False Positives, Real Casualties: The High Price of Populist Antitrust
Spirit Airlines was supposed to be the “maverick” antitrust saved from JetBlue. Instead, the deal died, Spirit followed it into bankruptcy, and the maverick exited the market altogether. That is an awkward result for a merger challenge brought in the name of preserving competition—and a useful place to start a broader reconsideration of error costs.
A growing share of scholars, advocates, and policymakers now rejects much of conventional antitrust doctrine and method. They argue that this framework enabled the rise of purported digital monopolies in platform markets and contributed to a broader, purported decline in competition.
Among the favorite targets is the “error-cost” principle: the view that the costs of antitrust overenforcement typically exceed the costs of underenforcement, in part because market forces tend, over time, to compete away inefficient practices. If that proposition is correct, regulators and courts should hesitate before condemning business practices as antitrust violations without compelling evidence of anticompetitive harm. Much of federal antitrust case law reflects this prudential approach.
Critics of the error-cost principle have offered little by way of hard numbers to show the competitive harms supposedly caused by caution in antitrust enforcement and adjudication. Nor have they seriously grappled with the countervailing costs of overenforcement. Even so, competition agencies in the United States, European Union, and United Kingdom have made significant interventions and pursued far-reaching remedies on this theory, brushing aside concerns about false diagnoses of anticompetitive maladies.
In the antitrust equivalent of Silicon Valley’s “move fast and break things,” agencies have been especially eager to block mergers based on inherently conjectural theories of potential future harm. Debates over whether such challenges are premature rarely yield clear answers at the time, precisely because they require crystal-ball predictions about future market trajectories. But now that critics of conventional antitrust have led several major competition agencies around the world, we have some accumulated evidence to inform the policy debate.
That evidence casts doubt on the merger-review strategy of “challenge first, ask questions later,” and on the assumption that false-positive error costs can be ignored or heavily discounted. It now appears that several recent merger challenges by U.S., EU, and U.K. regulators destroyed significant economic value—often accompanied by substantial losses in employment and related business activity—without any clear improvement in competitive conditions. In at least one case, those conditions worsened.