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Thursday, February 11, 2010

Competition in Agriculture Symposium: Comments of Scott Kieff, Geoff Manne, and Josh Wright

Posted by Scott Kieff (GW Law), Geoff Manne (Lewis & Clark Law), and Josh Wright (George Mason Law)

Regarding firm size and integration, it must be kept in mind that the agriculture industry in the U.S. has, for good reasons, moved beyond the historic, pastoral image of small family farms operating in quiet isolation, devoid of big business and modern technologies. The genetic traits that give modern seeds their value—traits that confer resistance to herbicide and high yields, for example—are often developed through processes that are technologically-advanced, time- and money-intensive, risky investments, and subject to various layers of regulation.  It doesn’t take expertise in industrial organization to imagine why at least for some participants in this market these processes are likely to be more efficiently and effectively conducted within large agribusiness companies having enormous research and development budgets and significant expertise in managing complex business and legal operations, than they are by the somber couple depicted in the famous 1930 Grant Wood painting, “American Gothic.” Nor is such expertise required to imagine why complex contracting across firms, of any size, is likely to be of significant help in supporting the specialization and division of labor that is useful in allowing some businesses (even a small family farm is a business) to be good at planting and harvesting while others are good at inventing, investing, managing, developing, testing, manufacturing, marketing, and distributing the next wave of innovative crop technologies.  This requires on the one hand that the government give reliable enforcement to contracts and property rights whether tangible or intangible (extremely important in this industry are patents, trade secrets, and even trademarks), while on the other hand it allows firms wide flexibility to decide for themselves which of these contracts and property rights they would like to enter into or obtain pursuant to the applicable bodies of contract and property law. 

When courts and regulatory agencies like the DOJ Antitrust Division adopt special approaches to the body of antitrust law to address concerns that may arise from these property rights and contracts, they run the risk of crafting doctrines that inappropriately override well-established bodies of law that are informed by longstanding judicial and scholarly thought and consideration of each area, and creating the potential to reduce innovation and economic growth.  A central countervailing concern is that the putative antitrust injuries that might arise are rooted in stylized economic models that are heavily dependent on a narrow set of assumptions, leaving significant room for erroneous antitrust enforcement.  A modest but fundamental safeguard to protect against this concern of “false positives,” is an approach to antitrust that requires a strong demonstration of actual anticompetitive effect as a precondition for a monopolization violation. 

Not only are patents not presumptive proof of market power in any static sense, but patents can also meaningfully improve both competition and access to patented technologies over time, in the dynamic sense.  From the public record it appears that the driver of much of today’s antitrust enforcement in the agricultural industry  boils down to intervention into business disputes between large and sophisticated parties.  The inherent uncertainty regarding the economic consequences of specific conduct, coupled with competitors’ poor incentives and the huge costs of error, counsel strongly against antitrust intervention without strong empirical evidence that the conduct has reduced competition and harmed consumers in the form of higher prices, lower quality, or reduced innovation.

A more detailed version of this comment was filed with the Department of Justice Antitrust Division on December 31, 2009, as Comments Regarding Agriculture and Antitrust Enforcement Issues in Our 21st Century Economy, by F. Scott Kieff, Geoffrey A. Manne, Michael E. Sykuta, and Joshua D. Wright, and should be available for download from the DOJ webpage when the public comments are posted.  A copy is also available here(www.laweconcenter.org), and comments are most welcome at gmanne@laweconcenter.org.

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