Antitrust populism would shift US from free market to managed economy

Antitrust law has long relied on two cardinal principles: the consumer welfare standard and the “rule of reason” balancing test. Both principles reflect the view that antitrust is hard and that it is easy for regulators and courts to make errors. The consumer welfare standard ensures that antitrust law is only deployed against business practices that injure competition, rather than practices that disadvantage less-adept competitors. The rule of reason standard recognizes that business practices often have ambiguous effects and therefore it is necessary to weigh competitive gains against competitive losses when determining liability.

This organizing framework of modern antitrust is now under attack by a coalition of regulators, legislators, and like-minded supporters. For this coalition, antitrust is easy: The competitive threat posed by “Big Tech” is so clear that it is appropriate to discard the procedural and substantive constraints that require evidence of competitive harm before wielding the powerful remedies available under the antitrust laws.

This “blank check” for regulatory intervention is now progressing toward implementation.

In Congress, pending legislation would empower regulators to bar the largest platforms from engaging in an imprecisely defined category of “self-preferencing” practices, without the necessity of demonstrating competitive harm in the House version and subject to a “materially harm competition” standard in the Senate version.Another pending bill codifies the “big is bad” principle by precluding any such platform from engaging in an acquisition, unless it rebuts a presumption of competitive harm. At the Federal Trade Commission, agency leadership intends to employ claimed rulemaking powers to intervene on grounds of “unfairness,” an undefined concept that does not require evidence of consumer harm.  At the Department of Justice, the head of the antitrust division has expressed substantial doubts concerning the consumer welfare standard.

These policy initiatives have secured support across a broad political spectrum. However, it is not clear that the big-picture policy objective that drives this agenda is fully appreciated. 

Publications, statements and actions by regulators, legislators, and similarly-minded commentators suggest that “antitrust populists” do not seek to preserve competitive markets — at least as that term has been widely understood. Rather, they seek to displacethe free play of competitive forces in favor of an administered economy in which substantial portions of the digital ecosystem would effectively operate under continuous supervision by government regulators. Perhaps it is not coincidental that the FTC’s Bureau of Competition no longer describes its mission as being “to preserve … the unfettered operation of the forces of supply and demand.”

It is hard to overstate the extent to which this new policy vision diverges from antitrust law’s commitment to a market-driven economy as reflected in governing case law and agency guidelines. Following those principles, antitrust law seeks to preserve a level playing field so “unfettered” competitive forces can determine winners and losers. U.S. courts have been especially vigilant in rejecting strategic efforts by market laggards to use antitrust law to rearrange competitive outcomes. 

In contrast, antitrust populists seek to deploy antitrust law for redistributive purposes to achieve “fair” outcomes, sometimes paying little heed to efficiency effects. Ironically, this prioritization of distributive over efficiency concerns is likely to result in regressive effects by preventing firms from realizing maximal efficiencies that can translate into lower prices under competitive discipline. While regulators and some legislators are eager to decouple antitrust law from the consumer welfare standard (and, at the FTC, have taken steps to do so), consumers who bear the brunt of the highest inflation in 40 years might not be so quick to agree. 

This proposed transformation of antitrust law stands at odds with historical experience concerning the adverse effects of antitrust interventionism on economic growth. 

Proponents of the antitrust reform agenda often laud the post-World War II period as a golden age of antitrust vigilance against “Big Business.” Yet this period was characterized by slow turnover among Fortune 100 firms, and the economy was dominated by incumbents in the computing, communications, and aerospace markets, culminating in the economic and innovation malaise of the 1970s. In 1957, small firms accounted for approximately 7 percent of all private research and development expenditures; in 1980, that figure had declined to 5 percent. (As of 1992, after courts had adopted the economic approach to antitrust that today’s populists reject, the figure had jumped to 21 percent.)

In place of the prevailing approach to antitrust law, which demands hard evidence of competitive harm, antitrust populists tend to offer platitudes about non-economic values that are not amenable to objective assessment and sometimes fall outside the plausible bounds of competition policy. This willful abandonment of evidentiary rigor for regulatory fiat may be precisely the point. By adopting subjective principles that cannot be objectively assessed, enforcers would be relieved from having to prove very much at all before taking action against an allegedly anticompetitive practice.  

Pending policy initiatives threaten to convert the largest digital platforms into quasi-utilities governed by regulators that are unbound by the safeguards imposed by the consumer welfare standard and the rule-of-reason test. That approach would enable regulatory micromanagement and discourage the entrepreneurship that drives the U.S. innovation economy. It may not be an accident that the U.S., which has operated under an antitrust regime with a high evidentiary threshold for intervention, is the home of almost every global tech leader (outside China), while Europe, which has operated under an antitrust regime with a substantially lower evidentiary threshold, is the home of almost none.  

Antitrust reform reflects legitimate concerns over the inherent tendencies of digital markets to converge on a handful of leading providers. However, the wholesale dismissal of institutional safeguards against enforcement error risks converting the U.S. economy into an administered market in which winners and losers are selected by regulatory discretion rather than competitive forces. That is not what antitrust law is about.  

Jonathan M. Barnett is the Torrey H. Webb Professor of Law at the University of Southern California, Gould School of Law. He is the author of Innovators, Firms, and Markets: The Organizational Logic of Intellectual Property (Oxford University Press 2021).