Tuesday, June 19, 2007
Posted by D. Daniel Sokol
In recent Supreme Court decisions, we have seen a shift from antitrust to sector regulation in a number of sectors- postal (Flamingo), telecom (Trinko) and now securities (Billing). On the one hand, there is merit to large parts of all of these decisions. On the other hand, the choice of sector regulation over antitrust through what is in effect an immunity that could be broadened over time should leave us a bit concerned.
In yesterday's opinion, Jutice Breyer writes, "antitrust courts are likely to makeunusually serious mistakes" vis-a-vis sector regulators who have industry knowledge (slip opinion at 16). There is no one optimal system for how to divide up regulatory competencies between antitrust and sector regulators in regulated industries. The optimal mix depends on the costs and benefits of each institution, its capabilities and effectiveness. However, when antitrust is excluded, we should be more concerned about the potential of capture of sector regulators by interest groups. Because antitrust is a law of general applicability, it has fewer problems of capture than sector regulators. As sector regulation focuses on a specific industry, agency capture is a potential problem of sector regulation and more severe among sector regulators than at antitrust agencies. Repeat players in sector regulation are those in a particular industry with a vested interest in sector outcomes. This repeat play within a narrow band of interests may make sector regulators more prone to capture than antitrust regulators, whose oversights exposes them to many industries and interest groups.
The effects of an immunity from antitrust could be significant. The extent of sector regulation and the decision-making of sector regulators define the parameters for business regulation. Thus, a sector regulator that sets high barriers to entry affects the competitiveness of a market and the ability of antitrust to function as a policy tool to correct market failures. Moreover, empirical work on the effects of sector immunities from antitrust on regulated industries suggest industries in which there is no competition fare poorly when compared to those in which there is competition. As the ICN Report in Seoul notes "breaking up antitrust enforcement into different sectoral branches is somewhat at odds with the objectictive of making non-competitive sectors subject to common antitrust law."
Sector immunities is one of the few areas of agreement across the political spectrum of antitrust scholars. In short, all agree that sector immunities should be narrowly tailored to fit a particular end. Ideally, there would be a sunset provision for such immunities so as to revisit the debate at a later time and the better to prevent the unwarranted expansion of such immunities. On judicially created imminuties, this is tougher so we should always keep on the lookout for judicial over-reaching that expands immunities (which the judiciary is prone to do-- see the FTC State Action Task Force Report for a nice analysis).