There is something—how can I put this gently—incoherent in Makan Delrahim’s views on antitrust, as evidenced by his speech at the University of Chicago. His opening shout-outs to Robert Bork and the Chicago School, which largely neutered antitrust enforcement in single-firm conduct cases based on a hidden assumption that supported the single-monopoly-profit theory, can be chalked up to currying favor with the home crowd. But the cognitive dissonance that follows is unmistakable.
On the one hand, he pays lip service to the leaders of the New Brandeis movement, citing by name Lina Khan (for offering an “interesting note” and “diverse thinking”) and Franklin Foer (credited for characterizing data as the “new oil”) to note their important contributions to our collective understanding of the threats posed by platform providers that currently escape antitrust scrutiny. On the other hand, Delrahim rejects the New Brandeis’s teachings that industry concentration, spurred by under-enforcement, has led to “rising economic inequality, stagnant wages, unemployment, and a concentration in political power in the hands of private market actors.” He insists that for platform markets, “[a]ntitrust enforcers may need to take a close look to see whether competition is suffering and consumers are losing out on new innovationsas a result of misdeeds by a monopoly incumbent.” Yet he vehemently defends the consumer-welfare standard, using an “evidence-based” approach that has demonstrably proven blind to innovation harms. Delrahim wants to tap into the populist wave, but simultaneously rejects where the populists want to take us.
This brief comment identifies four errors in Delrahim’s understanding of antitrust and consumer protection.
First, Delrahim reveals a misplaced faith in markets to solve the privacy problem. Relying on our newly “revealed preference” for privacy and a hyper-rational homo economicus, he asserts that consumers “may opt out of certain networks because they simply don’t see the bargain as working in their favor.” But this misunderstands the fallacies of human beings, which is to fall prey to the “status quo bias” and accept the default settings of their preferred data vendors, thereby permitting massive data exploitation. These newly revealed tastes for privacy will spur profit-maximizing firms, in Delhahim’s market nirvana, to solve the data exploitation themselves—a form of self-regulation—via new and innovative offerings: “As a result, the overwhelming incentives to design technologies to maximize the collection and use of personal information may be shifting, and with that shift companies are designing technologies that respond to our revealed preferences for privacy.” This worldview ignores Facebook’s business model as well as those of other digital platforms peddling targeted advertisement—namely, to surveil users and monetize their every movement across the web.
Second, Delrahim ignores how an “evidence-based” approach to antitrust would turn a blind eye to anticompetitive conduct that harmed innovation absent price or output effects. He insists that “[t]aking an evidence-based approach to antitrust law should not be mistaken for an unwillingness to bring enforcement actions.” Actually, when an econometrician cannot empirically establish harm to innovation that manifests itself in the form of an entrepreneur throwing in the towel because she perceives the playing field to be uneven, a rigid evidentiary requirement of short-run harm to consumers is tantamount to no enforcement. Without any sense of irony, Delrahim states “In the context of digital platforms, an evidence-based approach is critical to protecting innovation.” This is not to say that antitrust standards should be bent to accommodate innovation-based theories of harm. I’m a proponent of policing exclusionary conduct by a vertically integrated platform provider with a non-discrimination standard outside of antitrust. But at minimum, Delrahim should acknowledge the gap in antitrust enforcement here and in labor markets (described below) created by strict adherence to the consumer-welfare standard. Yet he can’t conceive of a single deficiency under the antitrust status quo. He claims that the “The Microsoft case proved that an evidence-based antitrust enforcement approach can be flexible in its application to new types of assets and markets.” Fair enough, but why haven’t antitrust enforcers brought a pure innovation-based theory of harm case since Microsoft two decades ago? The likely answer is that the evidentiary requirements under the consumer welfare standard make such a showing impossible. (Google’s discriminatory search algorithm, which steers users to its own properties and away from independent content creators, is an example of a pure-innovation theory of harm, in the sense that prices for users or advertisers are not affected.)
Third, Delrahim also fails to recognize that the consumer welfare standard misses monopsony harms. He claims that “No available data demonstrate increasing concentration of markets, as economists and antitrust enforcers define them.” Citing a new piece by Carl Shapiro, DOJ’s expert in the AT&T-Time Warner case, Delrahim argues that concentration at the industry level might not correspond to concentration in some relevant antitrust market. Delrahim apparently forget this important caveat from Shapiro’s article:
Nothing in this section should be taken as questioning or contradicting separate claims regarding changes in concentration in specific markets or sectors, including some markets for airline service, financial services, health care, telecommunications, and information technology. In a number of these sectors, we have far more detailed evidence of increases in concentration and/or declines in competition.
Even if none of these increases in concentration identified by Shapiro (that Delrahim ignores) were correlated with increases in price or price-cost margins in some relevant output market, so long as concentration has been correlated with wages or wage shares in a relevant input market, then Delhahim’s claim of no enforcement gaps under the consumer welfare standard is false. He ignores new evidence by Autor et al. (2017) (finding that each percentage point rise in an industry’s concentration index predicts a 0.4 percentage point fall in its labor share); Azar et al (2017) (finding that move from the 25th percentile of labor market concentration to the 75th percentile would lower (advertised) pay level in a metro area by 17 percent); and Barkai (2016) (estimating that If competition increased to levels last observed in 1984, wages would increase by 24 percent). Yet Delrahim says he is “skeptical that competition policy can be isolated as a contributing cause to any of these wider trends” in the economy, including “stagnant wages.” Despite the huge attention monopsony has received in antitrust circles, Delrahim’s speech mentions monopsony only once, and even there it is in the context of a user selling her data or “digital currency” to Facebook. Workers be damned.
Fourth, Delrahim thinks the biggest mistake of antitrust enforcement is the reliance on behavior remedies in enforcement actions, rather than the more obvious deficiency—namely, a failure to enforce the antitrust laws at all in certain cases: “Enforcers do indeed deserve some blame, particularly for their willingness to settle for ineffective behavioral (or regulatory) fixes to mergers rather than challenging them when necessary.” In what world can the FTC’s failure to bring a case against Google in countless would-be merger or exclusion cases be considered less important than the DOJ’s willingness to embrace a behavioral condition in Comcast-NBCU? This gratuitous attack on behavioral remedies comes of out nowhere—recall the speech is concerned with defending the consumer welfare standard—and appears to be a backhanded defense of the DOJ’s lawsuit to block the transfer of CNN and other Time Warner media properties to AT&T. It also flies in the face of the DOJ’s 2011 remedies guidelines, which note that “[in certain circumstances, depending on what information is available regarding competitive prices in the relevant market, the Division will consider employing a non-discrimination clause requiring the upstream firm to offer the same terms to all three downstream competitors.”
My advice to Delrahim is to open a formal channel to the community of “diverse thinkers” he acknowledges in his talk. He doesn’t have to embrace New Brandeis hook, line, and sinker. But he needs to find a coherent view of antitrust that recognizes some of the clear gaps in enforcement left unremedied by the dutiful allegiance to the consumer welfare standard.
(He should also steer clear of pronouncing to the media “We’re not going to lose” in any ongoing trial, particularly when financial markets and experts think otherwise. But that’s the subject of another blog.)