The Battle Over Monopoly Power Is Just Beginning

(Bloomberg Opinion) -- The outcry over monopoly power has gone mainstream. A few years ago, concerns over increasing market concentration began to appear in the economics profession, and a few scattered activists began to make the issue a central priority. But while academics and think tanks continue to speak out about antitrust and monopolies, more and more economics writers are now also sounding the alarm. Law professor Tim Wu went so far as to warn that widespread monopoly could lead to the death of democracy itself. The Economist has an entire special report covering many aspects of the issue. Author and private-sector economist Jonathan Tepper has a new book entitled “The Myth of Capitalism: Monopolies and the Death of Competition” that could bring the problem into the public eye.

And a few politicians on both sides of the aisle are starting to take up the cause. Minnesota Senator Amy Klobuchar, a Democrat, has introduced legislation that would expand the set of considerations that antitrust authorities use to block mergers -- instead of simply worrying about higher consumer prices, the senator’s bill would direct regulators to consider wages, product quality and innovation. But her efforts are receiving assistance from Republican Senator Mike Lee of Utah. Republican Senator-elect Josh Hawley of Missouri has declared his intent to go after big tech companies. And Democratic Senator Elizabeth Warren of Massachusetts, a leading progressive, continues to bang the drum about monopolies.

But the new antitrust crusaders are beginning to encounter pushback from a formidable set of opponents. Many of these critics come from the law-and-economics field -- the nexus of legally trained economists and economics-trained lawyers that rose to prominence in the 1970s. In a new paper, Joshua Wright, Jonathan Klick, Jan Rybnicek and Elyse Dorsey heap scorn on those who want to redefine antitrust to be about more than just consumer prices, calling it “hipster antitrust.” In a blog post summarizing their objections, they write:

[Industrial] concentration could reflect a decline in competition but could equally reflect the forces of competition at work…[focusing only on consumer prices] provides a disciplined and objective framework for courts…the Hipster Antitrust proposals will inevitably fail [due to] theocratical flaws and lack of empirical support.

This has gotten the attention of some on the political right, with the conservative Daily Caller  and Republican Senator Orrin Hatch both adopting the epithet of “hipster antitrust.” The battle lines appear to be drawn for a confrontation over antitrust more public, political and intense than anything seen in the past few decades.

Stuck in the middle of all this is the Federal Trade Commission, the agency charged in 1914 with overseeing antitrust cases. Demonstrating that the increased concern over monopoly power hasn't fallen on deaf ears, the FTC has held an impressive series of 10 hearings this year on competition and consumer protection, covering both conventional topics from mergers and antitrust and newer issues like data privacy, common ownership via index funds, and digital platforms. The hearings, which can be viewed at the agency’s website, have featured lively and sometimes contentious exchanges with economists called in to offer their expertise.

But some say that the FTC’s neutrality is compromised. Tepper, for example, has argued that a revolving door between companies, lobbyists and the government gives FTC staffers an incentive to go easy on monopolists. Some high-profile cases certainly do seem to warrant concern. For example, Andrew Smith, who was recently appointed to head the FTC’s Consumer Protection Bureau, will have to recuse himself from cases being investigated by the agency, because he has financial ties to the companies being investigated. A significant number of the experts at the recent FTC hearings have financial ties to Google.

Others have noted the ideological links between the FTC, the law-and-economics movement and pro-business organizations. Neil Chilson, who was the acting chief technologist at the FTC and served the agency in a variety of other roles, recently left and accepted a post as a researcher at the Charles Koch Institute, a libertarian think tank. A number of former FTC staffers have accepted posts at the Antonin Scalia Law School at George Mason University, which has accepted large donations from the Koch Foundation. Joshua Wright, the first author on the paper condemning so-called hipster antitrust, works at Scalia, and the FTC’s hearing on competition and consumer protection was actually held at the school.

Both the new antitrust activists and the economists growing increasingly concerned about competition and market power therefore have their work cut out for them. They are going up against an entrenched nexus of lawyers, bureaucrats, economists and companies that has spent the last several decades creating a merger-friendly regulatory environment.

But don’t expect the antitrust wave to break on the rocks of the establishment. The new opponents of market power are not just hipsters -- they have considerable intellectual firepower on their side, including a lot of very smart economists and some lawyers of their own. Although much of the antitrust issue doesn’t concern big tech companies, the spectacular dominance of behemoths like Amazon, Google and Facebook gives activists a highly visible target to rally against. And the growing political movement to reform the way corporations are governed, bolstered by the new Democratic majority in the House of Representatives, will provide a tailwind to their efforts.

Furthermore, the new antitrust movement has the weight of evidence on its side so far. Wright et al.’s defense of the consumer-welfare standard -- the idea that only consumer prices should be considered in antitrust cases -- is weak, especially given recent research indicating the importance of market power in holding down wages. Nor can the mounting evidence of correlation between industrial concentration and a variety of negative market outcomes be dismissed out of hand simply because causality is inherently hard to prove.

In other words, the new antitrust movement has only begun to fight.

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

Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

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