Antitrust populism, as it is enforced, is disconnected from what people actually want, according to a new paper titled “The Future of Antitrust Populism” by Herbert Hovenkamp, Wharton professor of legal studies and business ethics, and professor of law. “If you want a truly populist antitrust enforcement policy, you need to go after things that increase prices,” Hovenkamp said.
According to Hovenkamp, some antitrust enforcers have wrongly targeted big businesses or big tech merely for their “bigness,” overlooking the public’s main concerns over higher prices. The paper described that trend as a “populist antimonopoly movement,” and blamed it for “moving merger policy back to the 1960s … and returning antitrust policy to some imagined earlier state that was pursued without economics.” It also faulted that policy approach for reviving antitrust laws from the 1930s, 1960s, and 1970s, which it said had “led to higher costs and prices, or at least did little to combat them.”
Hovenkamp is not making a general case against antitrust policy responding to populist pressure. In fact, existing antitrust laws “align surprisingly well with the public’s concerns about higher prices, the cost of living, of housing, medical care, and life’s other necessities,” the paper stated. Therefore, a meaningful populist antitrust policy must only ensure that “enforcers interpret the statutes carefully,” it added.
The paper also articulated the goals for enforcement: High output and unrestrained innovation with a real focus on low prices. Antitrust policy must pursue competitive levels of output and price, and policing practices that harm innovation, it stated.
Why Measuring Outcomes Is Important
Metrics are a prerequisite to help achieve those goals, and the paper identified two ways they matter. The first is to ensure that antitrust rules are metered to result in low prices and high output. Here, the payoffs from antitrust enforcement generally form an inverted “U” shape, where it delivers on reducing prices and increasing output up to a point, after which it can become excessive.
The paper pointed to a landmark 1962 Supreme Court ruling which struck down the attempted merger of Brown Shoe Co. with G.R. Kinney Co. The decision harmed consumers “by insulating higher prices or lower quality sellers from price competition.” That said, it is hard to accurately predict the outcomes of antitrust rules, and “the best approach is to keep improving measurement metrics by testing and retesting them for accuracy,” it added.
“If you want a truly populist antitrust enforcement policy, you need to go after things that increase prices.”— Herbert Hovenkamp
The second sense in which metrics are important is the need to continuously prioritize limited resources among competing enforcement demands, the paper said. It noted that “good enforcement targets are stagnant markets with slow or declining growth, lack of innovation, increasing market power, rigid prices, and little new entry.”
In order to pursue antitrust practices effectively, antitrust policy makers must know three things, the paper stated: 1) how a particular practice is causing harm, 2) who the victims are, and 3) how it can be remedied.
A Legacy of Right and Wrong Calls
The paper credited the Biden administration for directing increased enforcement to protect workers from restraints that employers impose on labor markets, including “mobility restraints” such as noncompete agreements. It also agreed with the increased enforcement against horizontal mergers during the Biden regime, which came with the 2023 Merger Guidelines.
Hovenkamp, however, found mixed results from the Biden administration committing big chunks of enforcement resources to pursue monopolization claims against big tech companies such as Alphabet (Google), Meta (Facebook), Apple, and Amazon. In his paper, he credited those companies with leading in innovation and being among the most important contributors to economic growth.
“They appear to be competing rather than colluding, both among themselves and with others, and they compete aggressively when new technologies such as AI come along,” the paper stated. “Special aggression from antitrust enforcers is the last thing [big tech] needs, although they should continue to be on the lookout for particular anticompetitive restraints.”
Market power is veritably a concern, but it must be defined correctly, Hovenkamp said. “Market power doesn’t simply mean big. It is the ability to charge high prices in relation to costs.”
But some cases that targeted big tech were well brought, Hovenkamp noted in his paper, citing the claim against Google over exclusive dealing agreements pertaining to search engine defaults, and against Meta over its acquisitions of Instagram and WhatsApp.
“Market power doesn’t simply mean big. It is the ability to charge high prices in relation to costs.”— Herbert Hovenkamp
Where Does Populism Get It Wrong?
The “perceived welfare of small businesses” is another populist theme in antitrust enforcement that often brings unwanted outcomes, Hovenkamp pointed out. “The big populist movements in antitrust have generally tried to protect small businesses from larger firms. But the result of that has generally been higher prices and lower quality, because the bigger firms frequently produce lower prices and higher quality.”
“I don’t think we should subsidize small businesses by making it more costly for bigger firms to operate,” Hovenkamp said. “And I don’t think we should subsidize small businesses by making consumers pay more.”
The data from Gallup polls clearly show that “the public is very concerned about the high cost of living, the high cost of groceries, health care, inflation, and many other things that relate to prices or cost,” Hovenkamp said. “They do express some concerns about big business, but they’re never as prominent.” Those views are consistent with the first antitrust laws going back to the 19th century, he noted.
“The so-called anti-monopoly movement today is really not concerned with higher prices,” Hovenkamp said. “It’s concerned with going after big firms. Its principal targets are firms like Walmart or Amazon or Google, all of which have generally delivered low prices, and consumers generally are quite happy with them.”
The pressure to break up Google is a case in point, Hovenkamp cited. “It is not really based on the view that we’re going to get a better product, or lower prices. Since Google search is free, prices are not relevant. But it’s based on the idea that we need to make more room for smaller firms in that market, and that we need to have more search engines that are capable of leveling the playing field with Google today.”
“The big populist movements in antitrust have generally tried to protect small businesses from larger firms. But the result of that has generally been higher prices and lower quality….”— Herbert Hovenkamp
Hovenkamp pointed out that Google dominates that space, where the second biggest search engine is Microsoft’s Bing, with a 4% market share. “Do we want to subsidize Bing in some way, just to make it bigger? My answer would be not unless you can show that the end game is better performance, vis-a-vis consumers.”
The Case for Shifting the Burden of Proof
Reforming the “rule of reason” is another of Hovenkamp’s recommendations for effective antitrust enforcement. In order to achieve that, the burden of proof must shift from the plaintiff (usually a government agency like the Federal Trade Commission) to the defendant (e.g., a company accused of an anticompetitive practice). The U.S. Supreme Court has articulated that framework but never seriously embraced it, the paper stated, citing some landmark cases as examples of that inconsistency.
Hovenkamp explained why judicial practice must more closely conform to the rule of reason. In practice, the rule of reason requires a plaintiff to show that the defendant possesses market power or the ability to charge high prices, and then show that those high prices are actually likely to materialize as a result of an anticompetitive practice. “But we’ve put various burdens in the way that have made enforcement very difficult to enforce; there are not that many cases that the government or the private plaintiffs win under the rule of reason,” he said.
“Once the government proves market power and a suspicious practice, then it would be the defendant’s obligation to show that that practice did not have harmful consequences,” Hovenkamp continued. In the first place, the practice that is being challenged was created by the defendant, which is therefore in a better position to have knowledge of how it works, he explained. Assigning the burdens of proof more to the defendants will help plaintiffs win more cases, he added.
In addition to those gaps in antitrust enforcement, Hovenkamp in his paper referred to an intangible hurdle as well: an anti-monopolist hostility towards economics. One reason for that may be “the idea that economic expertise should be subordinated to popular opinion,” he wrote. He termed that “a recipe for demagoguery, because public opinion is easily manipulated.”
