Friday, May 3, 2019

Shubha Ghosh on The Antitrust Paradigm: Restoring a Competitive Economy

Competition through the Pervasive Method

Post by Shubha Ghosh
Crandall Melvin Professor of Law
Director, Syracuse Intellectual Property Law Institute
Syracuse University College of Law


            Antitrust law is hot again, but what will be its flavor? Bork’s antitrust paradox has just created new dilemmas. Lower prices, as made possible by platforms like Amazon, may not live up to the promise of maximizing of consumer welfare. And consumer welfare may not be the right metric for antitrust success anyway. Over the forty years since the publication of The Antitrust Paradox in 1978 United States markets have become more concentrated, less competitive, and less innovative despite the veil of new gadgets, lowered transaction costs for consumers, and imagined increases in consumer surplus.

            Professor Jonathan Baker’s new book, “The Antitrust Paradigm: Restoring a Competitive Economy,” calls for a revitalization of antitrust by making it truer to its economic goals of promoting allocative efficiency and aggregate welfare. There is no new paradigm being offered, but a return to fundamentals with a reboot incorporating new economic models from industrial organization, new thinking by existing antitrust agencies, and a new commitment to reducing concentration. Starting with a diagnosis of “market paroxysms,” which shows how Chicago-style economics of the 1970’s (the one informing Bork) has guided judges and agencies to permit increased concentration with the resulting threats to innovation and to economic welfare, all justified by the pursuit of economic efficiency. Bork’s solution to his perceived antitrust paradox has created a paradox of its own: an antitrust law that fails to promote competition by extolling a competitive economy that leads to bigness. Peter Thiel best exemplifies this contradiction in his “Zero to One,” where he suggests that business success is measured by being number one, including being a monopolist in one’s industry.

            An indication of the timeliness of Professor Baker’s book is its synchronicity with the release of a new report from the International Monetary Fund on April 3, which concluded, according to The Economist: “[M]arket power has risen notably in America and by a smaller amount in Europe and largely affected industries outside manufacturing.” Although the Fund acknowledges that this increased concentration may be the result of organic growth in winner take all markets, The Economist points out, “market power that grows organically is still market power.” The Fund’s report identifies the pernicious effects of this concentration: less investment in physical capital, a smaller share of the economic value created going to workers, and potentially putting a brake on future innovation, despite evidence of increased patenting today.

            Against this background, Baker proposes a revitalized approach to antitrust that combats concentration. Two reform proposals can strengthen antitrust enforcement, he argues. First is a more judicious use of presumptions by antitrust agencies and courts.  Evidence of firm concentration will trigger a presumption of anticompetitiveness which the firm must rebut. Second, this presumption would be imposed based on a sliding scale with firms having less market share receiving a presumption of competitiveness. As I understand them, the twin proposals can shift the current lackadaisical attitude that has permitted the levels of concentration reported by the IMF and justified on efficiency grounds. Professor Baker does not engage with defenses of synergies which have often allowed high tech mergers, such as the ones between AOL and Time-Warner decades ago and the recent Time-Warner merger with Comcast. But the use of a sliding scale would require strong evidence to rebut the presumption of harm to competition in concentrated industries, making it more difficult to justify mergers on predicted technological or economic synergies.

            Professor Baker addresses the issue of competition and innovation in Chapter Eight, and I will focus on this chapter for the rest of this post.  Two big ideas come out in his discussion of innovation. First is a rethinking of the Horizontal Merger Guidelines as framed by Baker’s reform proposals. Second is increased antitrust scrutiny of patents, especially in the context of standard setting.

            Baker’s reassessment of the Horizontal Merger Guidelines is a welcome analysis of an area of antitrust law that has seemed toothless and unpredictable. Part of the problem is that merger analysis gets lots is a trove of necessary, but often impenetrable, technical data that guide the decisions of antitrust agencies. Large mergers that seem to have strong anticompetitive potential pass muster while seemingly less problematic mergers fail. As discussed above, the mysterious appeal to synergies often mask more immediate and negative consequences. Baker’s proposals, if taken seriously, could jump start the field and counter trends towards concentration.

            The proposal to increase scrutiny of patents is underinclusive in the depth and breadth of the analysis. The topic of standard setting and patents has extensively been studied, and Baker provides useful corroboration and support in the policy space for the economic and legal scholarship. I was disappointed that he did not discuss the Actavis decision and reverse payment settlements, an important development in the antitrust scrutiny of patent-related practices. Although the facts of the case involved a specific practice in the pharmaceutical industry, the reasoning and language of the opinion potentially opens the door for deeper and broader antitrust review of patents and other forms of intellectual property. Trademarks are not discussed at all although Baker begins his book with anticompetitiveness in the craft beer industry overshadowed by dominant brands.

            As I have written elsewhere, it is important to consider how intellectual property serves as a form of competition policy, especially through the calibration of intellectual property rights through specific doctrines, such as exhaustion or fair use. It is unfair to criticize Jonathan for not considering intellectual property more as that is not the principal theme of his book. His contributions in Chapter Eight to strengthening antitrust scrutiny to improve innovation are important.  For those interested in exploring the complex interplay of technology, intellectual property, and antitrust, see Christopher Sagers’ recent book, “Apple, Antirust, and Irony.” Other than the contribution to the overuse of the word irony, the book provides an excellent analysis of the complexities of antitrust enforcement in the tech sector, especially when two potentially anticompetitive actors, Apple and Amazon, are at loggerheads. Spoiler alert: even though Apple was the antitrust defendant, Amazon may have been the greater antitrust violator. That’s the irony! For a more sobering account of how intellectual property interacts with competition policy, see my recent book with Irene Calboli, “Exhausting Intellectual Property Rights” (Cambridge 2018).

            Jonathan concludes his book on a political note with suggestions on how to implement his ideas, especially in this political climate. Implementation is the biggest challenge for any policy idea, even persuasive ones like those in this book. Invoking Thurman Arnold, and the New Deal era more broadly, Jonathan encourages more government intervention in concentrated markets. The problem is that we live in times when government is suspect. Will Jonathan’s proposals just become more political fodder? For competition to thrive, I think, policy must reform through the pervasive method. Competition and innovation should not remain solely within the jurisdiction of antitrust law but must pervade all areas of legal scholarship: intellectual property, insurance law, international law, telecommunications, FDA law. Many voices should speak to the many meanings and values of competition so that its importance breaks past the walls of antitrust.


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