Geoffrey A. Manne headshot

President and Founder

Geoffrey A. Manne is president and founder of the International Center for Law and Economics (ICLE), a nonprofit, nonpartisan research center based in Portland, Oregon. He is also a distinguished fellow at Northwestern University’s Center on Law, Business, and Economics. Previously he taught at Lewis & Clark Law School. Prior to teaching, Manne practiced antitrust law at Latham & Watkins, clerked for Hon. Morris S. Arnold on the 8th Circuit Court of Appeals, and worked as a research assistant for Judge Richard Posner. He was also once (very briefly) employed by the FTC. Manne holds AB & JD degrees from the University of Chicago.

Antitrust

Popular Media

If A Tree Falls in a Forest and Nobody Hears It, Did the Bush Antitrust Division Cut It Down?

The NYT ran an unsigned editorial on “Intel and Competition” that, quite frankly, doesn’t make much sense to us.  It offers two basic arguments: (1) that the Bush administration DOJ is responsible for the state of Section 2 law requirement that plaintiffs demonstrate actual consumer harm, and (2) that foreign antitrust jurisdictions’ pursuit of enforcement actions against Intel’s loyalty rebates suggests that the failure of the Federal Trade Commission to do so is a failure of the Bush administration to enforce the antitrust laws to protect consumers.

Both arguments are wrong, but the first is either especially disingenuous or very confused.

The first mistake is evidenced by this confusing statement about the relationship between the tough standards imposed on plaintiffs under Section 2 and the Bush administration DOJ’s Section 2 Report:

In the Bush administration’s view, to get in trouble a monopolist must do worse than use unfair methods to undermine a competitor. Regulators must usually prove that consumers were directly hurt, typically through high prices. When the wrongdoing is to offer a client conditional rebates — meaning lower prices — that can be especially hard to prove.  That view of consumer harm is too restrictive. It often seems to ignore the fact that a dominant firm that uses unfair tactics to marginalize its rivals deprives consumers of choice, another form of harm. Without competitors there is no competition. Without competition there is no incentive for innovation, or to reduce prices.

The Obama administration has a different view. The Justice Department’s antitrust division has rescinded Bush administration guidelines intended to shield monopolies from antitrust accusations. The F.T.C. is also likely to be more active under its new chairman, Jon Leibowitz. He is already considering pursuing future antitrust cases with a little-used provision of antitrust law that directly outlaws unfair methods of competition. The American economy cannot thrive without antitrust laws. It is time to start enforcing them.

First, lets begin with the obvious point that “that view” of consumer harm is not just the Bush administration’s view bent to help out its monopolist buddies; its the law, developed over years, many of those years transcending the Bush administration and much of that development at the hands of Supreme Court and lower court judges from appointed by presidents from both parties.

Next, lets turn to another disturbing tension in this argument.  Lets get this straight: the NYT simultaneously laments the Bush DOJ’s failure to bring Section 2 cases (indeed, to enforce the antitrust laws altogether) and yet blames it for the state of Section 2 law.  Huh?  If they didn’t bring any cases, and didn’t move the law in any particular direction by inviting federal courts to interpret Section 2, how can the Bush DOJ be responsible for the state of the law?  The truth is that the Section 2 law that the NYT op-ed complains about is pretty well established doctrine and the DOJ has very little to do with its evolution in the federal courts which has largely been driven by suits from private plaintiffs.

This isn’t just a rhetorical point.  A fundamental issue underlying the new administration’s desire to bring monopolization cases is that the agencies will run into the tough standards in Section 2 which have evolved over time in federal courts.  Whatever one thinks about the portions of the Section 2 Report where the DOJ endorses various tests over other alternatives, it is more than fair to say that the Report offers a comprehensive and accurate summary of Section 2 law.  If that point is overlooked by the agencies, and it won’t be, because both agencies are interested in winning cases not just bringing them, they may quickly learn about the difference between activity level and success.

But the bottom line is that it is a nonsensical argument to assign either the credit or blame for the state of Section 2 law to the outgoing Antitrust Division.

On a related note, the NYT also claims that the Intel case provides the FTC an opportunity to finally enforce the antitrust laws that they’ve ignored over the last eight years.  I imagine that the folks at the FTC will be surprised to learn that they’ve been asleep behind the wheel for nearly a decade.  But more importantly, it should be noted that the Commission has had the votes to bring the Intel case if they so please for quite some time.   But they haven’t.  I suspect the state of Section 2 law on discounting and exclusive dealing has something to do with that.  Now, I’m on the record here as saying that I believe the EU enforcement action does make it more likely that the FTC will get involved with Intel in one way or another.   I’ll stand by that largely because I think the current Commission and DOJ, with various statements and commitments made in speeches and such, have committed themselves to bringing some high profile Section 2 cases.  But if this case was a no-brainer under Section 2 law, the complaint would already be filed.  Of course, the Commission has been talking quite a bit about Section 5 as a route to avoid the rigorous proof requirement of monopolization law….

The second mistake, pointing to decisions in foreign jurisdictions to bring cases under completely different antitrust standards, is an example of conflating activity level with success in an especially peculiar way.  Moreover, counting jurisdictions is an especially analytically lazy approach to identifying desirable monopolization enforcement because analyzing the welfare effects of single firm conduct is an especially difficult problem that deserves a more serious approach.  If one is to believe it is sound policy to sacrifice the obvious benefits that accrue to consumers from lower prices created by loyalty rebates in exchange for future gains associated with preventing higher prices tomorrow, consumers who are losing those gains today deserve a more rigorous explanation than “other jurisdictions are doing it,” don’t they?  But, one might ask, doesn’t evidence that foreign jurisdictions have found something wrong with Intel’s loyalty rebates provide some probative value for whether that conduct is illegal under Section 2 law?  The answer is no.  Antitrust analysis in those jurisdictions, while sometimes peppered with language about consumer welfare and effects-based methodologies, is quite different than under US law where the proof requirement of consumer harm is much more rigorous.  This is not merely a difference of degree.  It is a difference in mode of analysis.  The fact that other jurisdictions have brought suits is inapposite when it comes to an appropriate antitrust analysis of Intel or any other single firm conduct case in the U.S.

Posted in antitrust, business, economics, federal trade commission