Protecting the Consumer and Contemporary Anti-Trust Legislation

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This paper will first briefly discuss the overarching way of thinking about antitrust in the contemporary US, arguing with Baker that it should be conceptualized not purely as an economic problem as much as a political one. Then, the paper will address several aspects of contemporary antitrust law to argue that the balance has shifted too far away from protecting the consumer and that, in the future, the enforcement goal should focus more on protecting consumer welfare. There will always be competing concerns of economic efficiency and consumer welfare in antitrust legislation, so it seems at least partially right to use them against each other to obtain an adequate balance. Therefore, in the face of several decades of focus on economic efficiency, going forward the consumer must regain primacy in analysis.

The debate about the goals of contemporary antitrust began as a way interpreting the Sherman Act to deal with contemporary economic concerns (Baker, 2013, p. 2177). It can be framed as a dispute as to whether or not the goal of such legislation is to achieve “a consumer surplus” or “an aggregate surplus standard”(Baker, 2013, p. 2178). Yet, this is not the most productive way to view anti-trust legislation, as the enforcement institutions “impose transaction costs and can make mistakes” (Baker, 2013, p. 2178). Enforcement is not fully rational and operates at an information disadvantage. Baker argues that in order to understand contemporary US antitrust law it is critical to think of it not only in economic terms. Indeed, it seems that economics alone is incapable of understanding the huge level of complexity between the interaction between market structure, competition, and innovation (Ginsburg & Wright, 2012, p. 5). Since the New Deal, the goal of antitrust has fundamentally been about “capturing economic efficiencies by adopting a policy that favors competition over either less regulatory or more regulatory approaches,” (Baker, 2013, p. 2183), but this framing has always been contingent and shaped by the series of political bargains that maintain its support (Baker, 2013, p. 2184). Because of the state of the politics over the last thirty years, the risk today is that antitrust laws permit large firms “to exploit their market power” to an extent that undermines the initial political bargain (Baker, 2013, p. 2186). That is to say, the contemporary goal of antitrust legislation should be to protect consumers and to focus on consumer welfare as the defining standard; efficiencies should trump consumer harm only in “exceptional cases” (Baker, 2013, p. 2186). When evaluating the future of a policy which is fundamentally political, based on an uneasy balance between regulatory agencies, the courts, and the legislature, political concerns are paramount. It may be tempting to view antitrust as a “technocratic activity based on economic analysis” (Baker, 2013, p. 2196), but to do so ignores the real political aspects at play.

One aspect of current antitrust law that is not focused on the consumer, but is nonetheless incentivizing antitrust action is the push against vertical integration of the communication industry. For instance, in the Microsoft (2002) antitrust litigation, Microsoft was attacked for its vertical integration of the Windows operating system with Internet Explorer (Owen, 2011, p. 365). Much of the literature, however, indicates that such behavior is not anticompetitive, but rather, a “necessary and temporary stimulant of continued technological progress” (Owen, 2011, p. 365), given the rapidly changing nature of the technology market. Indeed, in general, the data appear to suggest that “efficiency considerations overwhelm anticompetitive motives in most contexts” (Owen, 2011, p. 375), making vertically integrated firms efficient from both the firms’ and the consumers’ points of view. The overwhelming focus on protecting firms in terms of antitrust has lead to a policy that helps neither firms nor consumers. Shifting the focus to consumer welfare, in this instance, would actually lead to a decrease in antitrust action.

Focusing specifically on the relationship between R&D cooperation and collusion, López at al. argue that the optimal policy trade off, in this like all things, will be between efficiency and market power. Their models show that if the goal is to maximize total surplus, then antitrust policy should be softened; however, “if the objective is to maximize consumer surplus, then in many cases [R&D] cooperation should be completely forbidden unless the number of firms is large enough” (López, Vives, & 2013, p. 26). Collusion is a sufficient harm such that any R&D cooperation would be problematic and open the doors for intellectual property theft. Indeed, in a market with too little competition, there can be conscious parallelism that results in collusive behavior even without the need for explicit collusion. An example is the recent merger of EMI-Universal, which lead to three firms having 90% of the market share. This would allow these firms to nearly unilaterally decide on alternative distribution models(Cooper, Griffin, & Knowledge, 2012, p. 2). Permitting firms like this to merge is a clear example of the current shift away from consumer protection. These firms have been anticompetitive, in a way that damages consumers, for years (Cooper et al., 2012, p. 22) and will only get more once permitted to merge. Merger review is covered by the same statutes as collusive price-fixing and should be evaluated with the same stringency (Cooper et al., 2012, p. 42) for the sake of consumers.

The last aspects of contemporary antitrust law that this paper will specifically address are the practices of tying (selling one good only in conjunction with another good) and bundling (selling two goods in conjunctions). These practices are very similar and are often conflated in the literature. It is thought to be an anticompetitive strategy, by deterring entry of firms with only one product. The Microsoft case, previously cited as an instance of vertical integration, can also be understood as a case of tying. In his paper, Salinger discusses the complicated relationship of tying on consumers. If a firm choses mixed bundling to deter entry by other firms into the market, this can drop consumer surplus (Salinger, 2011, p. 7). However, “when the firm chooses pure bundling to deter entrants who would do mixed bundling, consumers benefit” (Salinger, 2011, p. 7). This is because this strategy only succeeds if the price of both goods matches the price of an intruder’s one. That is to say, a consumer-focused approach to regulating bundling would be more nuanced then our current system.

References

Baker, J. (2013). Economics and politics: Perspectives on the goals and future of antitrust.

Cooper, M., Griffin, J., & Knowledge, P. (2012). The role of antitrust in protecting competition, innovation and consumers as the digital revolution matures: the case against the universal‐emi merger and e‐book price fixing: mimeo.,Ginsburg, D. H., & Wright, J. D. (2012). Dynamic Analysis and the Limits of Antitrust Institutions. Antitrust Law Journal, 78(1), 12-48.

López, A. L., Vives, & , X. (2013). R&D Cooperation, spillovers and antitrust policy.

Owen, B. M. (2011). Antitrust and vertical integration in “new economy” industries with application to broadband access. Review of Industrial Organization, 38(4), 363-386.

Salinger, M. A. (2011). Tying and bundling in a nearly contestable market