Senate Judiciary Begins Hearings on Antitrust

The subcommittee in the Senate that oversees antitrust and competition policy started its hearings on what reform legislation may look like. Members agree there’s a problem but not on solutions.

Following the lead of the House Judiciary Committee, the Senate subcommittee with jurisdiction over antitrust matters held a hearing on antitrust reform. The Senate Judiciary Committee’s Competition Policy, Antitrust, and Consumer Rights Subcommittee had its first hearing of this Congress with its new Democratic chair. Of course, Chair Amy Klobuchar introduced an ambitious bill, the “Competition and Antitrust Law Enforcement Reform Act of 2021” (S.225) perhaps the most significant reform of U.S. antitrust law since the “Hart-Scott-Rodino Antitrust Improvements Act of 1976” (P.L. 94-435) which were enacted when President Gerald Ford was in office (see here for more detail and analysis.)

Much like the debate on 47 USC 230 (Section 230), Democrats and Republicans may agree generally the U.S. has a competition problem, especially in the technology field, but they differ dramatically on what they think the problem is and how to remedy the problem. In fact, the subcommittee’s top Republican largely echoed his counterpart on the Antitrust, Commercial, and Administrative Law Subcommittee at its recent hearing on antitrust and the news media, especially in claiming without offering any evidence that technology companies are censoring right wing points of view. This seems to continue the Republican push to mash together Section 230 and antitrust issues. However, other Republicans like Senators Josh Hawley (R-MO) and Marsha Blackburn (R-TN) seemed more open to the antitrust issues in technological markets. Democrats on the other hand would prefer to keep these issues separate and to enact statutes that would roll back the last few decades of antitrust rulings to allow for more robust enforcement in line with pre-1980 U.S. government activity. Of course, operating in the background but unsaid is that any antitrust legislation will need 60 votes in the Senate (unless the current Democratic push to modify or eliminate the filibuster succeeds), meaning 10 Republicans would need to join all 50 Democrats. It is very unlikely this would come to pass given the current public sentiment on the issue. However, proponents of more vigorous antitrust enforcement may succeed in emboldening the antitrust agencies to continue their current actions against Google and Facebook, possibly bring other actions against Apple or Amazon, and may even result in more funding for the agencies through the appropriations process.

Chair Amy Klobuchar (D-MN) (here to watch for her opening statement and here to read her full written remarks) said the subcommittee would look at the state of competition across the economy and what should be done to protect, preserve, and foster competition. She asserted “American prosperity” was built on open markets and fair competition, the type between companies that provide lower prices to consumers, the sort that forces manufacturers to innovate and develop new products, and the competition that drives up wages. Klobuchar said that U.S. markets today have “big cracks in that free market foundation” and there is more and more consolidation, a dynamic exacerbated by the COVID-19 pandemic that has closed many small and medium sized businesses. Nonetheless, she stressed that before the pandemic, the U.S. had a monopoly problem because more than 2/3 of U.S. industries became more concentrated between 1997 and 2012.

Klobuchar said that the U.S. monopoly problem is most obvious in the technology field. She thanked House Judiciary Committee Chair Jerrold Nadler (D-NY) and Antitrust, Commercial, and Administrative Law Subcommittee Chair David Cicilline (D-RI) for their antitrust report that focused on the market dominance of Amazon, Apple, Facebook, and Google. She contended that the root of the problem is the ability of a few companies to act as gatekeepers. Klobuchar thanks Ranking Member Mike Lee (R-UT) for holding a hearing when he was chair in 2020 on one of the gatekeepers, Google, which controls over 90% of the online advertising market, giving it the leverage to hold companies hostage and recently even entire countries (i.e., Australia.)  She declared that is the sign of a monopoly.

Klobuchar opined that if the tech market not a monopoly, one would see competitors springing up to address some of the well-documented competition challenges. She asserted that with true competition, companies may have arisen to offer better messaging services with better privacy protection that handles misinformation more effectively, to name one segment of the tech market that lacks competition. Klobuchar noted that allowing large monopolistic companies to buy up potential challengers, the markets and consumers suffer. She claimed that if left unchecked, over time large companies establish companies, stamp out competition, and buy out rivals even nascent competitors. Klobuchar quoted an email Facebook CEO Mark Zuckerberg sent where he characterized nascent competitors as having the potential to disrupt the market. She stressed that disruption is to be desired in tech markets as it upsets the status quo. Klobuchar quoted another email of Zuckerberg’s in which he detailed his thoughts on how to build a monopoly.

Klobuchar said the situation requires more than words at a hearing or sound bites from grilling a tech CEO. She said action is needed, and the status quo statutory situation will not achieve that goal. Klobuchar emphasized that the monopoly problem cuts across the economy and named other fields with this problem such as agriculture, online travel, live events, cat food, and caskets. She said over 2/3 of Americans believe the economy unfairly advantages the powerful. Klobuchar said this has come about because American courts have become more closed off against antitrust actions and a string of Presidents and Congresses have not provided antitrust enforcers with the resources they need to police an increasingly complex economy. She said in 1980, the Department of Justice (DOJ) had 453 antitrust lawyers, but by 2013, it had only 330. Klobuchar claimed the Federal Trade Commission “is also a shadow of its former self” going from over 1700 employees in 1980 to 1192 in 2018.

Klobuchar stated:

  • Our agencies cannot fight the biggest companies the world has ever seen with duct tape and band-aids. And I know that Senator Grassley, who has been such a leader on this, agrees. We are together leading a bill to inject some more investment into these agencies. Because we know they actually deliver money when they bring these cases to the government. We know it’s worth the money. And we also know that we can do it in a way that’s not on the back of taxpayers, by simply changing the fees assessed on large companies. For them, it’s a drop in the bucket when they bring these mergers before the agencies.
  • The purpose of the antitrust laws is to protect competition. In America, when we see a problem, we take action, we figure out what is working, what isn’t working, and we fix it. That’s why I introduced the Competition and Antitrust Law Enforcement and Reform Act with many people on this committee, including Senator Leahy, Blumenthal, and Booker, and many others off the committee have since joined. The bill would increase the baseline for antitrust agency budgets, update the Clayton Act to stop harmful consolidation, outlaw anti-competitive exclusionary conduct by dominant firms, and I’m here talking about markets that are already highly concentrated, and make other reforms to protect competition.

Klobuchar asserted:

  • I’ll end with this, because I truly, with Senator Lee and I starting a new year with so much interest on the Republican side as well as the interest we already had on the Democratic side, this has always been a bipartisan issue. Our founding fathers recognized the dangers of monopoly power. The Boston Tea Party and our fight for independence was partly motivated by British government granted monopoly on the tea trade. And America’s long tradition of promoting pro-competition policies have often been led by Republicans. Senator Sherman of Ohio is a Republican. Teddy Roosevelt, most notably, the nation’s most famous trust buster, a Republican president. 

Ranking Member Mike Lee (R-UT) (here to watch for his opening statement and here to read his full written remarks) said “I would like to begin by quoting the Constitution—the Utah state constitution. I think that my state’s constitution is instructive. Article Twelve, Section 20 reads:

It is the policy of the state of Utah that a free market system shall govern trade and commerce in this state to promote the dispersion of economic and political power and the general welfare of all the people. Each contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce is prohibited. Except as otherwise provided by statute, it is also prohibited for any person to monopolize, attempt to monopolize, or combine or conspire with any other person or persons to monopolize any part of trade or commerce.

Lee stated:

  • Notice how in Utah we have tied free markets and antitrust enforcement—the prohibition against monopolization and the protection of competition—directly with “the dispersion of economic and political power.”
  • This was prescient. Today our competition problems have truly become political problems. We see this when trillion and billion dollar monopolists are eager to impose the ideological censorship called for by their political benefactors. It’s worth remembering that some of my colleagues want to punish Big Tech not because it engages in too much censorship, but because it doesn’t censor speech they disagree with enough! That isn’t a competition concern; it’s extortion.
  • But our competition problems go beyond Big Tech. I’m especially concerned by cases in which free markets and competition are distorted by the government itself putting its finger on the scale to pick winners and losers, whether through regulation or lax antitrust enforcement. Sadly, this too has become increasingly common.
  • For example, many parents right now wish that they could send their children back to school. In fact, many children—who are suffering from record high-rates of anxiety and depression—themselves wish that they were back in school. But the federal and many state governments have starved the education market of competition, instead imposing protectionist policies for public school monopolies. Maybe if education had more competition—say, by ensuring that funds followed students rather than schools and teachers unions—parents and students would have more options and better education.
  • Speaking of the effects of the pandemic, the last year has been devastating for small businesses. This is due in no small part to onerous and prolonged lockdowns that shuttered local brick-and-mortar stores and drove consumers into the arms of Big Tech monopolists like Amazon. I’m glad that so many of my colleagues across the aisle share this concern, but I wish they had considered this risk when they were cheering on these very same lockdowns.
  • The same thing has happened in healthcare, too. Just this past weekend, in the midst of the worst health crisis in a century, Congress forced through a hyper-partisan expansion of the Affordable Care Act— a law that has distorted competition and been disastrous for consumer choice in health insurance markets.
  • In the airline industry, repeated government bailouts and protectionist regulations have insulated legacy airlines from market forces and foreign competitors. This has allowed them to avoid competing with new rivals, meaning American flyers continue to be subjected to higher prices and lower quality service.
  • Yet another example can be found in occupational licensing, something it will be more important than ever to address as millions of Americans struggle to find new employment. To that end, I will be reintroducing the Restoring Board Immunity Act this Congress to ensure that state licensing boards are not used as cover for professional cartels that protect market incumbents from competition by discouraging new entry.

Lee remarked:

  • Earlier this week, I also reintroduced the One Agency Act. Consolidating our antitrust enforcement at the Department of Justice is essential to improving and strengthening our enforcement efforts and avoiding the inefficiency and bureaucratic in-fighting of the past.
  • This updated version of the legislation also removes the Federal Communication Commission’s (FCC) ability to undertake duplicative competition reviews of transactions under its regulatory jurisdiction. The FCC’s application of the public interest standard has been yet another example of government distorting competition, as it has become a go-to venue for rent-seeking by competitors and special interest groups. The costs imposed by FCC overreach are ultimately passed on to consumers—consumers who have no say in the process.
  • And those aren’t the only examples of businesses attempting to enlist the government in preventing competition.
  • For example, a number of national media conglomerates are asking Congress for corporate welfare in the form of antitrust immunity to allow them to stage a group boycott against their advertising partners. Despite failing to update their business model to account for the internet economy, and despite continually publishing biased and fake news that American consumers simply don’t want, these companies believe they are entitled to engage in federally sanctioned rent-seeking.
  • You also have Amazon, a giant not only in online shopping but also in cloud services, attempting to have a federal judge force the Department of Defense to give it a $10 billion contract that it lost to a competitor. Not only did Amazon lose the contract on the merits, but giving Amazon the contract would only further cement its market power and make it harder for new entrants to compete.
  • And finally, several calls to reform the antitrust laws seek to abandon the consumer welfare standard and to instead address non-economic issues like social justice and climate change or to simply punish bigness. It’s one thing to support such goals as a matter of personal preference or political popularity; it is entirely another thing to inform families under strained budgets that they will have to choose between the food on their table or the roof over their heads because an unelected judge prefers shopping in local boutiques to the efficiencies that make modern life affordable for the majority of his fellow Americans.

Lee concluded:

  • All of that is to say that I agree, we do have a competition policy problem—though, perhaps not in the way some would think.
  • What we need now is not a sweeping transformation of the antitrust laws. Rather, this moment calls for two things: (1) Agency leaders with the resources and the will to vigorously enforce the laws we have; and (2) Congressional action to get the government out of the business of distorting competition.
  • As I’ve said before, we are at an inflexion point in antitrust law and policy, and I am optimistic that we can find bipartisan consensus on a path forward to improve and strengthen our antitrust enforcement regime. I’m grateful to Klobuchar for opening this incredibly important conversation, and I look forward to making progress in that endeavor through today’s hearing.

Consumer Reports Senior Policy Counsel George Slover (here to watch his opening statement and here to read his full written remarks) stated:

  • Today, there is a profound imbalance of power in the marketplace. Increasing concentration and consolidation is leaving consumers with fewer choices and less leverage. Sellers of essential products and services are increasingly able to offer consumers one choice – take it or leave it. Consumer spending is the engine that drives the economy, yet consumers are being denied a fair voice.
  • The high concentration and resulting power imbalance have become starkly evident in the online marketplace, where a handful of dominant digital platforms are calling the shots as gatekeepers. But it is happening in many other critical sectors, from agriculture to pharmaceuticals and health care to wireless and broadband service to household appliances to air travel. The trend toward higher corporate concentration is occurring throughout the economy. According to one study, there have been marked increases in corporate concentration, as measured by the Herfindahl-Hirschman Index, in 75 percent of the industrial sectors, over the past two decades, with the average concentration level close to doubling.
  • Senator Klobuchar’s bill, the Competition and Antitrust Law Enforcement Reform Act, addresses both the merger enforcement and exclusionary conduct problems I described, along with making important clarifications in some other areas that have gone off-track, and adding enforcement powers to increase deterrence.
  • Importantly, the bill hews to established antitrust principles, concepts, and terminology in making these necessary course corrections. We believe this will ensure that the good case law that has evolved in the courts over the past century- plus is not upended. Despite their shortcomings as currently applied, the antitrust laws continue to provide essential benefits. We don’t want to lose those benefits in pursuit of the needed improvements.
  • We believe Senator Klobuchar’s bill provides a solid basis for bipartisan discussion that we hope will lead to a consensus that moves us forward to effective solutions to ensure that our antitrust laws are effective guardians of competition in the 21st century marketplace.

The Committee for Justice Director of Public Policy Ashley Baker (here to watch her opening statement and here to read her full written remarks) asserted:

  • During the 1986 Supreme Court confirmation hearings for then-Judge Antonin Scalia, he was asked about his views on antitrust. “In law school, I never understood [antitrust law],” Scalia explained, “I later found out, in reading the writings of those who now do understand it, that I should not have understood it because it did not make any sense then.” It makes a lot more sense now.
  • The consumer welfare standard has greatly benefited antitrust and is underappreciated as a significant narrowing of federal government power in the last half century and a major victory for the conservative legal movement.
  • Recent proposals would upend decades of progress, returning antitrust to the era of favoring “small dealers and worthy men” regardless of factors such as efficiency, quality, and price. I fear that today, both sides of the aisle are pushing for the weaponization of antitrust, either as a tool to punish corporate actors with whom they disagree or out of a presupposition that big is bad. Unfortunately, the antitrust debate has begun to devolve into a litany of unrelated and often contradictory concerns, unsubstantiated and dismissive attacks, and seemingly a presumption that any market-related complaint that can be made on the internet can also be cured by the panacea of antitrust.
  • This highly-charged atmosphere has led to radical proposals that run contrary to economic evidence and endanger significant advances made in antitrust scholarship. The adverse effects of such changes would reach well beyond today’s target du jour to firms in all sectors of our economy.

Open Markets Institute Executive Director Barry Lynn (here to watch his opening statement and here to read his full written remarks) stated:

  • As I noted earlier, for most of our history, Americans carefully restricted the size of most businesses, for a variety of political and economic reasons. For America’s first 100 years, for instance, we outlawed and restricted the use of corporations in farming, and we carefully restricted the reach of any corporation to the borders of the state in which it had been chartered. Americans largely lost control of this system of regulation beginning in 1877, and over the next 30 years we witnessed an explosion of nation-scale corporations. But beginning with Woodrow Wilson’s New Freedom in 1913 and continuing with Franklin Roosevelt’s New Deal in 1933, we saw a radical return to regulations that sought to limit both the scope and size of any American business that was not a network or that did not depend on capital intensive industrial equipment.
  • The Department of Justice’s 1968 Merger Guidelines provide a rough model for how to use such rules to protect decentralized market structures. Most to our point here, the 1968 Guidelines set out a series of extremely easy-to-understand “bright line” market share tests to guide law enforcers and the courts on when to challenge a particular vertical, horizontal, and conglomerate merger.
  • Such simple market structure rules can be further strengthened by clearly defined limits on the behaviors, practices, and licenses of corporations that control particular percentages of any national, regional, or local market. To ensure that any firm that has captured a dominant position in any market cannot use their power to block or disadvantage rivals, regulators should restore the traditional American antimonopoly approach of holding certain practices to be presumptively illegal, including refusing to deal with customers and rivals as a means of suppressing competition; prohibiting distributors, suppliers, or customers from doing business with rival firms; penalizing purchasers who do not place a large share of their business with the firm; tying the purchase of one good or service with the purchase of a separate good or service, whether done through contractual or technological means.

Freshfields Bruckhaus Deringer LLP Counsel Jan Rybnicek (here to watch his opening statement and here to read his full written remarks) contended:

  • Although the antitrust laws are up to the task of protecting competition in the U.S. economy, antitrust enforcement by no means is perfect. There are several common sense reforms that could benefit consumers. While these proposals are less provocative than many of the recent reforms that have been proposed, they would build upon the important foundation that exists today and recognize the need to protect against both anticompetitive conduct and government overreach and error.
  • First, we should ensure that the antitrust agencies have adequate resources to carry out their mission of promoting consumer welfare. The staff of the antitrust agencies are talented public servants. We should make sure that we can retain and recruit the best lawyers and economists possible, and that we give them the tools necessary to do their jobs. No one can seriously think that the agencies should permit anticompetitive conduct for lack of resources.
  • Second, we should eliminate inefficiencies in our two-agency system. If we were to create a new antitrust system today, it is hard to believe we would vest antitrust enforcement power in two federal authorities. As a practitioner it is difficult to explain to businesses why divergent authorities and procedures are warranted. We should seriously consider proposals that eliminate frictions in that system.
  • Third, we should more regularly assess where agency decisions succeeded and where they failed through retrospective analysis. Antitrust has developed over time through an iterative process based on new learning. We should learn from the agencies’ successes and failures to improve antitrust enforcement.
  • Fourth, we should increase agency transparency. While the American system of antitrust enforcement is far superior to that in Europe in my view, one of the features of the European system is that it requires publication of detailed antitrust enforcement decisions. We should endeavor to do more of that here. It is critical that antitrust enforcers articulate to the public in clear terms why they make the decisions they do and why those decisions are good for consumers.

Massachusetts Institute of Technology Professor Nancy Rose (here to watch her opening statement and here to read her full written remarks) explained:

  • A growing impediment to effective antitrust enforcement is the overly enthusiastic embrace of the Chicago School of antitrust law by courts and those who argue against strong enforcement, despite its lack of an empirical foundation and increasing disconnect with the field of industrial organization. The Chicago School theory, epitomized by Robert Bork, asserts among other beliefs that markets inexorably tend toward competition—with easy entry, ubiquitous efficiencies, and growth only of firms that offer the greatest consumer value—and that the cost of incorrectly blocking mergers or conduct would be high. None of this has its basis in robust empirical evidence in the economics literature, nor is most of it supported by the applied industrial organization theory literature of the past forty years, though that is never acknowledged by its proponents. Admittedly, some markets may be characterized by easy entry and robust competition, with growth being driven solely by efficiencies and delivery of consumer value. But many markets—and most especially those that antitrust enforcers must evaluate—are characterized by few sellers (oligopoly) and important strategic incentives to limit competition. Indeed, the rise of the modern business school curriculum that emphasizes competitive strategy and limits to unfettered competition is at stark odds with the Chicago School theory as a description of markets, although their ascendancies in their respective realms almost perfectly overlap. This divergence is striking. Just as advances in game theory and empirical analysis has cast increasing doubt on the practical relevance of the Chicago theory, courts have increasingly embraced the theory as fact.
  • A second problematic foundation of the Chicago School theory, and one that has permeated agency decision-making, is the belief in ubiquitous merger efficiencies, at least at relatively modest scales. This is required to rationalize merger enforcement actions with economic theory, which tells us that all horizontal mergers in differentiated product markets will reduce competition and harm consumers, unless accompanied by sufficiently strong efficiencies. Jon Sallet and I discuss the role of efficiencies analysis at length in our recent University of Pennsylvania Law Review paper, assess the empirical evidence for this belief, and conclude that there is little support for prevalent merger- specific efficiencies sufficient to offset competitive harm. This suggests that current enforcement is too generous in giving implicit credit for merger-specific efficiencies, and that the burden of proof for invoking efficiencies in defense of otherwise anticompetitive mergers is properly placed on the merging parties. A further implication of this evidence is that the current antitrust enforcement regime has greatly overstated the error costs of overenforcement, leading to outcomes that have inadequately protected competitive markets.
  • The evolving case law of the past four decades has increasingly ratcheted up the standards required for successful challenges to anticompetitive mergers and conduct, and hemmed in the ability of enforcers to bring claims. In mergers, the standard has moved from Von’s Grocery (blocking a 1960 merger that would have given the combined firm a 7.5% share of grocery retailing in the LA area) to having to litigate to halt mergers to duopoly or even monopoly—something that happens with concerning regularity. Courts are deeply skeptical of challenges to acquisitions of nascent or potential competitors, and case law has made it difficult for plaintiffs to prevail on claims of anticompetitive conduct. Exclusionary conduct has been granted excessive deference, or in some cases, pushed almost beyond the reach of antitrust enforcement. Correcting misperception about the inevitability of competition and overcoming decades of case law founded on incorrect principles through efforts to educate courts and build up new precedents to reverse course is likely to take time that we do not have, particularly in the realm of exclusionary conduct and particular types of merger harms. This is a major factor in why I and other colleagues have urged legislative action to restore competition.
  • The agencies also have a role to play. The evolution of the Horizontal Merger Guidelines has had positive impact on merger litigation, as courts have shown considerable deference to the Guidelines in their decision-making. The emphasis on unilateral effects in the 2010 guidelines was a substantial step forward, though it is far from complete. The willingness of most courts to accept a structural presumption has made merger enforcement more predictable and focused litigation, but in my assessment, we likely went too far in where the Guidelines set the bar for presumed highly concentrated markets. Where earlier guidelines would have suggested challenges to mergers that leave no more than four remaining competitors, the 2010 HMGs suggest challenges to mergers that leave three or fewer competitors. While this reflected agency practice and case law at the time,14 a decade of further experience, as well as the evolving body of both theoretical and empirical work on merger impacts, suggests that the 2500 HHI threshold is too high. Similarly, agencies could advance enforcement by revisiting the recent Vertical Merger Guidelines, which fall short in a number of areas.

© Michael Kans, Michael Kans Blog and michaelkans.blog, 2019-2021. Unauthorized use and/or duplication of this material without express and written permission from this site’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Michael Kans, Michael Kans Blog, and michaelkans.blog with appropriate and specific direction to the original content.

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