Christine A. Varney, the Justice Department's new Antitrust chief will give a speech today at the Center for American Progress. The purpose of this speech, as reported by the New York Times is to announce the return to Clinton era policies with respect to competetition law enforcement.
This is good news in my opinion. It's definitely a step in the right direction. The Clinton administration, however, was no trust-busting operation by any means. If we are to get serious about furthering competition, we need new a new philosophy and new enabling legislation.
Today's Times reports:
The speeches were described by people who have consulted with her about the policy shift. The administration is hoping to encourage smaller companies in an array of industries to bring their complaints to the Justice Department about potentially improper business practices by their larger rivals. Some of the biggest antitrust cases were initiated by complaints taken to the Justice Department.
Ms. Varney is expected to say that the administration rejects the impulse to go easy on antitrust enforcement during weak economic times.
She will assert instead that severe recessions can provide dangerous incentives for large and dominating companies to engage in predatory behavior that harms consumers and weakens competition. The announcement is aimed at making sure that no court or party to a lawsuit can cite the Bush administration policy as the government’s official view in any pending cases.
In the speeches, Ms. Varney is expected to explicitly warn judges and litigants in antitrust lawsuits not involving the government to ignore the Bush administration’s policies, which were formally outlined in a report by the Justice Department last year. The report applied legal standards that made it difficult to bring new cases involving monopoly and predatory practices.
Reversing the severely regressive Bush Administration's lax policy on competition is a good step in the right direction. We certainly need more enforcement, especially in the areas of media and finance. Ms. Varney's background in intellectual property is a good bet that she understands the issues of modern competetition. She represented Netscape in United States vs. Microsoft. But her role as a Clinton era FTC Commissioner and as an oil and gas lobbyist makes me question her instinctive willingness to take on Corporate America.
If Professor Herbert Hovenkamp is correct, her views will represent a "bad news" for high tech companies like Google:
Ms. Varney’s new policy more closely aligns American antitrust policy on monopolies and predatory practices with the views of antitrust regulators at the European Commission.
Herbert Hovenkamp, a leading antitrust scholar regarded as a centrist between those seeking more aggressive enforcement and those who generally argue for restraint, said the guidelines by the Bush administration were "a brief for defendants."
He said that the repudiation of those guidelines by the Obama administration "will almost certainly have a greater impact than the guidelines themselves had."
"This will be bad news for heavyweights in the tech industries — companies like Google and Microsoft," said Professor Hovenkamp, who teaches at the University of Iowa College of Law.
Even if her heart is in the right place, will she be able to effective? We all know how United States vs. Microsoft turned out for her client Netscape. Microsoft's strategy worked. The costs associated with three or four years of litigation were worth it, since they effectively destroyed Navigator with blantantly anti-competitive practices. In my view, the problem is more than enforcement. We need to rethink our concept of what antitrust should be all about. And we need new tools that lead to faster resolution of antitrust litigation.
Professor Zephyr Teachout of Duke called for new laws in The Huffington Post last month:
We now have an economy that we don't understand and can't seem to control even when we want to. Having created corporations, we have let some of them become "too big to fail"--a dangerous state of affairs, both economically and politically. Perhaps there are some companies that are simply too big to exist.
One way to avoid a similar problem in the future could be an antitrust law that limits how big corporations can become. This is not a new idea; at the time the modern antitrust statutes took shape in our country about a century ago, political leaders were concerned directly with corporate size and power. In the last several decades, however, legal economists have sharply narrowed antitrust law, leaning heavily on the assumption that larger companies can be more efficient. This view has some merit; after all, efficient companies can produce cheaper consumer products, and everyone shares in the savings. But the recent crisis should make us consider whether these economists have been leading us astray.
There are also reasons to think an antitrust policy focused on size and power makes good economic sense. Despite economic theorizing, bigger companies are not always more efficient companies. And even if they were, there are important societal efficiencies that go beyond whether individual companies operate cheaply or produce low-cost products. As Bert Foer of the American Antitrust Institute recently testified before Congress, we can choose to use competition policy to help prevent much of the systemic risk that has crippled our economy. By focusing more on size and concentration, we might be able to avoid collapse, unplanned nationalization, and bailouts.
Emphasis per me. This is right on. Since the mid 1970's competition law has been far to influenced by the likes of Judge Robert Bork which places the consumer at the center of enforcement. Thus we have the philosophy that measures competition sole in the form of the perceived "benefit" to the consumer, usually measured in choice and price.
Bork argued that both the original intent of antitrust laws and economic efficiency required that consumer welfare, the protection of competition rather than competitors, be the only goal of antitrust law. Thus, while it was appropriate to prohibit cartels that fix prices and divide markets and mergers that create monopolies, allegedly exclusionary practices such as vertical agreements and price discrimination did not harm consumers and should not be prohibited. The paradox of antitrust enforcement was that legal intervention artificially raised prices by protecting inefficient competitors from competition.
Bork (1978) p.405
In other words, there is nothing wrong with Wal-Mart because Wal-Mart means cheap goods. We need to get back to seeing the real problem, which is size and concentration stifling the benefits of more competition. This is fundamentally bad for the economy and capitalism in my view. We need an enforcment philosophy that considers the good of the whole society, and not the single consumer of good. Is Wal-Mart good for trade policy? Is Wal-Mart good for small towns? Is Wal-Mart good for wages? Would our society be better off if Wal-Mart had more competitors and was limited in size? I certainly think so.
I agree with James Kwak who recently wrote:
Over the past few decades, in part under the increasing influence of free-market economic theory, antitrust enforcement by the Department of Justice has become more tolerant of size and concentration in themselves, and has focused instead on whether mergers will benefit or harm consumers. On the one hand, increased concentration increases the ability of large firms to raise prices, hurting consumers; on the other hand, or so the argument goes, larger firms gain economies of scale that enable them to reduce costs and therefore reduce prices to consumers. (If you believe that, take a look at the price of text messaging on your mobile phone bill.)
I'm glad the Obama administration is at least going back to "consumer benefit" antitrust enforcement. This is better than the Bush Adminisrtation policy of no enforcement at all. But if the President wants to get serious, we need more.
I propose the we refocus our efforts on breaking up concentrations by establishing new guidelines on market share and number of competitive actors in any particular industry, especially those fundamental to economic or national security. Furthermore, we need a streamlined and more efficient anti-trust court with new procedural rules that prevent cases for dragging on for years. All of these require a modern antitrust law with enabling regulations. But before we do any of that, we have to stop thinking about "whats best for the consumer" all the time. We have to start thinking and acting like a nation and ask "whats best for the United States?"