More Aggressive Antitrust Enforcement Would Create More Jobs and Grow the Economy

Posted in: Business Law

Antitrust enforcers in Europe recently fined Google $2.7 billion for abusing its dominant position in internet search to stifle competition from websites displaying comparison shopping alternatives. In contrast, in 2013, antitrust enforcers from the US Federal Trade Commission (“FTC”) determined not to pursue an antitrust case against Google based on similar allegations, determining that Google’s algorithmic changes, which demoted the placement of comparison shopping websites were not anti-competitive.

So what gives? Why did EU antitrust enforcers find that Google acted illegally, while their US counterparts declined to pursue a case? In large part, the answer lies in the different interpretations of antitrust laws in the EU and the US.

Antitrust Law in the United States

In the United States, antitrust enforcement is still primarily governed by the Sherman Act, passed in 1890, to attack the dominance of economically powerful trusts controlled by such “robber barons” as John D. Rockefeller, J.P. Morgan, and Andrew Carnegie. Section 1 of the Sherman Act prohibits “unreasonable restraints of trade” through conspiracies, combinations, or contracts. Section 2 of the Sherman Act prohibits acquiring or maintaining a monopoly through anti-competitive actions. It was under the Sherman Act that Standard Oil was broken up in 1911. And under the 1914 Clayton Act, antitrust enforcers often sued to prohibit acquisitions or mergers which “may substantially lessen competition” up through the 1970s.

However, since the 1980s, antitrust enforcement in the US became more lenient with respect to the conduct of dominant firms and the allowance of mergers or acquisitions. In larger part, this more lenient approach to antitrust resulted from the adoption by antitrust scholars and many judges of “Chicago school” economic thinking, which looked skeptically at government intervention in free markets. Under “Chicago school” thinking, the antitrust laws should not be enforced to protect the “little guy” from aggressive business tactics by bigger rivals except in very rare circumstances. Further, under this line of thinking, mergers, even of major firms, should be permitted if the merging parties project cost savings which arguably benefit consumers.

As a result, over the last 30 years, many industries in the United States have become much more concentrated, and the biggest firms in key markets continue to maintain overwhelming dominance. As an example, Google controls approximately 90 percent of internet search markets, both in the US and the EU, and Google’s Android mobile operating system has a worldwide market share of over 70 percent, according to recent figures in the Wall Street Journal. Recently, articles in even pro-business publications The Economist and the Wall Street Journal have called for more aggressive antitrust enforcement to combat excessive concentration in many US industries and to spur innovation. As the recent Wall Street Journal article, “Can the tech giants be stopped?” noted, “Antitrust action has often served not to constrain innovation, but to promote it.”

Is it likely that the Trump administration will heed the call for more aggressive antitrust enforcement in light of its populist rhetoric? The answer is “probably not.” In a speech last year, acting FTC Chairwoman Maureen Ohlhausen rejected the arguments in The Economist and a report from the Council of Economic Advisors pointing to excessive concentration in US industries, arguing that these articles were based on “faulty analysis.” She asserted, “Banning a merger on antitrust grounds simply because the firms are big would be to pursue a goal other than protecting competition. The era when antitrust promoted populist goals … is rightly behind us.”

Underlying this limited view of when antitrust should intervene is the now well-accepted principle that antitrust laws are not intended to protect competitors; rather, antitrust should intervene only if a dominant firm interferes with the competitive process. Under this view, the fact that Amazon’s low price strategy could put thousands of “main street” bookstores or small retailers out of business is not a concern of antitrust. The thought is that low prices benefit consumers and that the primary goal of antitrust should be to protect “consumer welfare.” Likewise, two firms would be allowed to merge if they project lower prices, even if that means laying off thousands of employees. The rationale antitrust enforcers cite for allowing such cost-saving layoffs would be that they are beneficial “efficiencies.”

EU Antitrust Law Can and Should Inform US Antitrust Law

While US antitrust enforcers have rejected the idea that “big is necessarily bad,” Europeans have taken a somewhat different approach. Under European antitrust law, dominant firms may not “abuse their dominant position.” European antitrust enforcers give more credence to complaints by smaller competitors that dominant firms disadvantage their smaller competitors and that antitrust laws should be enforced to prevent this. As the EU statement announcing the $2.7 billion fine against Google states, “dominant companies have a special responsibility not to abuse their powerful market position by restricting competition, either in the market where they are dominant or in separate markets.” The EU antitrust authority explained that a company dominant in one market—even if the dominance resulted from competition on the merits—should not be able to use its market power to cement or further expand its dominance, or to leverage it into separate markets. The EU fined Google because it determined that Google had systematically given prominent placement to its own comparison shopping service and demoted rival comparison shopping websites, even where such preferred placements would not have been justified if Google had applied its regular generic search algorithms to its own comparison shopping service. According to the EU, this was not competition on the merits and was illegal under EU antitrust rules.

Should US antitrust law adopt the European approach? Such a change would not even require any modification of statutory language. Rather, current US antitrust law could be reinterpreted through agency policy statements and judicial decisions to achieve the goals articulated by the sponsors of our original antitrust laws—that is to curb both the economic and political power of the most dominant firms. In past eras, the language of Section 1 and Section 2 of the Sherman Act was interpreted more broadly than it is now. By resurrecting the presumption endorsed by the Supreme Court in the early 1960s that any merger resulting in a market share of over 30% should be presumed to be anticompetitive, the burden would be placed on parties proposing a merger to prove that the deal would not cause harm. This burden shifting would make it much easier for the FTC and the Antitrust Division of the Department of Justice (“DOJ”) to block proposed mergers. While “Chicago schoolers” would criticize this older approach as economically inefficient, it would enable antitrust enforcers to retard the trend toward concentration in key US industries.

Further, antitrust law with respect to the conduct of dominant firms could be reexamined to broaden the definition of what constitutes “anticompetitive” conduct under Section 2 of the Sherman Act. This would give antitrust enforcers more powerful tools to combat the ability of dominant firms to leverage their dominance in ways that crowd out emerging rivals.

Such concepts have been incorporated in the recent policy statements of the Democratic Party in their platform called “A Better Deal.” This platform has called for more aggressive antitrust enforcement to block large mergers that unfairly consolidate corporate power and to curb anticompetitive conduct by dominant firms.

These new policy statements deserve serious consideration.

Posted in: Business Law

Tags: Antitrust, EU, FTC, Google