//  1/5/19  //  In-Depth Analysis

Take Care is pleased to present a series of posts offering thoughts on how Congress might address key issues in antitrust law.

By Marshall Steinbaum | Roosevelt Institute 

In the summer of 2017, Congressional Democrats announced their “Better Deal” agenda, both reflecting and triggering renewed interest in antitrust as an economic policy tool. In the Congress just concluded, several new bills gave life to that commitment.  Now that Democrats won a majority in the House of Representatives in the 116th Congress, it’s likely that further legislative interest in the substance of antitrust enforcement will be forthcoming, and Congress may even pass such legislation.

With that in mind, what should such legislation contain? Below are some ideas to guide lawmakers who may be considering what they can do to update and strengthen the federal antitrust laws after decades of neglect and decrepitude at the hands of the judiciary.

Antitrust and Labor

One of the areas where the public debate on antitrust has grown loudest is over the question of whether the consumer welfare standard, the restriction on ‘cognizable’ harm to competition within the meaning of the antitrust laws, has blinded enforcers and courts to the potential for anti-competitive harm in labor markets. The interest in antitrust as a policy tool in labor markets arises from a growing body of research that shows that employers exercise significant market power over workers, and that they use that power to reduce wages, segregate workers from the profits they produce, and impose restrictions on their mobility and job quality that in turn worsen the power imbalance. Since antitrust enforcement has come to hinge on proving price effects for consumers as evidence of harm to competition, so the argument goes, antitrust overlooks harm to competition in labor markets. 

A major part of the 115th Congress’s interest in antitrust legislation was directed at remedying this imbalance, but Congress should go even further. Here are suggestions building on those past proposals and augmenting them in response to the increased body of evidence of employer power and its use in violation of the principles under which Congress enacted the antitrust laws.

  • Congress should make clear that the antitrust laws protect competition in both labor markets and product markets, and that documenting increases in consumer prices is **not** necessary to prove harm to competition within the meaning of the antitrust laws.
  • Reductions in wages, wage shares (as a percentage of firm revenue), employment, hiring, or job quality should be evidence of harm to competition within the meaning of the antitrust laws and cannot be traded off or weighed against price or output effects in antitrust analysis.
  • It has become standard for antitrust analysis to include a component in which defendants can claim that whatever conduct, merger, or market structure is being challenged as harmful to competition has countervailing economic benefits in the form of “efficiencies.” The scope for such efficiencies claims has been narrowed in some recent cases, for example in the Justice Department’s successful cases against the merger of the health insurers Aetna and Humana and Anthem and Cigna. But Congress should go further: no “efficiencies” defense that would have the effect of increasing employer power in labor markets if the claim were true should be admissible.
  • Both noncompete clauses (restrictions on workers barring them from working for their employer’s competitors) and no-poaching agreements (agreements between employers not to hire one another’s workers) have been a target of legislators’ interest. In Congressional testimony this December, FTC Chairman Joseph Simons answered a question from Rep. Jerrold Nadler by saying that his agency was investigating noncompete clauses, but “there’s a lot of circumstances where the company that is imposing the non-compete doesn’t have market power and it would be difficult for us to reach that under the antitrust laws.”

This statement is nonsensical in economics terms, because imposing a noncompete clause without compensation is itself evidence that employers have market power in labor markets. That antitrust law may be out of alignment with basic economics is reason enough for Congress to take it upon itself to legislate that both noncompetes and no-poaching agreements are per se violations of the federal antitrust laws.

Indicia of Market Power

As the discussion of noncompete clauses as evidence of employer power in labor markets makes clear, under existing caselaw, the definition of market power for antitrust purposes has become unduly narrow. It is now all but necessary to show a preponderant market share in a relevant antitrust market to establish market power, which is only one component of showing harm to competition. In fact, market concentration is dispositive neither against nor in favor of market power, and antitrust law should not treat it as such. But many other commonly-observed economic behaviors are, in fact, evidence of market power—they could not be engaged in if the market were perfectly competitive. Congress should clarify that any one of the following indicia are sufficient prove market power, in addition to concentration in a relevant antitrust market.

  • The unilateral ability to set prices or wages.
  • The ability to price- or wage-discriminate.
  • The ability to impose disadvantageous or restrictive non-price contractual restraints on counterparties, such as noncompete clauses, or to revise contractual terms in one’s own favor, without compensation.
  • The ability to exclude competitors from the market.
  • Profits or payouts to shareholders in excess of a firm’s cost of capital.

All of these are economic evidence of market power, so in keeping with antitrust law’s aim to reflect economics research in its jurisprudence, each of them should be (individually) acceptable as a proof of a firm’s market power for antitrust purposes.

Moreover, the recent Supreme Court case Ohio v. American Express unduly loosened the criteria for market power by permitting “two-sided platforms” their own special right to combine the markets on each side of the platform when assessing market definition—all but immunizing them from antitrust attack. Furthermore, the decision overlooks the basic point of market definition in antitrust analysis: it is an indirect means of detecting market power. When direct evidence exists, as was the case with American Express and is the point of the indicia enumerated above, that direct evidence should trump circumstantial evidence.

Congress should declare that Ohio v. American Express was wrongly decided and reiterate the market definition principle that Chairman Simons outlined in Senate testimony: that the counterparty’s elasticity of supply (or demand) is what should determine the extent of an antitrust market. 

Streamlining Monopolization Procedure

Judicial rulings like the appellate court’s decision in United States v. Microsoft impose significant burdens on plaintiffs seeking to enforce the antitrust laws by establishing a “burden-shifting” framework that improperly turns judicial proceedings into the simulacrum of an academic seminar. Given the economy’s existing excessive concentration of market power, the procedural hurdles on plaintiffs, especially on public enforcement agencies, need to be removed. Instead, the following should be presumptive violations of Section 2 of the Sherman Act if they are undertaken by firms with market power, as defined under any one of the indicia listed above.

  • Any unlawful conduct that helps a firm attain or maintain market power.
  • Predatory pricing (without the need to show “recoupment,” the requirement established by the case Brooke Group v. Brown and Williamson). Lina Khan has shown that predatory pricing has become a favored business model by which tech platforms attain and defend their dominance.
  • Refusals to deal, which have become a significant means by which dominant tech platforms ensure that upstarts at a different stage of the supply chain are prevented from competing in the monopolized market segment. For example, the recent evidence that Facebook disconnected Twitter’s “Vine” app from access to the Facebook friends of its users would be a refusal to deal within the meaning of Section 2 liability.
  • Exclusive dealing, whereby dominant firms demand of their counterparties that they be the sole supplier or customer.
  • Tie-ins, where dominant firms require their customers to purchase other products, thereby inhibiting entry that threatens their monopoly status. The aforementioned Microsoft monopolization litigation put tie-ins in ambiguous legal territory. But since then, as vertical integration has become the prevalent tech business model, it’s clear dominant platforms use such tactics to extend their dominance into new product segments and protect against competition from rivals up or downstream.

Merger Enforcement

As with monopolization, merger enforcement has become an excessively burdensome and costly exercise in pretending to debate economic substance, thanks to bad court precedents like United States v. Baker Hughes. By contrast, the intent of the Clayton Act was to ensure that monopoly power would be prevented “in its incipiency” by limiting mergers.

The burden of proof that a merger would not substantially harm competition or tend to create monopoly power should be transferred from plaintiffs and the government to the merging parties in cases where either one has market power, or where concentration would increase by a significant amount in any antitrust market, either upstream or downstream. Following decades of experience with the misguided theory that vertical mergers can’t harm competition, and its dire results, particularly in telecoms and tech, vertical mergers in which either or both parties have market power should be presumptively illegal. Furthermore, the argument that vertical mergers create “efficiencies” that are passed to consumers in the form of lower prices has repeatedly proven fanciful, and such arguments should not be entertained as part of merger enforcement.

Conclusion

There’s a lot of work for Congress to do cleaning up the mess that antitrust law has become following 40 years of motivated judges replacing the law with their misguided ideology, on the assumption that Congress would do nothing to stop them because antitrust was a highly technical matter best left to the experts. That elitist ideology has produced an economic disaster. It’s time for Congress, the democratically-accountable branch of government, to re-take the reins of control over antitrust and stop letting right-wing judges and cowed enforcers set the agenda.


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