the adoption of a provision holding that “California favors the risk of over-enforcement of antitrust laws over the risk of under-enforcement”).

[26] Herbert J. Hovenkamp & Fiona Scott Morton, Framing the Chicago School of Antitrust Analysis, 168 U. Penn. L. Rev. 1843, 1849 (2020).

[27] See Bruce H. Kobayashi & Timothy J. Muris, Chicago, Post-Chicago, and Beyond: Time to Let Go of the 20th Century, 78 Antitrust L.J. 147, 166 (2012).

[28] See Geoffrey A. Manne, Error Costs in Digital Markets, in Global Antitrust Report in the Digital Economy 33, 75-76 (Joshua D. Wright & Douglas H. Ginsburg eds., 2020), available at https://gaidigitalreport.com/wpcontent/uploads/2020/11/Manne-Error-Costs-in-Digital-Markets.pdf.

[29] This (erroneous) assertion is also put forward directly in the SFC Working Group Report. See SFC Working Group Report, supra note 3, at 7 (“The history of federal antitrust enforcement of single-firm conduct illustrates that when courts are uncertain about how to assess conduct, they often find in favor of defendants even if the conduct harms competition simply because the plaintiff bears the burden of proof.”).

[30] See SFC Staff Memorandum, supra note 6, at 12.

[31] Trinko, 540 U.S. at 408.

[32] Ibid. at 411. See also Phillip Areeda, Essential Facilities: An Epithet in Need of Limiting Principles, 58 Antitrust L.J. 841 (1989).

[33] See Joined Cases 6/73 & 7/73, Instituto Chemioterapico Italiano S.p.A. and Commercial Solvents Corporation v. Comm’n, 1974 E.C.R. 223, [1974] 1 C.M.L.R. 309.

[34] See Case C-7/97, Oscar Bronner GmbH & Co. KG v. Mediaprint Zeitungs, EU:C:1998:569, §41.

[35] See Niamh Dunne, Dispensing with Indispensability, 16 J. Comp. L. & Econ. 74 (2020).

[36] Microsoft v. Commission, T-201/04 [2007].

[37] John Vickers, Competition Policy and Property Rights, 120 Econ. J. 375, 390 (2010).

[38] Case C-233/23 Alphabet Inc. and Others v. Autorità Garante della Concorrenza e del Mercato (Android Auto) ECLI:EU:C:2025:110, §40, 52.

[39] Amex, 585 U.S. at 529.

[40] SFC Staff Memorandum, supra note 6, at 13.

[41] Gregory J. Werden, Why (Ever) Define Markets? An Answer to Professor Kaplow, 78 Antitrust L.J. 729, 741 (2013).

[42] Geoffrey A. Manne, In Defence of the Supreme Court’s ‘Single Market’ Definition in Ohio v. American Express, 7 J. Antitrust Enforcement 104, 106 (2019).

[43] David S. Evans, The Antitrust Economics of Multi-Sided Platform Markets, 20 Yale J. Reg. 325, 355-56 (2003). See also Jean-Charles Rochet & Jean Tirole, Platform Competition in Two-Sided Markets, 1 J. Eur. Econ. Ass’n 990, 1018 (2003).

[44] See e.g. Michal S. Gal & Daniel L. Rubinfeld, The Hidden Cost of Free Goods, 80 Antitrust L.J. 521, 557 (2016)

[45] See e.g. Manne, supra note 42, at 110.

[46] Ibid.

[47] United States et al. v. Am. Express Co. et al., 838 F.3d 179, 198 (2nd Cir. 2016).

[48] See e.g. Michael Katz & Jonathan Sallet, Multisided Platforms and Antitrust Enforcement, 127 Yale L.J. 2142, 2161 (2018) (“[I]t is essential to account for any significant feedback effects and possible changes in prices on both sides of a platform when assessing whether a particular firm has substantial market power.”).

[49] See SFC Staff Memorandum, supra note 6, at 13.

[50] Part of a broader, recent trend that is without merit. See Geoffrey A. Manne, Kristian Stout & Eric Fruits, The Fatal Economic Flaws of the Contemporary Campaign Against Vertical Integration, 68 Kansas L. Rev. 923 (2020) (“In general, this more ‘political’ opposition to vertical restraints and vertical integration… ignores the basic economics of the firm and longstanding concepts like joint production, information costs, asset specificity, and entrepreneurial judgment, which can lead to advantages for consumers and for competition from the adoption of superficial market restraints, including the vertical integration of some — but not other — input and output providers.”).

[51] Ibid. at 11.

[52] See generally Manne, Stout & Fruits, supra note 50.

[53] Leegin Creative Leather Prods. Inc. v. PSKS, Inc., 551 U.S. 877 (2007).

[54] Patrick Rey & Jean Tirole, The Logic of Vertical Restraints, 76 Am. Econ. Rev. 921, 937 (1986).

[55] These papers are collected in several literature reviews including: Francine Lafontaine & Margaret Slade, Exclusive Contracts and Vertical Restraints: Empirical Evidence and Public Policy, in Handbook of Antitrust Economics (Paolo Buccirossi ed., 2008); James C. Cooper, Luke M. Froeb, Dan O’Brien & Michael G. Vita, Vertical Antitrust Policy as a Problem of Inference, 23 Int’l J. Indus. Org. 639, 641 (2005); Global Antitrust Institute, Comment Letter on Federal Trade Commission’s Hearings on Competition and Consumer Protection in the 21st Century, Vertical Mergers 8, Geo. Mason L. & Econ. Research Paper No. 18-27 (Sep. 6, 2018). Even reviews meant to condemn vertical restraints are often able to muster only fairly mild criticism. See, e.g. Marissa Beck & Fiona Scott Morton, Evaluating the Evidence on Vertical Mergers 59 Rev. Indus. Org. 273, 274, 298 (2021) (stating that “[w]e readily agree that many vertical mergers are harmless or procompetitive, but that is a far weaker statement than presuming that all or even most vertical mergers benefit competition regardless of market structure,” and concluding not that vertical restraints are problematic, but that “[m]ore research in this area would be very useful to policymakers and enforcers”).

[56] Brooke Group, 509 U.S. at 222-27.

[57] Ibid. at 224.

[58] See e.g. Steven C. Salop, Strategic Entry Deterrence, 69 Am. Econ. Rev. 335 (1979).

[59] See generally John S. McGee, Predatory Pricing Revisited, 23 J. L. Econ 289 (1980).

[60] SFC Staff Memorandum, supra note 6, at 13-14.

[61] Case C-62/86, AKZO v. Comm’n, EU:C:1991:286, ¶¶ 71-72.

[62] Ibid. at ¶ 72 (“[P]rices below average total costs, that is to say, fixed costs plus variable costs, but above average variable costs, must be regarded as abusive if they are determined as part of a plan for eliminating a competitor.”).

[63] Case C-333/94 P, Tetra Pak v. Comm’n, EU:C:1996:436, ¶ 44. See also, Case C-202/07 P, France Télécom v. Comm’n, EU:C:2009:214, ¶ 110.

[64] Ibid. at ¶ 107.

[65] See Patrick Bolton, Joseph F. Brodley & Michael H. Riordan, Predatory Pricing: Strategic Theory and Legal Policy, 88 Geo. L. J. 2239 (2000).

[66] Kobayashi & Muris, supra note 27 (emphasis added).

[67] Tetra Pak, supra note 63, at ¶ 44 (“It must be possible to penalize predatory pricing whenever there is a risk that competitors will be eliminated…. The aim pursued, which is to maintain undistorted competition, rules out waiting until such a strategy leads to the actual elimination of competitors.”). See also Case T-671/19 Qualcomm, Inc. v. European Commission ECLI:EU:T:2024:626 ¶¶ 441 & 594.

[68] See SFC Staff Memorandum, supra note 6, at n. 7.

[69] See e.g. id. at 2.

[70] See generally Manne, Albrecht & Auer, supra note 18, at 1129-41.

[71] See id. at 1136-41.

[72] See id. at 1124.

[73] See id. at 1119.

[74] See e.g. Kartell v. Blue Shield of Mass. Inc., 749 F.2d 922 (1st Cir. 1984).

[75] See Manne, Albrecht & Auer, supra note 18, at 1132 (discussing some of the implausible implications of (the widely varying) estimates of labor-market power).

[76] Ibid. at 1123.

[77] SFC Staff Memorandum, supra note 6, at 6.

[78] See Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979).

[79] See generally William J. Baumol, Entrepreneurship: Productive, Unproductive, and Destructive, 98 J. Pol. Econ. 893 (1990).

[80] Empirical literature has shown that significant, indirect effects of regulation may arise from the asymmetrical distribution of regulatory effect among different types of firms or workers, and that regulation can be a predatory device used to enhance the wealth of predators and to reduce the wealth of rivals. See Ann P. Bartel & Lacy G. Thomas, Predation through Regulation: The Wage and Profit Effects of the Occupational Safety and Health Administration and the Environmental Protection Agency, 30 J. L. & Econ. 239 (1987).

[81] See Shapiro, supra note 21.

[82] See supra notes 22-24 and accompanying text.

[83] See Robert W. Crandall & Clifford Winston, Does Antitrust Policy Improve Consumer Welfare? Assessing the Evidence, 17 J. Econ. Persp. 3, 4 (2003) (“[T]he economics profession should conclude that until it can provide some hard evidence that identifies where the antitrust authorities are significantly improving consumer welfare and can explain why some enforcement actions and remedies are helpful and others are not, those authorities would be well advised to prosecute only the most egregious anticompetitive violations.”).