Deep Dive Episode 42 – Populist Antitrust

This Deep Dive episode brings you the recording of the second panel from the Pepperdine Law Review’s 2019 Symposium “Regulating Tech: Present Challenges and Possible Solutions”.

In this panel, the speakers debate varying standards for antitrust rulemaking and enforcement. The merits of the Neo-Brandeisian “populist” approach are weighed against more recent “consumer-welfare” standards.


Although this transcript is largely accurate, in some cases it could be incomplete or inaccurate due to inaudible passages or transcription errors.

Operator:  Welcome to Free Lunch, the podcast of The Federalist Society’s Regulatory Transparency Project. All expressions of opinion are those of the speakers.  On March 1, RTP co-sponsored a symposium at Pepperdine Law School with the Pepperdine Law Review titled “Regulating Tech: Present Challenges and Possible Solutions.” On this episode, we bring you panel two, which was titled “Populist Antitrust.” Please let us know what you think.

Babette E. Boliek:  Well, welcome back, everyone. Again, I want to extend my thanks to the symposium leaders and to Pepperdine. If you don’t know me, I’m Babette Boliek. I am currently the Chief Economist of the Federal Communications Commission, but I also, in an earlier incarnation, a law professor here at Pepperdine. So welcome home to me. Thank you. It’s a real pleasure to be here on this group.

Just as a point of interest, how many here have an extensive knowledge of U.S. antitrust law? All right. Okay. Roger, put your hand down. Roger works for the DOJ Antitrust Division, so I would hope you had your hand up. Who has a smattering of knowledge of U.S. Antitrust law? Okay. Smattering. Who is a Pepperdine law student who has no knowledge of antitrust law? Okay. So you’re enrolling in my class next spring. I’ll see you there. Antitrust, well done. So that gives us a lay of the land, everybody.

So we’re dealing with a group who is new to some of the concepts of the law as it exists now and a very current phenomena, which some have called populist antitrust. And this is a great panel to talk about that. I’m going to forego formal introductions. You can see it in your pamphlets, except to say, on this panel, we have a bucket load of B.A. degrees, M.A. degrees, one A.B. degree whatever the heck that is, Geoff —

Geoffrey A. Manne:  — It’s the University of Chicago being pretentious.

Babette E. Boliek:  Yeah. Whatever. Three PhDs in Economics and two J.Ds, and the crème de la crème, over 40,000 Tweets. Yes. 116 of which were mine. You’re welcome.

Geoffrey A. Manne: And 39,000 of which were Hal’s.

Babette E. Boliek:  So we have had people who are very much engaged in these discussions, and so I am going to engage in what is known as hot potato routing and get to our panel as quickly as possible about the issue of the day. So I’m going to tee up talking about, as Carl Shapiro, who is a UC Berkeley economist, former DOJ — professor — DOJ economist dealing with many of the issues that we’ll talk about today, said, “Antitrust is hot again.” I’m not sure if that’s a good thing. But indeed, we’re talking about populist antitrust. Some people talk about hipster antitrust or even EU-style antitrust.

So I want to start by talking about what does that mean. What is populist antitrust versus traditional antitrust and exactly what is the populist movement trying to solve? Are we concerned about industry structural problems, behavioral problems, concerned with innovation or something else? And to tee up the conversation, I want to turn to Will and set the stage.

William Rinehart:  Thank you, Babette, for all of this and thanks everyone else for coming today and, obviously, for Pepperdine for putting together this panel. There’s a lot that’s going on here, so I’m going to try to give a real basic overview of at least what we’re generally talking about in kind of the family resemblances way. There really seems to be a number of names for what seems to be this kind of new trend in antitrust. Some call it Neo-Brandeisianism, which is, I think, Geoff’s probably preferred term, or at least the one he uses a lot. There’s populist antitrust is sometimes what we talk about or hipster antitrust.

But really, there seems to be kind of some fundamental underlying trends happening, both within the economy and also within the academic literature and in practice that seems to be changing or at least, potentially, could be changing how antitrust as a policy occurs and how it happens within the next ten years or 20 years. And really, I’m going to leave it some of the other scholars in this panel to talk about how we kind of came to this place, but I think what’s really important to at least start with is to mention that there is this sense that competition, and especially concentration levels, have been increasing for some time. That really in the last 20 years we’ve seen something like 75 percent of all industries have had higher concentration levels.

So there seems to be — and again, we’re going to be discussing a lot of this — there seems to be much bigger firms that occur within the economy right now. The big question is whether or not those larger firms are creating worse prices for consumers or how they’re effecting competition. But generally speaking, we’re trying to understand how these concentration levels and kind of the big bad question really works in today’s — really in today’s policy conversations. So there’s a lot to be said here, but I think that to really think through this you need to think through what exactly it is that competition policy is meant to achieve. Is it meant to achieve benefit for consumers? Is it meant to achieve benefit for innovation, which is a hot topic and really a topic that is really, obviously, very complex to talk about? Or is it that we’re actually trying to deal with something a little bit more fundamentally like a power problem or a political problem?

When we have these conversations—and it will come up very quickly—that we tend to talk about very large firms. We talk about Amazon and Facebook and Google and Apple. These are firms that seem to have not just — they’re not just big firms, but they seem to also have a lot of political power. And so these things are naturally getting involved with each other. I think I’m going to probably leave it at that because, obviously, we can go many different directions. But what seems to unite populist antitrusts, or at least this conversation, is that big is bad. And what I think that a lot of the panelists will probably start trying to tease apart is, well, what do we mean by this and really how effective is antitrust and competition policy writ large in dealing with some of these problems that seem to be emanating from large concentration of firms.

Babette E. Boliek:  I’ll open that for other comments. Go ahead, Joanna.

Joanna Tsai:  Well, that was a wonderful introduction to populist antitrust, so I’ll take the next, maybe, turn to have a go at it. There are so many ways this conversation could go because there’s been a lot involved in the populist antitrust discussion. Definitely, one issue is big is bad, what is big, and how do you define big? And then a whole separate strand related to populist antitrust discussion is whether, like Will mentioned, what is antitrust meant to do and meant to accomplish and whether antitrust should take into account things like other societal problems, things like income inequality or climate change or jobs and wages. So these are two separate strands, and I’ll leave the second one for a little bit later.

But for now, maybe I’ll — as an economist, I’ll bring up sort of what types of evidence, what types of economic evidence we have seen so far from studies and papers on this topic and sort of recently on this topic and why this has gathered more interest in the last few years.

So it started a few years ago when we’ve seen studies and papers that talk about increases in concentration — so increases in concentration to indicate that, oh, my gosh. The firms are getting bigger and, structurally, there are fewer firm increases in concentration. And tying that — there’s one particular study that ties that to, in particular, the fact that, for example, if you look at the NAICS code, aggregate industries by six-digit NAICS code, then you observe that the top 50 firms have a larger revenue share of that industry.

So what does that tell us? I think there’s been conclusions that people have gotten to say, “Well, this means antitrust enforcement hasn’t been adequate. The DOJ or the FTC or the regulatory agencies on the antitrust haven’t been effective in preventing concentrations from going up, and this is bad.” So that’s part of, I think — the way I view it, part of how it got started. And then, of course, you have seen other evidence on that. So there are also people who are in antitrust who have asked questions about these types of studies. For example, for people who are either experts in antitrust or know a smattering of antitrust, I think relevant markets is one of the things that come up a lot in antitrust.

And so what — are six-digit NAICS codes the same as antitrust markets? Is that the right way of looking at increases in concentrations or revenue shares? Another question is, “Wow, and there are 50 firms within the six-digit NAICS code. Is 50 firms not enough? Is that too few?” How many of you, when you go out and shop competing brands and competing stores — how many of you consider 50 firms before you choose the firm that you go with? Probably not. And if it’s not 50, is it three, four, five, and what is the right number?

Babette E. Boliek:  The answer is Target.

Joanna Tsai:  [Laughter] That’s right. Basically, there are a lot — just once you start to peel below the surface of this, think about what — it’s a complex question. It’s a complex question, and it’s much more, I think, complicated than look at six-digit NAICS codes. Not to say that six-digit NAICS codes and data that’s aggregated that way don’t have it’s very, very helpful uses for other things. So that’s one thing.

Another thing is we have — another this is, in terms of looking at these firms, one of the ways — and the reason why Will hasn’t mention this yet, but one of the reasons why this is called — hipster antitrust has also been used is because it’s talking about going back to the ‘60s and how things were looked at — how antitrust was back then, which is untethering the analysis from a consumer welfare analysis of prices and output, but more of a structural analysis.

Now, what is a structural analysis? A structural analysis is mostly based on concentration but also, even more simply put, counting the number of firms, right? Counting the number of firms, one, two, three, four, five. And then the next question is, “So is four the right number? Five the right number? Six the right number? Does it depend on which industry we’re talking about, which antitrust markets we’re talking about and how competition works in those markets?” And as an economist, too, I would like to think about not only should it vary depending on the industry. It should also vary dependent on how firms think about how they compete — how firms and particular industries think about how they compete, so standard economist models. Are we talking about a Cornell? Are we talking about choosing capacities output, or are we talking about [Inaudible 00:14:30]? And how those models — which model is best fitted, suited to analyze the competition and how that works in a particular industry should come into play and counting number of firms simply just doesn’t. So I’ll stop here.

Babette E. Boliek:  I’m going to segue to Hal. I know this is — Joanna set up articulating a little bit more detail what’s going on. The traditional antitrust has been characterized by analyzing various conduct of companies vis-à-vis what is known as the Consumer Welfare Standard. Arguably, the Neo-Brandeisians or hipster antitrust is looking at a much more structural approach, numbering and looking at market structure in a very sort of mechanical way. Hal, you’ve had some interesting viewpoints on that that might point us a different direction.

Hal Singer:  Thanks. Let me try to frame this up, perhaps, a little differently. But first, I want to thank the students for putting this together. Ashley and Nicole, this is really tough, and I appreciate you having me here. I think I’m here, probably, to speak to the possible solutions part of the subtitle and Geoffrey is here to speak to the presenting challenges and obstacles and roadblocks.

Geoffrey A. Manne:  To you.

Hal Singer:  To me, in particular. But let me try to frame this up. And unfortunately, there’s no one on the panel who represents the New Brandeisian view, and I think that, if you haven’t had a chance to go through it, I would put people like Lina Kahn, who’s a Yale law student right now, and Matt Stoller is at Open Markets, and Marshall Steinbaum now at Roosevelt are the ones who are kind of leading this charge. The critique—I’ll try to do my best to put it in their words or what I think they’re capturing—is that the scope of antitrust has been considerably shrunk over time, in large part due to the ascendancy of the Chicago School train of thought which was to really limit the ability to police restraints—and I’m thinking now more in terms of single-firm conduct under Section II by monopolists, as opposed to mergers—to only those actions that result in a direct and tangible injury to consumers in the short run.

And what animates a lot of antitrust litigation — and as an aside and just to kind of toot my own horn, I have an antitrust litigation practice, and I serve as an expert in many cases in this area. What gets us going, what gets the cases rolling is if your economic expert is able to link the restraint, usually econometrically or empirically, to some tangible short-run injury to consumers or, if it’s a monopsony case, to workers.

And the problem is that there are types of harms—and we’ll hopefully get into them. I like to categorize them into a bucket of innovation harms—that are difficult, if not impossible, to quantify and to document, let alone connect to the restraint at issue in an individual case. And those types of harms are largely going unpoliced in the antitrust sphere. Some people say Section II is a dead letter in the law. I think that that’s a bit harsh. Of course, Section II does have some force, again, so long as the harm manifests itself as a short-run price or output or wage effect or even quality effect. But I will say you haven’t seen — at least since Microsoft, which is now over two decades ago. You haven’t seen any cases in what I would call the pure innovation Section II cases that are enforcing, quote/unquote, “pure innovation harms.”

And so the New Brandeisians react to that by saying, “Let’s change the standards. We recognize that it shrunk. And through an act of Congress, we will just have the standards changed so that types of conduct that used to be policed but now go unpoliced will be curbed.” There is a third school of thought, and it’s the one that I represent. So I can’t help but putting it out there. And there is a senator that got excited about it, and, hopefully, there will be more. And that’s Senator Warner in his tech manifesto. And that is let’s leave the Consumer Welfare Standard alone and recognize that antitrust enforcement is just going to be limited to these types of conduct that manifest themselves in a short-run price or output effect and instead attack the problem outside of antitrust via regulation. And we’ll get an opportunity, of course, I’m sure—I hope—for me to talk about the possible solution.

But the analog, just as a quick preview of where I’m going, is that we had a very similar problem back in the 1980s where the dominant platform of that area, which were the cable television platforms, were leveraging their platform power into the content space. And there’s a big policy debate as to whether or not we should bar them from leveraging. Should we just put a structural barrier that says, “Thou shalt not go into content.” And Congress came up with what I think was a really smart compromise, which was that we’re going to let you get into the content game. But we’re not going to allow you to leverage your platform in a way that artificially advantages your content over those of independent rivals.

And the way that they did this was by imposing a non-discrimination regime. And I won’t take up my opening right now to spell out how it would go down in the tech space. But that’s what I’ve been peddling. It got picked up in Senator Warner’s tech manifesto, and it is now in the House. Congressman Cicilline from Rhode Island appears to be a champion of the idea, as well. I’ll turn it over to Geoff.

Babette E. Boliek:  I’m not even going to tee it up, Geoff.

Geoffrey A. Manne:  The big problem, I think, with the Neo-Brandeisian approach, and also the one that you’re advocating here, is the assumption of harms and the assumption that there’s a connection between harms and the stated or claimed problems—in the case of the Neo-Brandeisians, it’s size or concentration; in your case, it’s discrimination—and the assumption that antitrust can address them and actually create benefits greater than the harms.

The problem is the innovation harm — let’s start with that, that you talk about. You refer to it as a harm, but we have no evidence that there’s a harm at all. You can describe, in words, what a harm could look like, but the fact that you can’t prove it with evidence, the fact that you can’t identify beyond a possibility theorem that says there could, theoretically, be a harm under certain circumstances here is a very good reason for it not to be a cognizable harm by an antitrust. That’s not to say that it couldn’t be. And by the way, innovation harms have been raised a lot since Microsoft, not without raising price as well. Why wouldn’t you raise price, as well? That doesn’t mean that they don’t think that the harm is really an innovation harm. It means that they understand that they should raise all of the avenues they can in order to try to win at court. So I don’t know that that proves your case.

The reality is the Consumer Welfare Standard is meant to take account of very multidimensional effects of allegedly anticompetitive conduct. It’s not limited to just price, but some of them are really difficult. And they should be difficult. And simply assuming that they exist and that a particular solution will solve them without creating greater problems than we have — than it solves, that’s just bad regulation. That’s just bad policy. I think, over time, it would be great if you could demonstrate, somehow, that there’s a real problem here and that your solution would solve it. But right now, you’re resting on the theory that there could be a harm from discrimination. And you point to, as you just did, the Cable Act. And as I pointed out to you before, but they haven’t all heard it, so bear with me if you’ve heard it before. —

Hal Singer:  — We fight a lot on Twitter, by the way.

Geoffrey A. Manne:  — So it’s true that the Cable Act said, “Hey, we don’t want you to engage in this form of discrimination.” It is not true that the Cable Act was written by economists who very carefully studied whether prohibiting this form of discrimination would actually lead to net benefits to consumers. It was a political decision that said, “We don’t want it to look like this.” Now, we all know that political decisions are the antithesis of good economic decisions in most cases, and there was no impetus behind this one that was actually economic, of course. So the fact that you point to it and say, “We do it here,” doesn’t mean, in any sense, that you should do it anywhere else.

It doesn’t even mean you should do it there. Now, I’m going to talk about the Neo-Brandeisians for a second because they have an even bigger problem. At least innovation is actually part of what we should and do care about under the Consumer Welfare Standard under antitrust. The Neo-Brandeisians want to say these big companies create all of these other problems. They make labor markets look different than we would like them to look. They lead to a loss of localism. Our local communities are somehow decimated because a Wal-Mart moves in. And this is a problem that they ascribe to the size of the companies operating in these markets. And again, I question whether the connection has actually been made or not.

But even more importantly, I question whether we want antitrust to be taking account of — to be sort of solving those problems, alleged problems, both because they’re completely idiosyncratic. Right? It’s not like price. Everybody would like price to be lower. All else equal, some people would rather shop at Wal-Mart than the more expensive mom-and-pop store down the street.

This goes back to the privacy conversation, too. Privacy has also been incorporated into this, but people have very different views of privacy. If you start incorporating that into the antitrust, in addition to the proof problems because it’s not clear that they’re actually related to concentration or size, you have introduced, essentially, a limitless political influence in the process of antitrust. Meaning you remove its power to actually help the consumer — the economic welfare of consumers and you introduce yet another avenue for political decision making. These decisions should be made by the political branches. Maybe we decide as a democracy, or whatever it is we are, that we should have more smaller firms. Great. Pass a law.

The problem with the Neo-Brandeisians is they’ve been trying to pass these laws for years. And one of them woke up one morning and said, “Hey, it’s not working in Congress, but look at this really vague law here, the Sherman Act. We can use that. We can use that, and we’ll get all the stuff passed that we want by regulators because they’re a lot easier to influence and control. That doesn’t sound like good policy in any way.

Hal Singer:  Can I respond real quick?

William Rinehart:  I’d keep it to 60 seconds.

Babette E. Boliek:  Yes. Otherwise, 10,000 tweets are going to come right after this.

Hal Singer:  Geoff demands empirical proof of the innovation arm, and I’m just going to freely admit that we’re never going to be able to quantify innovation.

Geoffrey A. Manne: There’s no evidence at all.

Hal Singer:   I’m going to give you some evidence. But we’ll never know what innovation — how to measure innovation. What are we measuring it in? Economists think in terms of like patenting activity. We just suck at measuring innovation. It’s not something that lends itself to measurement. And we’re never going to be able to connect one discriminatory episode to a diminution in innovation. It’s just incredible, right? But let me tell you about what evidence we do have. So there’s a paper by — and this isn’t the extent, but I’m going to go to the one that I like, which is Zhu, Z-H-U, Harvard —

Geoffrey A. Manne:  — You’re not going to talk about his second paper?

Hal Singer:  No, I’m not going to talk about his second paper, but we can go there —

Geoffrey A. Manne:  — I’ll talk about his second paper after he talks about this one.

Hal Singer:  All right. The Amazon paper. The Amazon paper shows that Amazon has decided, and they’ve gotten really heavy into it of late. But at the time that Zhu and his co-author were writing, they were just kind of sticking their toe in the water — but where Amazon decided that they were going to vertically integrate into the merchandise they were selling and make, basically, a branded clone and then steer their searchers to their favorite device. Geoff I think is with me that they’re in a position, if they want, to basically scoop up any ancillary revenues or any ancillary margins.

It’s theirs for the taking. If you control the platform, you have tremendous power over where searchers go. You can move people out. You can move competitors down. You can promote yourself in a one box. And so what he found was he looked at episodes of invasions by Amazon into the edge. And he found that when you looked to the complementor who had his product stolen or appropriated that they had a statistically significant increase in leaving the platform compared to a control group of non-affected sellers. That was the primary finding. And so who cares? Lower prices, yay. Amazon is selling their branded clone, and they’re probably even doing it at a lower price. Who cares? What are we worried about?

What we’re worried about is that if enough entrepreneurs at the edge get wind of what’s happening, which is their best ideas are being appropriated by the platform, that they might eventually throw in the towel. And if they throw in the towel, we might suffer a loss in edge innovation. Why do we care about that? We care about it because we think that independents are some of the best sources of ideas and innovations in the economy. And if they start throwing in the towel in sufficient droves, we might suffer a loss in innovation at the edge. I totally agree with Geoff on this point.

My last point, I promise. It is not going to come from an econometric proof. The Cable Act protections began over a series of episodes — of discriminatory episodes. Home Shopping was the famous one that I think sent it over the edge where one of the cable platforms appropriated the idea, made their own home shopping network, and then made life miserable for the independent and steered all their users to the clone. It did not come about because an economist came up with an econometric proof. It came about because of a political preference, which is a long tradition in this country, which is that we care about independents.

We care about small merchants, and we’re going to create some breathing room for them so that they have an opportunity to survive and thrive. And if it happens here, which I’m kind of hopeful and optimistic that it will, it’s not going to happen in this context of an econometric proof. It’s going to come down to a political preference in which we believe that there’s an important role to play for small merchants in our society and in our economy. And we’re going to create some breathing room for them as well.

Babette E. Boliek:  I’m going to bring Joanna into this conversation, as well. Just as a little bit of background so that you can impress your friends at cocktail parties where antitrust inevitably comes up, there was a reference by Hal about Section II being dead letter. He’s referring to the Sherman Act. Section I and Section II are the primary ways that we enforce our antitrust laws. And here you go. Sherman Act Section I, it takes two. It’s about cartel behavior and often deals with what is talked about as horizontal behavior, in other words, among competitors. For Sherman Act Section II, it takes one.

So that’s where we deal with sort of monopoly behavior and what is known as vertical restraints and vertical relationships, which also has a Section I as well, unless it’s a merger. So that’s to give you a little bit of baseline. And also, Hal brought up this, and again, implicit in some of this discussion with Geoff, was talking about this concept of monopoly leveraging, which I know Joanna has — also knows a great deal about. But I want to bring you into whatever you want to talk about but sort of tee that up as well.

Joanna Tsai:  Thank you, Babette. I was going to thank Hal for getting us all straight into monopoly leveraging at the very beginning.

Hal Singer:  Which is a dead letter. Section II is a dead letter. Monopoly leveraging is a dead letter in antitrust.

Joanna Tsai:  And also, I think he brought up Amazon and expropriation, all of that. I think these are all very interesting issues that are relevant to so many of us. I’m a heavy user of Amazon, but I have two questions about what you said. So one is you’d mentioned these innovators. They bring on these really great products, and then Amazon taking their idea, making the generic version. Let’s think about the generic version and then selling them. And then the innovators are leaving, not listing as much anymore, so that’s evidence for decreased innovation.

So my question is where did those innovators go? Did they drop off the face of the earth? Did they leave the market, or did they just leave Amazon? And if they did just leave Amazon, are there other places they could be going to, as opposed to just disappearing from the face of Earth? And then to the extent that, over time — you think about Amazon making decisions to make these. And then consumers will say, “Well, there’s this cheaper–” you mentioned the cheaper prices for Amazon.

And people like that, but people also have the choice to not use Amazon, go somewhere else where these innovators are maybe now listed on, these other platforms that don’t take their ideas, expropriating them. So anyway, from the study that you were referencing, I was wondering what evidence is there on that and why people can’t go somewhere else other than Amazon?

Hal Singer:  The problem is that Amazon controls roughly 50 percent of e-commerce in the U.S. There’s also a coordination problem. I get blown up. Amazon steals my stuff and then starts directing their searchers, their users to the clone. Where do I go and how do I communicate where I’m going with Amazon’s installed base of customers? But here’s another thing. Don’t ask yourself — don’t worry about where they went. They’re suffering because you don’t have 20 great blockbuster ideas in your pocket. The typical entrepreneur is lucky to have one. And if he or she struck it big with that one, now the question is well, they’ve got another one, just reach a little deeper.

No, it doesn’t work that way. But don’t ask yourself what happened to the guy who got blown up. My story in the theory of harm is it’s all the other edge providers or would-be innovators who are observing the appropriation, that’s the story. The story is that we are concerned that if they’re observing this and they see that their best ideas can be cloned and appropriated — not just by Amazon. I didn’t want to pick on Amazon. Google has gotten into the search results by giving their, for example, local search. Facebook is using a VPN to study what you do when you go outside of Facebook. I think it’s called Novo. And whenever they see that you’re spending too much time outside of Facebook, they clone the app functionality and bring it inside of the mothership.

And there are many, many episodes of this type — I don’t want to make this the Amazon show. All the platforms are doing it. But I digress. The concern is that if there’s too many folks on the outside, on the edge, watching the appropriation, if they throw in the towel, that’s where the harm would occur. And Geoff wants me to document the towel drops, and I’m telling you that we can’t hear them, when the towel hits the floor and someone gives up. So my idea doesn’t get funded. God doesn’t make a recording of it not getting funded. These are silent towel drops.

Joanna Tsai:  Gotcha.

Geoffrey A. Manne:  Look at the evidence we do have, though. Amazon, for example, is —

Joanna Tsai: — Attacking from left and right. Go ahead, Geoff.

Geoffrey A. Manne:  Just quick on this point. Exactly. They’re moving into the massively innovative mattress market and the AA battery market. And Google is moving into the — we’re talking cutting-edge, comparison-shopping market. If these companies were really wanting to take advantage of innovations on their platforms, they wouldn’t be behaving like they are. And Facebook is completely inapposite here because they’re not incorporating anything that’s on their platforms at all. There’s no discrimination there at all. What they are doing, of course, is taking ideas.

By the way, maybe this all just means we have insufficient intellectual property protection, which I would also be sympathetic to, but I suspect zero Neo-Brandeisians would ever go anywhere near that. But if the problem is that they can appropriate intellectual property or ideas from others, you have to acknowledge, even if there’s a cost, that there’s a benefit, too. That when Facebook implements some interesting new innovation it benefits Facebook’s 3 billion users. When some edge provider that has 100 million users does this, it harms, but of course doesn’t harm because there’s no exclusivity here, 100 million users. Now, I’m not saying that that necessarily outweighs.

I’m just saying it makes even harder your ability to say that there is a clear and obvious harm here because you assume that improvement of the platform can’t be as valuable as improvement or the possibility of improvement at the edges. And I don’t think that’s true, nor would you argue that in the net neutrality context, by the way.

Hal Singer: Elizabeth Dwoskin of the Washington Post interviewed, she said, two dozen Silicon Valley investors. And they unanimously named appropriation of app functionality by Facebook as the number one cause for them not funding startups in the space. So the first question they ask an investor is how are you going to protect your idea from being appropriated by Facebook? And if you don’t have a good answer to that, you’re going to get your funding pulled.

Just one other quick point. The Consumer Welfare Standard would celebrate Geoff and I’s spending the night outside of — we like to talk about Target. We’ll go to Target — and a delivery truck coming up —

Babette E. Boliek:  We’re very upscale in Malibu.

Hal Singer:  — delivery truck coming up and Geoff and I tip the damn thing over and all the goods spill out. And then it gets looted by everybody on the street and in the store. And consumer welfare skyrockets that evening because they’re getting the goods for zero as opposed to —

Geoffrey A. Manne: — We celebrate theft. Absolutely.

Hal Singer:  We do celebrate it, Geoff, because consumer welfare —

Geoffrey A. Manne: — theft is clearly maximization of consumer welfare.

Hal Singer:  Yes. If consumer welfare is the guiding light, then by that measure, we ought to just be jumping for joy because these customers would have had to pay the market price for the goods. But that night, they were just lucky enough to be standing around to get it for the loot. Go ahead.

Geoffrey A. Manne:  I would say let’s call on some Pepperdine students to easily refute that craziness.

Hal Singer:  The Pepperdine students recognize that there’s a dynamic aspect to this story, right? They’re smart kids.

Geoffrey A. Manne:  I recognize there’s a dynamic aspect, too.

Babette E. Boliek:  Yes. I won’t say that’s similar to some stories in Brooklyn. I do want to put — we’ve talked a little bit about laying out the groundwork and what the debate is. We’ve talked a little bit about monopoly leveraging, which is the way antitrust works. We look at conduct, and monopoly leveraging might be one of the conducts or discrimination that we might be concerned about. Vertical restraints, we’ve kind of talked briefly about how a firm works vertically and that served the investment story that just went through. So we’re looking at conduct.

So antitrust, by its nature, is ex-post, not ex-anti, like regulation. So I want to bring in — I’m going to start again with Will to get the full story of antitrust. One of the things is not just identifying those harms and identifying that conduct but formulating a remedy, an antitrust remedy which can solve the problem before you. So the question is, just in general, how good are antitrust remedies, in general? And then second, dealing with some of these issues, I know that Hal already mentioned that you might want to come out with a law saying you want to protect small businesses. Arguably, antitrust was used for that purpose long before.

As an American working woman, I shudder because going to the butcher, the baker, and the candlestick maker in my already busy day sounds horrifying. I’m not French, good gosh. I have a job to do. So that might not be consumer welfare enhancing. But what kind of remedies do we have? Are they functional, and can they reach some of the concerns that are being raised here?

William Rinehart:  Yeah. To set that up, I actually just want to recount probably one of my favorite little sections from a book all about cigarette sales, which is called the Cigarette Century. So this is actually right after the American tobacco breakup, which is probably — it’s not talked about very much, but I think a really, really interesting case. Specifically, Allen Brandt, who was a historian, said this about the end of the breakup and kind of the restructuring of the market.

“It was one thing to identify monopolistic practices and activities and the restraint of trade and quite another to figure out how to return the tobacco industry into some form of regulated competition.

Even those who applauded the breakup of American tobacco soon found themselves critics of the negotiated degree restructuring the industry. This would not be the last time the tobacco industry would successfully turn a regulatory intervention to its own advantage.”

This is, again, a great book. You should actually check it out. It’s pretty cheap on Amazon right now, interestingly enough. I’m sure Hal will love that. Exactly. Needless to say, this is, I think, — it’s a really interesting case that, again, we don’t talk about all that often but in fact kind of highlights some of the structural components of — if we were to go down some of the breakup conversation that has been talked about.

Underlying a lot of what we’ve been saying so far are some of these remedies, and one of the most — one of the strongest remedies currently is to, say, breakup Facebook from Instagram or from WhatsApp or even from its own advertising platform. These are pretty — I would say pretty onerous structural remedies to deal with a very complicated and nuanced, even as we were talking about here, question around competition. But some of the best work that I think that we’ve seen, and especially the FTC has done a lot of really, really great work on retrospective merger analysis, which is, again, a bit of a slight different conversation because we’re talking about single firm competition as compared to retrospective merger analysis. Needless to say that a lot of retrospectives find kind of ambiguous effects. They’re highly contextual.

One of my favorite reviews of the Maytag-Whirlpool merger actually found that it led to increases for dryers but a decrease in washers. Hospital merger reviews are highly contextual, even for a hospital group, depending on the commercial insurers. It seems that there’s some, at least, importance within the kind of upstream suppliers and the network in which the hospitals exist. Post-merger price effects have been found in a number of different places, including academic and legal journals, but then studies of, say, the drug industry and the oil sector have found kind of null effects. So this is obviously a hot issue that is hugely important as well within this which is, okay, say we do have a whole bunch of these remedies. How effective are they? And again, we’re typically talking about price increases or quality increases.

But at the end of the day, I do worry about our ability to see a market as we’re trying to deal with it and trying to apply some specific remedies and then the kind of 10, 15, even 20 years afterwards in which that industry is still affected pretty massively by that case.

We’ve hinted at Microsoft. Microsoft is this really interesting case, and I know, obviously, you worked extensively on this. People often look towards Microsoft as being the case that allowed the internet to bloom, and yet, I’m really, really, really — that’s a really — I’m hesitant to even claim that is the case. Microsoft, even as a firm, was very dedicated to the PC culture, and it had its own kind of firm dynamics and firm — I think probably the best way of saying it is its own firm inertia. So in some very key ways, and again we could probably talk about this if we really wanted to, that that ability to take control of another market, specifically kind of the internet industry, is just very, very — was very difficult, at least from a firm perspective.

All of this is to say there really is a lot going on here, and the remedies themselves don’t always seem — even if we can, specifically, point to a problem within the structure of the industry that the price, in particular, are too high that even our ability to solve those through remedies are suspect. And I think we should be very suspect of any unqualified statements about the ability to kind of re-engineer these markets.

Babette E. Boliek:  I know that Hal is chomping on the bit, but I’m going to invite questions. So think about that. I would like for a student to go first. I still remember your names and how to cold call. So anyone? Okay. Non-student. I will ask you, if possible, to come forward to — there’s an X here and here. It helps with the livestream. So if you’d be so kind to walk on down. And while you are walking, I will give Hal 20 seconds.

Hal Singer:  Nice. I was going to talk about the efficacy of the remedies that I’m proposing in the cable space. We’ve had about five cases litigated under this non-discrimination standard. And a lot of these are my cases, but go look up NFL v. Comcast, Tennis Channel v. Comcast, MASN, which is the Baltimore Orioles, v. Comcast. I’m not longer invited to the Comcast annual Hanukah party. And GSN v. Cablevision — but in two of these, NFL and MASN, we secured settlements. We got broad carriage as a result, and two we got to findings of discrimination, one against Comcast and Tennis Channel and another against Cablevision when we did it for GSN.

And in terms of what’s going on in the world of innovation, around the time of — ten seconds. Around the time of the intervention, we had about 30-odd independent cable networks. It was in the early 1990s. We had about 30-odd independent cable networks. Flashforward just five years after, we had about 130 independent cable networks, and today we have over 400. Now, I cannot claim that the intervention was the cause — no, no. Hold on. What I did, Geoffrey, I looked at the growth in the cable affiliated cable networks over the same time period, and the growth among the independents has outpaced the growth.

Now, that’s not proof, again, of causation, but it does suggest we’ve had a pretty wonderful result, if our measurement is stimulating innovation at the edge and creating space for independents to grow.

Babette E. Boliek:  On behalf of Geoff, I’m going to reserve two minutes, and then we’ll go ahead and ask our question.

Questioner 1:  Okay, so my first question is for Mr. Singer, and that is —

Hal Singer:  — The answer is yes.

Unidentified Male: — the premise of the antitrust law, key premise is to reward or protect the small businesses. Did I hear you correctly?

Hal Singer:  I think the New Brandeisians feel that that was an original intent to disperse economic power, to use their words, and that they feel that we’ve gotten away from that intent via the ascendancy of the Consumer Welfare Standard.

Questioner 1:  Okay. So I’m reminded of a biblical phrase which is “Do not favor the poor man and his cause,” and it’s followed by “Justice shall thou pursue.” It seems to me that that protection of the small businessman is completely contrary to that concept because it’s social justice, really. Social justice is nothing more, really, than redistribution of wealth, socialism, and that’s contrary, really, to capitalism and/or, according to the biblical phrase, justice. So my question to you is does that biblical phrase, or that influence from the Bible, affect your belief or that of whether you would agree with the Neo-Brandeisians? That’s number one. And number two, for any of the panel — any of the people on the panel, my question is could you make a case that we shouldn’t have antitrust law at all?

Hal Singer:  Are my beliefs informed by what’s in the Bible? I would say I’m a non-practicing Jew, so I don’t think I’ve been very good. But I am speaking at the University of Haifa Law School in March. It’s going to be my first trip to Israel. I think that you have to — setting aside the core values of the Bible, let’s talk about what I think the intent of the FTC Act and the Sherman Act was, and that was to disperse concentrations of economic power. And not necessarily towards a particular favored class.

Although, when you read some of the history, it does seem to suggest that they had an eye toward small merchants. I think there was a constituency there. And that was the intent. I kind of want to stay agnostic, and I don’t want to be normative as to what should be. I’m kind of talking about if you accept that that’s an important value, this notion of dispersing power and giving breathing room for small businesses and independents, then we can have a respectful conversation as to how to get there. There’s a camp, the New Brandeisian, who want to do it via the Sherman Act, via adjustments to the Sherman Act and making changes to the Consumer Welfare Standard, the standards via antitrust.

And then there’s another camp, the camp that I’m in, that wants to get there using a template that had been used to address what I think is a nearly identical problem in the cable space. I don’t know if that answers that.

Babette E. Boliek:  And I’m going to give it to Geoff.

Geoffrey A. Manne:  I think to some extent — I’m not an originalist. I don’t really care what the original intent of the Sherman Act was. That was a function of its place and time and, most importantly, the political influences, which were significant. They weren’t the whole story, but certainly that was part of it. And in your question, you use the word protection, and I think that’s the right word. The real problem with returning, if that’s what it is, or implementing a vision of antitrust that entails the protection of certain favored classes of business, whether they’re delineated by size or industry that they’re in or what state they hail from or whatever else, it’s the introduction — I shouldn’t say the introduction because there’s plenty of politics in politics now.

But it is certainly an invitation for rent-seeking and an invitation to ensure that the outcome of the decision making isn’t grounded in any way and anything we would recognize as a sort of rigorous—whether perfectly empirical or not—analysis and becomes just an implementation of the idiosyncratic preferences of the people who are doing the enforcing so they can get a court to go along, which they would if the statute changed. That doesn’t sound like an improvement to me, but I understand the idea behind it. And again, if we have a collective will expressed through our representatives to enact a law that says let’s give 50 percent tax breaks to all small business.

I think we do kind of do have a law like that, don’t we? They get tax breaks, don’t they? Yeah. So okay. We favor small businesses, and we do it through the tax code. That’s fine. I don’t necessarily agree, but how could I oppose that. What’s interesting about this — I think Will raised this early on. What’s interesting about all of these conversations around Neo-Brandeisianism and antitrust populism, we have them in this antitrust context. But really, these are political economy questions. These are questions that no one up here is qualified to talk about, really. Maybe Will.

Really, if we want to have this conversation right, this conversation should be had among political scientists and constitutional economists and the like. It’s not an antitrust question at all, except by convenience, I believe. I think they have an end that they want, and they found the mechanism that they think will give it to them. But otherwise, this isn’t an antirust issue at all.

William Rinehart:  One small comment about the small firms. If you want to actually try to support small firms, as Geoff mentioned, there’s a whole bunch of ways that you could do it, which we do a lot of. Small Business Administration has low-interest loans. There are state and local entities, of which my father was an economist doing work that supported small local businesses from starting and then, potentially, growing. I guess if you’re trying to support small firms, there’s a whole bunch of other ways to do it.

You can just give out just money. We haven’t talked about subsidization at all, and yet it’s something that a lot of other countries do. I don’t want to say they do it well, but they do it. It’s an option. There’s a whole range of other options that you don’t necessarily have to — well, yes, we do it, but not in the —

Geoffrey A. Manne:  — we do it to large companies. Not always.

Babette E. Boliek:  Children. Children.

William Rinehart:  Tom had a question over there, by the way.

Babette E. Boliek:  Yeah. We’re getting — were you done with your thought, Will?

William Rinehart:  I guess my point is that there’s other ways to get at this. If you’re trying to support small firms, there’s a whole bunch of other ways to do this. And I’d much rather us to have that kind of conversation about subsidizing small firms, which let’s have that conversation, than necessarily trying to achieve it through a very convoluted and probably not as effective approach through the markets — or through competition policy. And I would say that this is — when you do look at, for example, perhaps we aren’t to trust the OECD, but the OECD has done a lot of reports on concentration.

I think they do probably some of the best work in this space or have done some of the best work in this space. And this is constantly one of their suggestions is supporting small businesses, not necessarily through the antitrust approach, but through subsidy approach. And that at least says something.

Babette E. Boliek:  All right. Speaking of expertise, Tom Haisley.

Tom Hazlett:  She doesn’t want me to hold the mic. I didn’t know you recognized me. Okay. There’re these stories about foreclosure, just like predatory conduct, are very easily made. And then you have to go out and look in the marketplace to see if that’s actually happening, in the context of the actual evolution of the marketplace. It’s clearly, by the way, not the case. And I’d love to give this — I’ve written it down to give a test in law and economics — that it’s an increase of consumer welfare to have theft or some kind of vandalism that redistribute products. That’s called rent-seeking, and there’s going to be a lot of reaction to the rent-seeking that are very costly for societies. That’s not an increase.

But the fact is that Amazon’s platform is hugely valuable to small business creation. Most of the products sold on Amazon — they’re independent third-party sellers. Of course, eBay is a huge platform, basically all independent third-party sellers. These kinds of innovations come into the marketplace. You can have a story about foreclosure, but you have to look at it in context. Well, economists have done a lot on vertical foreclosure. You read the survey articles. They conclude that the vertical integration and the vertical relations that are actually observed are almost entirely efficiency-enhancing. Very few stories — now, I’m actually cited on some of the predation literature showing that, in some cases, you can have predatory conduct that looks anticompetitive.

But it gets cited because there’s so few examples. And I’d like to talk about the one example I think you gave, our favorite example, Hal, on Home Shopping. You think that Home Shopping was foreclosed by vertical integration in cable. The founders of Home Shopping, Royce Bier, became a billionaire. He was not foreclosed. Home Shopping is still there. Now, QVC is a much better company, and it has done much better. But they’re there. They’re competing. There is a lot of vertical ownership at various times in QVC and Home Shopping, and that’s been very beneficial to getting in the market and providing competition in a better space. It’s very hard to improve these kinds of processes with antitrust. We know that because we see what antitrust has done.

In fact, if you want to look at a great case that did exactly what you’re saying — was U.S. v. Microsoft. Microsoft had taken over this ancillary market. It was afraid — from the competition from Netscape, and Netscape with Job imbedded was actually going to be a threat to the underlying operating system. And there was consensus, even among those who were advocates and champions of the case at the time, that the case was not in the public — and the government won, by the way. Terrible defense by Microsoft. And the remedies were completely ineffectual. It disrupted the market a little bit in terms of Microsoft’s operations and attention span and so forth. But they did not usher in competition.

There was not — competition has come and browsers and many other search engines, certainly. Everything has shifted to the mobile space from the desktop. That happened without the Microsoft case and any of the remedies being effective. So getting rules in place that are better than the Sherman Act of 1890 is still the agenda item here. And there has to be evidence that’s going to show that consumers are going to improve their life under a Consumer Welfare Standard, unless you’re anti-consumer — which by the way, Louis Brandeis was, explicitly anti-consumer, did not want consumers to get lower prices and better products. He wanted to support inefficient small businesses and worthy dealers at the expense of the consumer.

Unless you’re going to take the anti-consumer attitude, you have to go with what we’ve got, the tools of antitrust and the economic analysis that purports to show that there’s going to be actual consumer welfare gains.

Will Rinehart:  Here, here. Is there a question?

Tom Hazlett:  And the question is isn’t that right, Professor Singer?

Hal Singer:  30 seconds?

Babette E. Boliek:  Sure. As always, once Tom speaks, we lose control of the panel.

Geoffrey A. Manne:  We should just have Tom up there.

Babette E. Boliek:  I know. I think the question is why weren’t you on the panel?

Hal Singer:  There are some serious folks, Tom, who think that the Microsoft litigation at least distracted Microsoft to a certain extent to give some breathing room for Google and others to come in. But let’s set that aside. If what you’re asking is don’t use antitrust as the vehicle to pursue this agenda, remember, I’m kind of with you here. I’m not seeking to use an antitrust tool to get at this breathing room for independents in the content space. That’s not where I’m going. Really quickly, on the literature, and I have to toot my horn. The literature on vertical integration is mixed. I grant you that. There’s a really nice article by a guy named Caves and Singer that shows that vertical integration in regional sports networks lend to significantly higher prices.

Geoffrey A. Manne:  Significantly?

Hal Singer:  Statistically significant, Geoff.

Geoffrey A. Manne:  Yes, but what magnitude?

Hal Singer:  Hold on. But the point, Tom, is that, again, economists, as is the Consumer Welfare Standard, are fixated on measuring welfare narrowly through the lens of prices. That’s what that literature speaks to. And I don’t think you’re going to go into that literature and find a lot that speaks to whether or not we’ve been able to address or effect innovation harms.

Geoffrey A. Manne:  A lot of that literature does address that. Of course, it’s harder to see those things, and economists often will look where the data is. And there’s a lot more price data than anything else. But take, for example, the discussion around the effects of the Paramount case, the block-booking case. As I recall, the analysis that says that was a stupid intervention is not just about the price. It’s actually about the quality of the films that were released and how many theaters were showing them and their geographic dispersion and the like. I’m sure there are other examples, too. I can’t think of them off the top of my head. But I don’t — of course, it’s predominantly price because that’s where the data is.

But I don’t think that any — no one who assesses that literature would say that’s the only thing that matters. That’s absolutely a caricature of the position that I — the position that’s being attacked by the Brandeisians is absolutely a caricature. Of course it’s not the case that only price matters, but it may be the case that price matters enough. And there is enough data there that we can, for the most part, expect to see enforcement happening around price and expect price to be a fairly good proxy for everything else. And otherwise, you’re just speculating completely on either side because you’re not going to have the evidence that you would need to prove your case, which is why you advocate a tribunal with a different standard, because you know you could never meet the burden of proof that would be required in court.

But there’s a reason we have those burdens of proof. It’s to avoid people being successful at bringing cases that shouldn’t be brought. And I admit that that’s a hard problem and in instance where proof is difficult. That could lead us to underenforcement. But sadly, I think the burden is on you. And again, as Tom said, if you focus on the consumer welfare more narrowly — more consistently, I think you’ll capture the vast majority and avoid the likely problems of over and politicized enforcement.

Babette E. Boliek:  Well, I agree that Consumer Welfare Standard also includes things such as hunger, so we’re going to wrap this up and thank our panel as we go on to lunch. But thank you so much for a lively discussion, and I hope that we’ve seeded some thoughts. And you’ll investigate further on your own.

Geoffrey A. Manne:  And that you’ll all take Babette’s class.

Babette E. Boliek:  And take my class. So thank you very much.

Geoffrey A. Manne

President and Founder

International Center for Law & Economics

William Rinehart

Senior Research Fellow

Center for Growth and Opportunity

Hal Singer

Managing Director

Econ One Research

Joanna Tsai

Vice President

Charles River Associates

Babette Boliek

Professor of Law

Pepperdine University

Antitrust & Consumer Protection

Federalist Society’s Pepperdine Student Chapter

Pepperdine Law Review

The Federalist Society and Regulatory Transparency Project take no position on particular legal or public policy matters. All expressions of opinion are those of the speaker(s). To join the debate, please email us at [email protected].

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