Four decades ago, a group of conservative academics known as the Chicago School revolutionized legal and economic thinking about antitrust in the U. Their view, which held that competition policy should focus on business efficiency and consumer benefits, ushered in a more hands-off approach to mergers and monopolies that’s lasted ever since.
Today, with mounting evidence of increased concentration and declining competition across the economy, a small group of policy wonks is mounting an attack on corporate consolidation. Mockingly branded as hipsters by critics, their goal is not just to toughen enforcement by the federal government, but to return antitrust policy to its early 20th century roots to take on new corporate giants, particularly in the tech sector.
Their criticism is sparking fresh debate in Washington and some soul-searching in the insular, nerdy world of competition policy. It’s also winning fans on Capitol Hill, including progressives such as Senator Elizabeth Warren, Democrat of Massachusetts, and tapping into a wing of Republicans wary of the dominance of big tech.
Their de facto leader is Barry Lynn, a 56-year-old author and former journalist who has been warning about the dangers of monopolies for years. In his telling, the Chicago School philosophy that took hold during the Reagan administration undermined citizens’ economic liberty. Though he has been branded a radical, Lynn argues that he is simply “conserving what the American people established in 1776.”
“There’s nothing radical in this,” he says. “The radical, Jacobinistic project was the Chicago School project. Those are the radicals.”
Lynn is executive director at the Open Markets Institute, a nonprofit in Washington that he founded last year after being forced out of the New America Foundation, a left-leaning think tank funded in part by Google Inc. The move came after Lynn praised an antitrust fine levied against Google by the European Union. New America blamed Lynn’s departure on his “repeated refusal to adhere to New America’s standards of openness and institutional collegiality.” Lynn says he was fired for his views on Google. Whatever the reason, Lynn took with him a handful of New America researchers and policy advocates to start Open Markets. Lynn says the organization receives no money from for-profit companies, and that its funders include George Soros’s Open Society Foundation.
To competition-policy wonks, the split encapsulated the danger posed by Google and other tech firms, as well as how the current antitrust framework makes it difficult to deal with them.
For years, the playbook for policing mergers and dominant companies has been based on the notion of consumer welfare, first articulated by legal scholar Robert Bork in his 1978 book, The Antitrust Paradox. Over time, this has put price at the center of enforcement decisions: A merger should be blocked if it gives the acquiring company the power in the market to raise prices; a deal that doesn’t—no matter how big—should be left alone.
To Lynn, relying solely on the consumer-welfare premise subverts the original intent of antitrust, which he says should focus on the structure of markets to prevent the concentration of power—competition for competition’s sake. Take Wal-Mart Stores Inc. The retailer has lowered prices for thousands of goods and increased the buying power of millions of Americans. Yet that has been offset by the power Walmart is able to exert over suppliers, leading eventually to such megadeals as H. Heinz’s merger with Kraft Foods Group Inc. “In the aisles, it looks like a utopia of choice, but the reality is just a few companies control those products,” says Lynn. “When you have just a couple companies running everything, the system didn’t even deliver what it promises.”
The rise of the big tech firms poses an even bigger challenge to classic definitions of what constitutes an antitrust violation. Google and Facebook Inc. give their services away for free. The true cost imposed on consumers is that they are handing over their personal data in exchange, the consequences of which we are only beginning to grasp. And then there’s Amazon. The internet retailer has gained enormous scale, allowing it to offer lower prices, convenience, and more choice to consumers.
Nevertheless, critics see a problem in the control it wields over the market. Lina Khan, the director of legal policy at Open Markets, took this on in “Amazon’s Antitrust Paradox,” a research paper published in the Yale Law Journal in which she argues the company poses competitive harms. Amazon has used below-cost pricing tactics and the vast data it collects on purchases to trample rivals, she writes. It can no longer be thought of as just a retailer. Rather, its power comes from control over the essential infrastructure of online commerce, where it can exploit the delivery service used by independent sellers to strengthen its dominance, Khan argues. Those sellers that “must ride Amazon’s rails to reach market are increasingly dependent on their biggest competitor,” she writes. Khan’s research has attracted attention inside the Justice Department’s antitrust division, according to a person familiar with the matter. Amazon declined to comment.
Lynn’s crusade has traditionalists worried. Many say the consumer-welfare standard incorporates more than just price and considers such other factors as product quality and innovation. Doing away with it could risk harming consumers by propping up weak companies, they contend. And big deals are getting challenged. The Justice Department simultaneously blocked two health-insurer mergers last year that would have further consolidated the biggest players in the market, and is set to go to trial in March to block AT&T Inc.’s takeover of Time Warner Inc.
Tossing the consumer-welfare standard would mean the weakest competitors in a market can complain that more efficient companies “are unfairly taking advantage of the rules of the game to get ahead,” says Daniel Crane, a law professor at the University of Michigan. “I don’t want a level playing field. I want a system in which people can make investments and take risks and get rewarded for that.”
Debate about how tough antitrust enforcement should be isn’t new, Crane says, but there’s always been widespread agreement on the basic framework for evaluating those decisions. “We’re talking about something very different right now, about a completely different conceptualization of the enterprise of antitrust law.”
Plenty of economic evidence indicates increased concentration and declining competition in the U. economy, from airlines to banking to technology platforms. Researchers have found that three-quarters of U. industries have become more concentrated in the past two decades, just as antitrust enforcement against dominant companies declined. Meanwhile, corporate profits as a share of gross domestic product have risen, suggesting companies may be benefiting from market power to earn returns above competitive levels.
There are legitimate questions as to whether data on rising concentration indicates a worrisome trend. Antitrust is concerned with narrow markets, not trends in the broader economy. In any case, say critics, evidence of concentrated markets can just as easily mean that competitive forces are alive and well, as more efficient firms outcompete weaker rivals.
Either way, antitrust and corporate power haven’t generated this kind of attention and debate for decades. Last year, the University of Chicago, of all places, hosted a conference titled “Is There a Concentration Problem in America?” The Democratic Party has made antitrust a central component of its economic platform, vowing to get tougher on corporate takeovers by presuming megadeals to be anticompetitive.
And it’s not just a phenomenon on the left. Fox News host Tucker Carlson wants to see Google regulated like a utility to ensure it doesn’t “further distort” the flow of information. Conservative commentator Bill Kristol’s new project, the New Center, calls for reinvigorating antitrust enforcement to take on such tech giants as Google, Facebook, and Amazon.
That left-right agreement could be laying the groundwork for an upheaval in how U. antitrust enforcers do their jobs, according to Crane at the University Michigan. “They are tuned in to something real. They are tuned in to a problem,” Allen Grunes, an antitrust attorney formerly at the Justice Department, says about Open Markets. “The time is right for recalibration.
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