In recent history, antitrust concerns have been largely limited to direct economic matters. Market watchers ring the alarm whenever a firm is suspected of engaging in behaviors that would harm consumers. What ultimately matters is consumer welfare, a more rigorous and straightforward standard than one that concerns itself with “social harm.” A growing number of antitrust critiques are driven by populist concerns that are more social and sometimes speculative. The structure of the market, rather than the effects on consumers, is the primary subject of analysis. It is a parade of horribles. Large technology companies are blamed for growing inequality. Wage stagnation is pinned on purported monopsony power. Market power is even a threat to democracy itself in these corners, as varying
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In recent history, antitrust concerns have been largely limited to direct economic matters. Market watchers ring the alarm whenever a firm is suspected of engaging in behaviors that would harm consumers. What ultimately matters is consumer welfare, a more rigorous and straightforward standard than one that concerns itself with “social harm.”
A growing number of antitrust critiques are driven by populist concerns that are more social and sometimes speculative. The structure of the market, rather than the effects on consumers, is the primary subject of analysis.
It is a parade of horribles. Large technology companies are blamed for growing inequality. Wage stagnation is pinned on purported monopsony power. Market power is even a threat to democracy itself in these corners, as varying critiques from the right and the left claim.
The New York Times recently profiled this new line of thought, characterizing the rejection of the established consumer welfare standard as a “groundbreaking” development that is “reframing decades of antitrust law.”
But is it really that novel?
According to other antitrust scholars, this “new” line of critique is, in fact, not new at all, but rather is a rehashing of the era of antitrust policy that pre-dated the current consumer welfare standard.
Virtually all of the non-price-based goals of what is called “structuralism”—interventionist wage supports, democratic inoculation, and a general opposition to “bigness”—were also all the rage back in the beginning of the 20th century.
For these reasons, some antitrust scholars have taken to describing this new wave of commentary as the “hipster antitrust movement.” They were into incongruous Gilded Age socio-political notions about firm concentration before it was cool.
A recent paper by a group of antitrust scholars dives deeply into the “hipster antitrust” line of thinking, which has also been called the “New Brandeis School” or the “New Progressive Antitrust Movement.” Hipster antitrust just has a better ring to it, though, and some of its proponents have embraced the label (ironically, of course).
The core motivation of the hipster antitrust movement is to overturn the established consumer welfare standard that is guided by price theory analysis. It would be replaced by a system that attempts to engineer a particular kind of market structure with the levers of antitrust policy.
Indeed, many proponents of this view are quite clear about their intentions to politicize the antitrust process. In this world, presumably any political issue—like environmentalism, labor rights, or media matters—would be a possible factor in hipster antitrust analysis.
Rather than observe the final effects on consumers to determine the health of a market, policymakers would pre-determine what they believe a “healthy” market structure looks like and then proactively cull business developments to fit that picture.
The priority is to protect the “competitive environment” in a way that pleases policymakers instead of protecting the final consumer per se. Indeed, consumers may admittedly be harmed by antitrust actions under this standard for the good of the long-term competitive structure, according to antitrust hipsters. But they argue that this is better in the long-run since the social ills like inequality, bigness, and political power will theoretically be kept at bay by their manicured market structure.
There are many problems with this line of thinking, as the paper argues.
First, some of the empirical claims of the hipster antitrust movement are on shaky grounds. For example, some argue that lax antitrust enforcement, particularly the approval of recent corporate mergers, has led to an overall decline in business dynamism and increased firm concentration. The reasoning makes sense. But is it true?
If it is, much of the evidence provided so far is not convincing. The authors point out how several of the papers that seek to establish this relationship have suffered from problems of mismeasurement because they do not employ datasets and methods typically used by industrial economists studying antitrust. Measures that show concentration has increased nationally across broad industry categories do not necessarily indicate competition has lessened in specific product markets at the local or regional level, and a recent working paper from the NBER finds evidence that local competition has improved despite increases in national concentration.
Further, studies that find increasing concentration fail to identify which of several potential underlying causes is contributing to this trend. Increased concentration could be due to a worsening competitive marketplace, a popular interpretation, but it could also be due to increased efficiencies that lower a firm’s marginal costs. Without this information, it’s not clear what effect, if any, increased concentration has on consumers.
Similar methodological and data problems plague claims about the links between current antitrust policy and rising inequality and monopsony power.
The pictures that these studies paint may, therefore, be more complex in reality, and the hypothesized causal links are more elusive. If the empirical reality does not reflect the theoretical underpinnings of hipster antitrust, then the policy solutions that it offers will be similarly illusory.
Which brings us to the next major problem with this school of thought: the policy solutions offered by this “new” wave in antitrust critique opens the door to subjectivity that could be abused for political or private gain.
The consumer welfare standard not only places consumers as the focus of inquiry, it also provides a predictable and impartial measure for what a healthy market looks like. A structuralist or hipster antitrust approach that lays out a pre-determined rubric for what “competition” is can be plagued by inconsistencies among goals.
What happens when a desire to protect small businesses gets in the way of a mandate to ensure innovation? Should a court back the small businesses that can’t keep up or the firm that is gaining market share because of superior products or customer experiences?
It is up to the particular authority who evaluates this case to decide. This means that firms cannot predict which business models will run afoul of which regulator, and business deals may be chilled as a result.
It also opens the door to manipulation. A nebulous public interest standard can be gamed by special interests, to the detriment of consumers and even the policy goals set out by its advocates.
This is not just a hypothetical: America’s telecommunications regulator, the Federal Communications Commission (FCC), operates under a “public interest” standard in undertaking its authorities, like issuing licenses to broadcasters. As research by my colleagues Brent Skorup and Christopher Koopman has pointed out, this vague legislative wording has been interpreted by the FCC to grant itself an expansive and largely uneconomic degree of power.
The FCC has expanded its authorities to issue and transfer broadcast licenses into a de facto grant to review mergers between telecom firms. The US’s general antitrust regulators, the Federal Trade Commission (FTC) and Department of Justice (DOJ), are tied to a consumer welfare standard. The FCC is not, and it has used its “public interest” standard to impose conditions on merging firms to fulfill certain political or commercial ends.
For example, the FCC has exploited its interpreted merger review authorities to impose “net neutrality” rules on companies like AT&T, Verizon, and Comcast as a condition of merging with other companies. The agency has also dictated programming decisions of merging firms, like when it required Comcast to expand its menu of Spanish-language options.
To be sure, there are other problems with the FCC’s merger review practices as well—namely, a lack of defined boundaries or compliance with normal federal rulemaking processes. But the experience with FCC merger reviews demonstrates the perils of a largely non-economic approach towards antitrust oversight. It can act as a camel’s nose by which unpredictable and often contradictory social engineering schemes become de facto law under the pretense of antitrust enforcement.
We left the previous, muddled public interest standard for good reasons, and a return to those days would portend a return to the same problems that led us to the consumer welfare standard in the first place—with the added complications of Internet-age business models.
Business models change, and antitrust oversight should absolutely keep pace. But throwing out the consumer welfare standard is the wrong way forward. Sometimes, things are “too mainstream” for a reason.