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what problems do people think antitrust is going to solve?

Last week, I asked why antitrust is having a moment (it’s continued, on Planet Money and elsewhere), and why Democrats are using radical language to make fairly modest proposals. In this post, I’m going to ask what problems people think antitrust is going to solve, anyway.

Certainly a lot of the current concern about antitrust comes from a broad sense that corporations are too economically and politically powerful, that our economy has been restructured in ways that make ordinary people worse off, and that massive tech companies are able to use our data in ways that we have little control over. That’s political antitrust. And those are totally real issues.

But I want to explore some new questions being raised that are not exactly within the current scope of economic antitrust, but that are still kind of speaking its language—that are pushing to change the antitrust technocracy, not up-end it. To recap, as it has been construed for the last thirty-plus years, the purpose of antitrust is to promote consumer welfare, generally by trying to keep firms from being able to raise and keep prices above a competitive level. The focus is consumers, and prices.

Increasingly, though, people at least adjacent to the space of antitrust expertise are making claims about economic problems they think are being caused by lax antitrust enforcement, or that antitrust should be addressing. And those proposals are worth keeping an eye on, because as hard as it might be to change the expert consensus, it’s still more likely than a new anti-monopoly movement. (Though the two could certainly reinforce each other.) I see these new arguments as falling into basically three categories.

Market power has effects we didn’t realize

Market power is the ability to keep prices above a competitive level (i.e. above marginal cost). Once upon a time, people thought there was a fairly close relationship between how concentrated a market is—that is, how many companies control what share of the market—and how much market power firms have. Since the 1970s, there has been much less of a presumption that concentration, on its own, indicates market power. That means that there’s been less concern about whether we’ve got four airlines controlling 70% of the U.S. market, or that four carriers control 99% of the U.S. wireless market.

Increasingly, though, people are raising flags about other problems that might result from market power. One of these is labor monopsony—the idea that firms have market power, but as purchasers of labor, not sellers of products, and that this is driving wages down. The Council of Economic Advisers put out a report last fall suggesting this might be happening, and Democrats’ mention of “bargaining power for workers” implies this is part of what they’re trying to address. There are related arguments about market power in supply chains and the emergence of “winner take most” industries that also suggest links between concentration or market power and wages.

In theory, monopsony can be handled within the current legal framework, though it is rarely addressed in practice. So developing arguments about the effects of market power on workers, and a legal framework for addressing that within antitrust, is one conceivable new direction for antitrust.

Others are arguing that market power can lead firms to attach undesirable conditions to products that make them lower quality, even as price remains the same. In particular, some scholars, including Nobel Laureate Joe Stiglitz, have framed privacy as an antitrust issue: the product may be free, but consumers have no choice about how their data is used (and in the case of platforms like Facebook, no equivalent competitors). Privacy is hard to address within a framework focused purely on price. But in Europe, competition policy is increasingly tackling privacy issues, and Germany is currently investigating whether Facebook’s dominant position is forcing consumers to give up their privacy without having an alternative choice.

Market power has causes we didn’t realize

The Atlantic just featured a story with the dramatic title, “Are Index Funds Evil?” The article discusses the rise of large institutional investors—index funds, though not only index funds—and what it means that, increasingly, big chunks of competitors in a specific market are actually owned by the same few corporations. It goes on to discuss work by José Azar, Martin Schmalz, and Isabel Tecu that finds that this common ownership enhances market power, and that airline ticket prices are 3-7% higher than they would be under separate ownership.

In this story, index funds were the hook, but it just as easily could have been framed around antitrust. In a way, common ownership was the original antitrust question: the big trusts of the late 19th century were not single-firm monopolies, but competitors that had turned over ownership to a group of trustees that made unified governance decisions. And while research in this area is still new and findings tentative, legal scholars are already making the case that antitrust law can cover the anticompetitive effects of these horizontal shareholdings. If this work continues to hold up, this seems potentially transformative.

Technological change is creating new threats to competition

Finally, a fair bit of the recent chatter is basically arguing, “it’s the technology, stupid.” The dynamics of competition change as more of the economy shifts to online platforms. Because of network effects, companies like Facebook, Google, Apple, and Amazon are hard to compete with—much of their value comes from their existing user base. And because they aren’t just selling products to consumers, but connecting consumers with producers, they aren’t acquiring market power in the traditional sense. Facebook and Google are free products, after all.

But the power of network effects means that they have a tendency towards monopoly. And the fact that the four largest companies by market capitalization are platforms suggests how central platforms have become to our economy.

So we have these new companies that have become very large, and that appear monopolistic, though they also create great value for consumers. From an antitrust perspective, they don’t really appear to be a problem, because they aren’t raising prices. And the history of rapid technological change over the past 25 years, including the rise and fall of a number of once-dominant platforms, raises the question of whether even platforms behaving in anticompetitive ways pose much of a long-term threat.

Recent scholarship, though, argues that monopolistic platforms are in fact anticompetitive, that it is a problem, and that current law is poorly equipped to handle. Lina Khan’s much-circulated note in the Yale Law Journal, for example, argues that 1) platforms encourage predatory pricing—generally seen as irrational (and thus not an issue) within antitrust law—because network effects encourage pursuit of growth over profit, and 2) platforms collect data on rivals that give them an unfair competitive advantage. These sorts of issues clearly fit within the broad scope of “protecting competition,” but don’t fit easily with a consumer welfare, market power conception of antitrust.

Changing that would be a significant project, but if we have an economy that is dominated by firms whose potentially anticompetitive activity is essentially beyond the scope of antitrust, there’s not much left to antitrust. And again, the massive fine the E.U. just levied on Google—for favoring its own shopping service, consisting of companies that pay Google to be on it, over competitors in search results—suggests what this could look like. So far, the U.S. has not demonstrated much enthusiasm about expanding antitrust in this direction. But it’s not inconceivable that it could happen, and it could be done within a framework that was focused solely on competition, if not only on consumer welfare.

Again, all these challenges to the current antitrust framework are at least in the ballpark of its conversation, even if they would require pushing the law in new directions or advancing the acceptance of new economic theories. And they are not the only arguments that are in play here. For example, the question of whether inequality is facilitated by concentration or market power, or whether it has become such a central economic problem that antitrust should try to address it, have prompted enough discussion that two leading antitrust scholars have felt the need to argue that antitrust should leave inequality alone.

Unlike political antitrust, which would probably require a social movement to move it forward, these antitrust arguments have the potential to gain traction without necessarily requiring legislation or a revolution against the current antitrust regime. The 1970s shift toward Chicago-style antitrust happened, to a considerable extent, because the old economic framework seemed increasingly inadequate for explaining the world people found themselves in. As the current framework comes to seem similarly dated, this could be another moment when such change is possible.

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Written by epopp

August 10, 2017 at 1:33 pm

the democrats can’t decide how radical they want to be on antitrust

The other day I wrote about the current moment in the spotlight for antitrust. (Here’s the latest along these lines from Noah Smith.) Today I’ll say something about the new Democratic proposals on antitrust and how to think about them in terms of the larger policy space.

The Democrats are basically proposing three things. First, they want to limit large mergers. Second, they want active post-merger review. Third, they want a new agency to recommend investigations into anticompetitive behavior. None of these—as long as you don’t go too far with the first—is totally out of keeping with the current antitrust regime. And by that I mean however politically unlikely these proposals may be, they don’t challenge the expert and legal consensus about the purpose of antitrust.

But the language they use certainly does. The proposal’s subhead is “Cracking Down on Corporate Monopolies and the Abuse of Economic and Political Power”. The first paragraph says that concentration “hurts wages, undermines job growth, and threatens to squeeze out small businesses, suppliers, and new, innovative competitors.” The next one states that “concentrated market power leads to concentrated political power.” This is political language, and it goes strongly against the grain of actual antitrust policy.

Economic antitrust versus political antitrust

Antitrust has always had multiple, competing purposes. The original Progressive-Era antitrust movement was partly about the power of trusts like Standard Oil to keep prices high. But it was also about more diffuse forms of power—the power of demanding favorable treatment by banks, or the power to influence Congress. That’s why the cartoons of the day show the trusts as octopuses, or as about to throw Uncle Sam overboard.

The Sherman Act (1890) and the Clayton Act (1914), the two major pieces of antitrust legislation, are pretty vague on what antitrust is trying to accomplish. The former outlaws combinations and conspiracies in restraint of trade, and monopolizing or attempt to monopolize. The latter outlaws various behaviors if their effect is “substantially to lessen competition, or to tend to create a monopoly.” The courts have always played the major role in deciding what that means.

Throughout the last century, the courts have mostly tried to address the ability of firms to raise prices above competitive levels—the economic side of antitrust. For the last forty years, they have focused specifically on maximizing consumer welfare, often (though not always) defined as allocative efficiency. Since the late 1970s, this has been pretty locked in, both through court decisions, and through strong professional consensus that makes antitrust officials very unlikely to challenge it.

Before the 1970s, though, two things were different. For one thing, the focus was more on protecting competition, and less on consumer welfare per se (the latter was assumed to follow from the former, and was thought of a little more broadly). For another, the courts sometimes took concerns into account other than keeping prices low.

The most common such concern was the fate of small business. Concern for small business motivated the Robinson-Patman Act of 1936, which prohibited anticompetitive price discrimination. It was clear in the Celler-Kefauver Act of 1950, which restricted mergers out of fear that chain stores would eliminate local competition. And the courts acknowledged it in cases like Brown Shoe (1962), which prevented a merger that would have controlled 7% of the shoe market by pointing to Congress’s concern with preserving an “economic way of life” and protecting “local control of industry” and “small business.”

Today, Brown Shoe is seen as part of the bad old days of antitrust, when it was used to protect inefficient small businesses and to pursue confused social goals. This is a strong consensus position among antitrust experts across the political spectrum. While no one thinks that low prices for consumers are the only thing worth pursuing in life, they are the appropriate goal for antitrust because they make it coherent and administrable. Since those experts’ views dominate the antitrust agencies, and have been codified into law through court decisions, they are very resistant to change.

The Democrats’ proposal: radical language, incremental proposals

So when the Democrats start talking about “the abuse of economic and political power,” the effects of concentration on small business, and limiting mergers that “reduce wages, cut jobs, [or] lower product quality,” they are doing two things. First, they are hearkening back to the original antitrust movement, with its complex mix of concerns and its fear of unadulterated corporate power.

Second, they are very much talking about political antitrust, and political antitrust is deeply challenging to the status quo. But their actual proposals are considerably tamer than the fiery language at the beginning, and are structured in a way that doesn’t push very hard on the current consensus. New merger guidelines could make some difference around the margins. Post-merger review would definitely be good, since there’s currently no enforcement of pre-merger conditions that firms agree to, and no good way to figure out which merger approvals had negative effects. I have a hard time seeing a new review agency having much effect, though, since it’s just supposed to make recommendations to other agencies. Even I don’t like bureaucracy that much.

So my read on this is that the Democrats feel like they need a new issue, and it needs to look like it helps the little guy, and they want to sound like populist firebrands. But when you get down to the nitty gritty, they aren’t really so interested in challenging the status quo. That is, basically, they’re Democrats. Still, that the language is in there at all is remarkable, and reflects a changing set of political possibilities.

Next time I’ll look at some of the problems people are suggesting antitrust can solve. Because there are a lot of them, and they’re a diverse group. Tying them together under the umbrella of “antitrust” gives an eclectic political project some nominal coherence. But is it politically practicable? And could it actually work?

Final note: If you are interested in the grand historical sweep of antitrust in capitalism, I recommend Brett Christophers’ The Great Leveler. Among other things, he totally called the emerging wave of interest before it actually happened. Sometimes the very long lens is the right one to use.

Written by epopp

August 3, 2017 at 3:04 pm

so long, sweet money: guest post by nina bandelj, fred wherry and viviana zelizer

Final (I promise!) installment of money month, hosted by Nina Bandelj, Fred Wherry, and Viviana Zelizer. Read the whole series here!

Thank you very much for the opportunity to discuss money in May for Org Theory. We hope our posts have enticed you to check out Money Talks: Explaining How Money Really Works.

We also want to let you know that Princeton University Press published a new edition of The Social Meaning of Money, with a preface by Nigel Dodd and afterword by Viviana Zelizer.  Plus, this summer Columbia University Press is publishing a new edition of Zelizer’s Morals and Markets: The Development of Life Insurance in the United States, with a preface by Kieran Healy.

A fun fact: Viviana was the ASA Economic Sociology Section‘s first chair, Nina was chair in 2013-14 and Fred is incoming section chair. If you are not a member, now is a time to join.

50+ chapters of grad skool advice goodness: Grad Skool Rulz ($4.44 – cheap!!!!)/Theory for the Working Sociologist (discount code: ROJAS – 30% off!!)/From Black Power/Party in the Street   

Written by fabiorojas

June 5, 2017 at 2:28 am

money month wrap up

We had a lot of interesting stuff on the blog this month. First, the sociology of money posts by Nina Bandelj, Viviana Zelilzer and Fred Wherry:

  1. We are not behavioral economists.
  2. Hackers want bitcoin.
  3. A giving mood.
  4. Policy monies.
  5. Money takes the stage.

Also, we discussed Mark Granovetter’s new book summarizing his approach to economic sociology:

  1. Summary statement
  2. What I like
  3. What I didn’t like

Check it out!

50+ chapters of grad skool advice goodness: Grad Skool Rulz ($4.44 – cheap!!!!)/Theory for the Working Sociologist (discount code: ROJAS – 30% off!!)/From Black Power/Party in the Street  

Written by fabiorojas

June 2, 2017 at 12:09 am

granovetter book forum 3: critiques and the future of economic sociology

In this final post on Society and Economy, I’ll discuss critical points with Granovetter’s text. Please read my previous posts for the overview and what I liked about it.

First, let me start with a strange criticism. As I was reading this book, I just kept nodding my head in agreement too many times. Why? Because Granovetter is the central scholar in economic sociology. Reading a book that synthesizes decades of his work was like re-reading the field’s greatest hits. This really feels like (in a good way) reading a book that digs up all of the stuff in my qualifying exam reading list and presents it in a beautiful package. In principle, that’s not a bad thing. But in terms of producing a forward looking text as opposed to a valedictory statement, it’s some what of a limit. If we all agree on these points, then the tension of the book is gone.

This leads me to a second point. I think Granovetter missed a real opportunity here for generating some tension and excitement. Like a lot of sociologists, he is stuck arguing against economics circa 1990. Back then, economics was “full imperialist.” At that point in time, economists tried to turn all studies of human behavior into applied micro-economics and they did so in a way that underplayed, ignored, or mis-interpreted the social dimensions of behavior. In a few words, economists just didn’t think the issues that Granovtter champions were legitimate.

That era is gone. I am not claiming that economics has “come to Jesus” and begun to love sociology. Far from it. But they have moved in interesting directions. For example, some have taken institutions (in Granovetter’s sense) very seriously, such as Daron Acemoglu. Others, have directly tried to model sociological processes, such as Akerlof’s theory of identity. Heck, there’s even an economist who has done economic modelling of “presentation of self” in the context of sex work. In other words, economists still revile sociologists, but they’ve done some interesting sociological work anyway. It would have been interesting to see Granovetter absorb and respond to that work.

This leads me to a bigger sin of economic sociology, though it is not exclusive to Granovetter. Society and Economy does not directly engage with a lot of economic literature. One of my long standing criticisms of economic sociology in general is that scholars in the field do not actually delve deeply into the economic literature. For example, in an old review article, I argued that population ecology/organizational demography essentially duplicated a lot of standard arguments in industrial organization theory.

Here’s an example from Society and Economy. Perhaps the leading economist who writes on institutions as a predictor of a nation’s economic performance is Daron Acemoglu. So you would think that Granovetter would compare his approach/the economic sociology approach to what Acemoglu and his collaborators have done. Perhaps Acemoglu’s work supports Granovetter, maybe it doesn’t. Yet, not a single citation to that massive literature. This is not to say that Society and Economy is totally disengaged from economic writing. Rather, the engage is selective and a more direct assessment would have been enormously useful.

I’ve been critical in this final installment. That’s ok. Granovetter’s work is massive and influential. My jabs won’t diminish that obvious fact. But what I do hope is that the few folks who’ve made it to the end of this review push the field in some new directions.

50+ chapters of grad skool advice goodness: Grad Skool Rulz ($4.44 – cheap!!!!)/Theory for the Working Sociologist (discount code: ROJAS – 30% off!!)/From Black Power/Party in the Street  

Written by fabiorojas

June 1, 2017 at 12:01 am

policy monies: a guest post by nina bandelj, fred wherry, and viviana zelizer

Money Month guest blogging continues with UC Irvine’s Nina Bandelj, Yale’s Fred Wherry and Princeton’s Viviana Zelizer

In The Social Meaning of Money we see how welfare monies have been argued over and policed. While a more efficient solution would be to provide simple cash transfers rather than attaching strings that cost money to monitor, most service delivery programs have paid more attention than seems prudent to how the poor and the otherwise disadvantaged use and understand their funds. In Money Talks, we extend this conversation to address this proliferation of policy monies.

Our introduction draws on work by Jennifer Sykes, Katrin Kriz, Kathryn Edin, and Sarah Halpern-Meekin on Earned Income Tax Credit, which is one kind of policy money. It is not welfare. This is a crucial distinction that explains why EITC as a policy program has gained greater legitimacy among policy makers than welfare cash transfers. And this is not because EITC is a less expensive policy than welfare cash transfers. It is the way the money is given and what it means. Welfare has such poor connotations among Americans. It goes so counter to American values of work ethic and pulling yourself up by the bootstraps. The Earned Income Tax Credit, which was developed by the Clinton administration, with bipartisan support, was intended for low income working families, in a form of a small tax credit, and administered by the IRS.  As such, because of its form and for what is intended, it was more acceptable than a cash welfare program. Not only for policy makers but by low income recipients themselves, who perceive it as a more dignified transfer. Kathryn Edin, H. Luke Shaefer and Laura Tach, reported on how those claiming the credit at tax time, expressed feeling “like a real American,” like they are part of society, rather than discarded from it. They also noted how they wanted their children to have experiences like those of other children. Having the right kind of money made a big difference.

Parents used their EITC money to pay bills or to pay down debts, to increase their savings, to offer their children special treats, and to subsidize a family trip to see relatives.  The purposes to which recipients put the money and its intended beneficiaries (family members) meant that these lump sum payments would be disaggregated and some of its parts deemed nearly non-fungible. This was not simply the outcome of a cognitive process of classification as the mental accounting perspective would suggest. Rather, monetary differentiation was wrapped in relationships and moral concerns, as people managed their EITC monies to work on their relationships.

While Kathy Edin, Luke Shaefer, and others examine the dignity-enhancing ways of framing and delivering social service assistance, Fred Wherry, Kristin Seefeldt and Anthony Alvarez have begun to ask these questions of credit, credit scoring, and programs at the Mission Asset Fund intended to improve the credit histories and financial lives of its participants. (This work is ongoing.) Is there a way that the “lending circle” monies are used that differ from other monies? How is credit talked about, understood, and relationally marked by its users? What lessons might there be for other alternative financial services as well as those services delivered by credit unions and mainstream banks?

50+ chapters of grad skool advice goodness: Grad Skool Rulz ($4.44 – cheap!!!!)/Theory for the Working Sociologist (discount code: ROJAS – 30% off!!)/From Black Power/Party in the Street  

Written by fabiorojas

May 31, 2017 at 8:45 am

granovetter book forum – part 2: what economic sociology is all about

We’ve been discussion Mark Granovetter’s new Society and Economy: Framework and Practices. It’s a book that a lot of us in economic sociology/organization theory have been looking forward to – a synthetic treatment of the scholarly field hashed out by Granovetter and his followers. In this post, I’ll focus on what I liked the most. The next post, I’ll lay out some critiques.

First, this will clearly become the “go-to” book in economic sociology. If you trained in this area, or a related area (like organizational behavior), you know that we sorely need a book like this. Sure, there are a fair number of anthologies of economic sociology, but not a single book that lays it out.

I don’t think there is anyone more suited to writing such as book than Mark Granovetter. He’s probably the most highly regarded economic sociologist and his work is wide reaching. Most importantly, he operates in the mainstream of American sociology. He’s not a fancy model builder, nor an importer of obscure European social theory. He asks fairly intuitive questions about how economic processes depend on rules and norms.

He’s also the person to write this book because his main theoretical article, 1985’s “Economic Action and Social Structure,” is the best explanation of how sociologists ought to approach economic behavior. He rejects the “over-socialized” view of (some) sociologists, who think that choice is meaningless. He also rejects the “under-socialized” view of (many) economists, who think that morals and values are not important. The 1985 article succinctly (if densely) argues that economic action is “inside” social relations, in the sense that larger structures provide opportunities and create incentives.

This leads me to my next point – the big strength of Society and Economy is in Chapters 1 and 2. In very direct language, Granovetter argues against the view that social relations are an thing that is incidental in economic action. Rather, social relations shape and enable action. The “economic” and the “social” are always happening together and they affect other. Then, in chapter 2, Granovetter offers a more general presentation of economic sociology as a field – it is how “mental constructs” (power, authority) are present in the economy and are affected by the economy. Perhaps these two chapters can be read as an argument against the view found among many economists that the “social” is essentially an error term in economic analysis.

Another chapter that I enjoyed reading is chapter 5, on the economy and social institutions. In modern sociology, we often use the framework created by Stinchcombe, DiMaggio and Powell, Scott, and Meyer and Rowan to articulate what we mean by institutions. Granovetter approaches it in a sort of different way. Rather making the focus of analysis the axis of organization and environment, Granovetter adopts the “institution” as durable ways of doing things at the national level. This is a bit closer to how many economists would see it, such as Douglas North or, today, Daron  Acemoglu. Then,  Granovetter delves a bit into institutional logics when he needs to get more detail oriented in the text. Not the way one would do it if trained in the canon of neo-institutionalism, but certainly a valuable way to think about institutions, as manifestations of national cultures.

Later this week, some critiques and more about the future of economic sociology.

50+ chapters of grad skool advice goodness: Grad Skool Rulz ($4.44 – cheap!!!!)/Theory for the Working Sociologist (discount code: ROJAS – 30% off!!)/From Black Power/Party in the Street  

Written by fabiorojas

May 30, 2017 at 12:16 am