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Last fall staffers on the House Judiciary Antitrust Subcommittee released a long-anticipated report outlining a series of recommendations intended to rewrite our country’s antitrust laws. The majority staff report, while initially intended to focus on four tech companies, makes a series of erroneous policy conclusions that if implemented would wield government control over the entire U.S. economy, hampering growth and innovation to the detriment of consumers.
The staff report proposes adopting an “abuse of dominance” standard to become an antitrust violation, which essentially would punish firms that achieve a certain degree of success by placing upon them a “special burden.” Those firms bestowed with such burdens would no longer be fully able to engage in vigorous competition merely because of their size. Think of it as antitrust’ s answer to overweight companies.
Let’s look at the specific language proposed in the staff report:
Report Recommendation: “Subcommittee staff recommends that Congress consider extending the Sherman Act to prohibit abuses of dominance. Furthermore, the Subcommittee should examine the creation of a statutory presumption that a market share of 30% or more constitutes a rebuttable presumption of dominance by a seller, and a market share of 25% or more constitute a rebuttable presumption of dominance by a buyer.”
SO WHAT’S THE PROBLEM?
Those that want to introduce an “abuse of dominance” standard into the law want to draw a straight line that equates being “big” with automatically being abusive. They are dismissive of any thoughtful analysis that might otherwise weigh whether the conduct in question produces benefits to consumers that outweigh any measurable harm to consumers. Not only would such an approach sideline economic analysis from antitrust cases, but it would allow for antitrust claims such as excessive pricing, thereby allowing the government to regulate the prices a large firm charge.
Antitrust agencies have long warned against the dangers of allowing the government to regulate price. Some of the reasons they give include:
- First, “limiting the freedom to set prices would diminish incentives to compete and innovate.”
- Second, “interfering with market pricing mechanisms interferes with the proper functioning of markets to the detriment of consumers.”
- Third, “U.S. courts and antitrust agencies have found that determining the reasonableness of prices charged … goes beyond their competence” (i.e., governments are not good at being central planners who dictate how markets should function based upon their limited and often subjective views).
- Fourth, “the difficulty of crafting an antitrust remedy for ‘excessive pricing’’ given that courts and agencies “are not in a good position to determine these prices.”
Further, introducing “abuse of dominance” as a concept in the law would punish successful firms who lawfully obtain a certain market share through innovative products or services. The United States has long celebrated economic success and incentivized firms to invest in costly and risky R&D, create new products, compete on price, and otherwise serve consumers. Introducing an “abuse of dominance” standard would overturn the bedrock principle that success earned in the market should be rewarded by the market and instead allow government to pick winners and losers in the market.
Further, it would chill pro-consumer behavior by larger firms (e.g., bundling products or offering loyalty discounts to incentivize purchases) out of concern that law has become more concerned about what might be views as potentially “unfair” to other competitors.
WHY IT MATTERS…
This recommendation would prevent firms with modest market shares the freedom to fully engage in vigorous competition—competition that benefits consumers in the form of lower prices and greater innovation: competing would risk triggering market share thresholds and earn the company a specially-tailored antitrust burden.
A presumption of “dominance” based upon modest thresholds, like the recommendation’s 30%, would be considerably lower than under current U.S. monopolization law, under which courts “can infer market power from a market share significantly greater than 55 percent.”
The result from these changes is that in the government’s wisdom it could assign “special duties” that would come in the form of regulatory-like burdens for a specific company, not the entire industry. Antitrust remedies are supposed to restore competition in the market, not give the government the power to tie a particular company up in a regulatory knot.
Antitrust is appropriately focused on anti-competitive conduct that results in harm to consumers. While it’s true that it is more difficult for smaller firms to engage in harmful conduct, the law is not really concerned with the size of the firm, its focused on the conduct and its impact on consumers. Plus, the size of a firm and what constitutes a big firm is relative, after all some industries require firms to be of a certain scale. In other cases a big firm maybe big in a specific geographic area. For these reasons, all firms that engage in harmful anti-competitive conduct can fall under the watchful eye of antitrust, the law doesn’t bother itself with trying to determine what size a firm should be.
The behavior of companies that have market power and engage in anti-competitive conduct that results in harm to consumers is already captured under the law. However, adding a “abuse of dominance” approach that no longer relies upon consumer harm, but instead relies on equating a firm's size to having a special responsibility to competitors, injects an arbitrary “fairness” standard leaving government instead of consumers to decide what is best. Doing so would send a message that companies should go out, pound the pavement, compete hard, but only until they achieve a certain degree of success, for too much effort might lead to too much success and that would trigger an abuse of dominance.
For more on antitrust, check out other posts here.