The New Thinking on Antitrust Is More Wrong Than Right

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Big Tech got some good news yesterday when a U.S. district judge dismissed two antitrust cases brought against Facebook by the Federal Trade Commission and a group of states. Curiously, the ruling may also be greeted as good news by the Enemies of Big Tech, who say that existing law is not up to the task of prosecuting monopolies and favor a radically different approach.

It so happens that the most prominent advocate of this approach is the new chairwoman of the FTC. Lina Khan is a celebrated young legal scholar whose paper “Amazon’s Antitrust Paradox” (published four years ago, when she was 27) made the case for a thoroughgoing reappraisal of competition policy. Khan’s paper and the rest of the new antitrust literature is valuable — but its prescriptions aren’t persuasive. As a guide for policy, the old approach is a lot closer to being right.

Khan and her intellectual allies argue against the prevailing consumer-welfare standard, enshrined in antitrust law during the 1970s and 1980s under the guidance of Robert Bork and the so-called Chicago School of legal scholars and economists. According to this (suddenly unfashionable) view, the test of whether market power is being abused is to ask one simple question: Is there harm to consumers? If there isn’t, antitrust policy ought to mind its own business.

“Amazon’s Antitrust Paradox” says that this narrow assessment misses the point. Excessive market power gives rise to “a broader set of ills and hazards.” For a start, consumers aren’t just interested in low prices. They also care about quality, variety, innovation, what happens to all the data Big Tech collects, and so on. More important, competition policy should weigh the effects of market power not just on consumers but also on the dominant firms’ suppliers and workers, and on labor more generally. It should also recognize the danger that monopolistic firms pose to the political system.

So extensive is this range of ills and hazards, goes the argument, that acting on specific harms is unwise. Antitrust policy should concern itself first and foremost with limiting market power. “[W]e should replace the consumer-welfare framework with an approach oriented around preserving a competitive process and market structure.”

This might seem both reasonable and eminently pro-market. But it has a very odd implication. The revisionists aren’t just saying that there’s more to consumer welfare than short-run changes in prices and output (which is true). They’re saying that consumer welfare, however broadly defined, is the wrong way to think about competition policy. The goal should be to resist market dominance in its own right. Policy should try to curb the growth of potentially dominant firms before they actually become dominant, even if this makes consumers worse off.

As you might expect, the revisionists are reluctant to examine this implication closely. They speculate at length about the opportunities that dominant technology firms could exploit to increase their market power still further. They discuss the ways in which this might one day prove harmful to consumers and others. They have notably less to say about how dominant technology firms are using their power right now to inflict harms on consumers or anybody else. Above all, they’re virtually silent about the colossal benefits the dominant technology firms have already bestowed, and for the moment continue to bestow, on their customers.

Bear in mind that, according to the revisionists, the dominant firms have been too big for quite some time — Khan’s article is four years old. So here’s the question the revisionists need to address: When exactly did the now-dominant firms threaten to become too powerful? At what point would a more enlightened policy have set out to stall their growth, notwithstanding any losses in consumer welfare between then and now?

You can’t think intelligently about the dangers posed by dominant firms without also weighing the actual and potential benefits of scale, most of which flow to consumers. Replacing the consumer-welfare standard with a test of market structure that’s blind to this balance is setting the most vital information aside.

Granted, the revisionists are right that the Chicago School didn’t envisage this kind of dominance — enormous scale combined (in Amazon’s case, at least) with comparatively measly profits year after year. Why would a company seek unprecedented scale at the cost of enormous forgone profits unless the idea was to recoup those losses by killing its competition and then exploiting its power to charge above-market prices? (Presumably, the prospect of this gigantic windfall is the theory underlying Amazon’s heady stock market valuation.)

Yet such an outcome seems no closer now than it did five or 10 years ago. And if it should happen, the traditional view could cope — though it asks to see actual harm to consumers, or a plausible scenario for harm in the near term, before hobbling companies that happen to be delivering vast benefits to their customers.

The revisionists are also right that Big Tech involves new possible harms, and that the digital economy behaves differently from more familiar markets. But again, Khan and her allies appear to draw the wrong conclusions. These huge firms certainly require careful oversight, and new harms (such as possible misuse of personal data) should be addressed. But the remedies can and should be narrowly tailored. Relatedly, the novel features of the digital economy cut both ways. Just as “network effects” create new opportunities for building and entrenching market power, so they also create new opportunities for delivering larger economic benefits.

This shouldn’t need saying, but apparently it does: It isn’t in America’s interests to be as good as Europe at thwarting the rise of dominant tech companies. If Amazon, Google, Apple and Facebook had been stopped in their tracks, the U.S. would not be better off — nor, for that matter, would the rest of the world.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Clive Crook is a Bloomberg Opinion columnist and writes editorials on economics, finance and politics. He was chief Washington commentator for the Financial Times, a correspondent and editor for the Economist and a senior editor at the Atlantic.

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