the antitrust equilibrium and three pathways to policy change

Antitrust is one of the classic topics in economic sociology. Fligstein’s The Transformation of Corporate Control and Dobbin’s Forging Industrial Policy both dealt with how the rules that govern economic life are created. But with some exceptions, it hasn’t received a lot of attention in the last decade in econ soc.

In fact, antitrust hasn’t been on the public radar that much at all. After the Microsoft case was settled in 2001, antitrust policy just hasn’t thrown up a lot of issues that have gotten wide public attention, beyond maybe griping about airline mergers.

But in the last year or so, it seems like popular interest in antitrust is starting to bubble up again.

Just in the last few months, there have been several widely circulated pieces on antitrust policy. Washington Monthly, the Atlantic, ProPublica (twice), the American Prospect—all these have criticized existing antitrust policy and argued for strengthening it.

This is timely for me, because I’ve also been studying antitrust. As a policy domain that is both heavily technocratic and heavily influenced by economists, it’s a great place to think about the role of economics in public policy.

Yesterday I put a draft paper up on SocArXiv on the changing role of economics in antitrust policy. The 1970s saw a big reversal in antitrust, when we went from a regime that was highly skeptical of mergers and all sorts of restraints on trade to one that saw them as generally efficiency-promoting and beneficial for consumers. At the same time, the influence of economics in antitrust policy increased dramatically.

But while these two development are definitely related—there was a close affinity between the Chicago School and the relaxed antitrust policy of the Reagan administration, for example—there’s no simple relationship here: economists’ influence began to increase at a time when they were more favorable to antitrust intervention, and after the 1980s most economists rejected the strongest Chicago arguments.

I might write about the sociology part of the paper later, but in this post I just want to touch on the question of what this history implies about the present moment and the possibility of change in antitrust policy.

The antitrust equilibrium

The key to understanding antitrust is that it’s highly technical (maybe this is why more economic sociologists don’t study it?), and antitrust decisions are made mostly in the executive agencies (the Antitrust Division and the Federal Trade Commission), with regular input from the courts. Of course it is subject to political pressures from the president, interested parties, and the public, and of course it is ultimately accountable to Congress as well, but for the most part antitrust decisions are made by technocrats, not politicians.

And although there are many more antitrust lawyers than antitrust economists by simple head count, economics provides the dominant intellectual framework for making antitrust decisions. That is, antitrust decision have to be justifiable in technical economic terms in order to be legally defensible.

What that means is that antitrust policy is locked into a fairly stable equilibrium in two ways.

First, it’s committed to the idea that the sole purpose of antitrust policy is to promote consumer welfare, generally defined as allocative efficiency. Although there is a little play around both of these terms, this conception—established by Robert Bork’s 1978 Antitrust Paradox and the subsequent Supreme Court decision that recognized it—is much narrower than the original conception of antitrust, which included a variety of often-conflicting goals like limiting political power and protecting small business.

Second, it’s pretty tied to a Chicago framework for thinking about antitrust, despite the proliferation of all sorts of post-Chicago developments in economics, from game theory to transaction costs to behavioral economics. This is largely because the Chicago approach has been written into court decisions and judges like it, because it provides clear guidance about what to do in particular cases (generally, nothing).

What this means is that there’s a big gap between the public idea of what antitrust policy is for, and what experts in the field see it as doing. While the public might think, “really big corporations have too much power” and “it’s bad if there are only four airlines,” since the 1970s these arguments on their own have carried zero legal weight in antitrust. (Renata Hesse, the Acting Assistant Attorney General, has a nice talk on this public/expert gap that is less dismissive of the populist impulse than antitrust experts typically are.)

So given this reality, if you are someone who thinks “really big corporations have too much power,” what options for political movement exist?

Well, first, if you have a positive gut reaction to that statement, which I would guess most sociologists do, it’s worth taking seriously economics’ arguments about why bigness is not always badness. Mergers can lead to efficiencies, concentrated markets can still attract new competitors, and especially in the internet age, innovation is disrupting markets all the time. It’s even possible, though I’m more skeptical here, that four big airlines really might be enough.

But even if you take economic arguments seriously, there are still lots of potential concerns about concentrated corporate power that simply fall outside the scope of antitrust economics: political influence, ability to escape government oversight, or just distrust of any single company (Amazon? Google? Facebook?) that seems to exercise disproportionate influence over our lives. If the antitrust equilibrium doesn’t have the tools to address those issues, what are the political possibilities?

Three paths to policy change

I see three options here.

1. Taking concerns about corporate power to other policy domains.

Antitrust policy may just be too tightly defined at this point to deal with such concerns. But that doesn’t mean that some of them can’t be channeled into related policy domains that are less exclusively technocratic. For example, Too Big To Fail is not an antitrust issue (I blogged about this), even though to the layperson it seems like it should be—what else would antitrust deal with if not size so large it poses the potential for economic harm?

Just because antitrust can’t deal with TBTF (still a problem, BTW), doesn’t mean that it can’t be addressed in some other policy domain like financial regulation. Of course that’s got its own set of issues, but it’s not constrained in quite the same way as antitrust policy.

The Consumer Financial Protection Bureau is another place you see some of these impulses playing out. You can tell this strategy is potentially effective, because conservative antitrust economists argue against the CFPB on antitrust grounds, claiming that by rejecting Chicago premises (for example, about the rationality of consumers), it’s creating a new body of consumer law that is in conflict with existing antitrust law.

2. Populist intervention by Congress.

Much of the recent media interest in antitrust is straightforwardly populist: corporate power bad, must limit. Although such arguments aren’t going to have much effect on the technocracy, they might resonate in Congress. Antitrust has a long populist history, and even though Congress is Republican-controlled, populist issues sometimes make for strange bedfellows. I’m not sure exactly what such a legislative agenda would look like, but it could potentially upend antitrust by changing the legal criteria that underpin all the technical economic decisions about antitrust cases.

3. Economics itself might change.

Most interesting to me is the possibility of change from within. Economics has evolved considerably over time, and contains quite a variety of positions, including some that are very skeptical of antitrust laissez-faire. The prescriptions of structuralist economics in the 1960s were very different from those of Chicago economists in the 1970s or post-Chicago game theorists in the 1980s. Some of these positions have had more policy influence than others—for example, Nicola Giocoli argues that game theory had limited influence on antitrust policy, despite its huge influence in economics, because it didn’t give judges clear prescriptions for action—but they definitely had different political implications.

Recent work in economics continues to germinate new ideas that are potentially subversive to the status quo. For example, there is an emerging conversation about the potential relationship between inequality and antitrust policy. If market structure is shifting economic power from workers to firms, might that have antitrust implications? Some prominent economists, like Joseph Stiglitz, think so. (Read Marshall Steinbaum for a very current take on this.)

And there is also still ferment around behavioral economics, which does not assume Chicago-School levels of rationality among consumers. How rational are we, really, about bundling? Can you really figure out whether Time Warner’s cable/phone/internet deal is better than some alternative package, or do cognitive shortcuts come into play? If you stop assuming strong rationality, the justification for many non-interventionist antitrust policies suddenly looks a lot weaker.

There are other areas in economics that could similarly provoke change: more attention to the innovation effects of market concentration, or new ways of thinking about network industries, for example. There are risks to this approach, too: just because a theory gains adherents in economics doesn’t mean it will translate to policy (see: game theory), especially when it seems likely to make administrative decisions even more complex (see: behavioral economics).

Nevertheless, in some ways this seems to me the most likely pathway for actual change. And wouldn’t it be ironic if we saw a movement to effectively address populist antitrust concerns (even if it couldn’t admit that was what it was doing) come from the discipline that worked to define such concerns as beyond the legitimate scope of antitrust policy in the first place?

[I’m workshopping the paper at Chicago tomorrow–come say hi if you’re an orgtheory reader.]

Written by epopp

January 9, 2017 at 6:51 pm

4 Responses

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  1. Modern antitrust theory, which informs policy in jurisdictions elsewhere, says that structure of the industry is insufficient evidence for intervention. There must be “abuse of dominant market position”; i.e. behavior leading to anticompetitive outcomes (as measured by market share loss, prices paid or received,…) must be proved. The DoJ and FTC have followed this more and more, even during a Democrat administration. The sophistication of negotiated remedies (divesture of specific assets, geographical boundaries) between the watchdogs and the firms/applicants is also more evident. A final point is that it is getting harder to track prices paid by consumers for quality of product/service bundles in a highly segmented final products markets with electronic markets. Hard to find any evidence that consumers are being hurt, except possibly by cable providers…



    January 9, 2017 at 10:47 pm

  2. Randy — I agree — I think the gap between what e.g. Obama suggested he would do vs. how his administration has actually behaved shows that there’s a pretty strong expert consensus that limits how much antitrust enforcement changes from one administration to the next. The interesting question for me is whether there are openings within that expert space to address more populist concerns that seem to be gaining attention outside it — which aren’t necessarily just about consumer prices. Obviously whether one thinks that is worth doing at all, or should be done by antitrust, is a normative question, but I’m also just interested in how much room for movement there is within a policy domain controlled by experts.



    January 10, 2017 at 4:12 am

  3. Elizabeth, I have several colleagues who enjoyed success with, and engaged in significant self-congratulation for, engaging in competition policy, such as the investigation into the breakfast cereal industry structure and conduct. Over the years, they decried the inevitable switch from Democrat to Republican administrations. They had data that traced the number of investigations from “the lefthand the right”. Now, as they approach their dotage, they exercise their interest in competition policy, often with populist leanings, through State Attorneys General. The AGs have standing equal to the two Federal agencies in bringing antitrust action. Your home state of NY has been active in this.



    January 10, 2017 at 3:56 pm

  4. Algorithmic price fixing




    January 10, 2017 at 9:17 pm

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