Senator Klobuchar’s Bill Really Might Become Law. Senator Amy Klobuchar (D-Minn.) has proposed a landmark antitrust bill, entitled the “Competition and Antitrust Law Enforcement Reform Act,” which after negotiation and modification might well receive bipartisan support and become part of our federal antitrust law. The bill is the handiwork of moderate Democrats and includes various measures long supported by leading Republicans, including Senator Mike Lee of Utah, who is the ranking Republican on the Senate Antitrust Subcommittee, and Congressman Ken Buck of Colorado, who is the ranking Republican on the House Antitrust Subcommittee. The Biden Administration supports the bill, as do many economists, jurists, and commentators, ranging from arch-conservative Texas Republicans to bluer-than-the-bluest Massachusetts Democrats. This bill might well become law, as well it should. It therefore deserves close review.
Rather than overhauling our antitrust jurisprudence and introducing new, controversial antitrust standards, as some progressives have championed, the bill is notable for its practical usefulness, workable aims, and long overdue clarifications and reaffirmations of classical antitrust doctrines. It is the kind of measure that can be enacted in the present Congress and signed into law by President Biden.
Much Stricter Merger Review. For proposed mergers and acquisitions, the bill usefully modifies the controlling standards and reverses the burden of proof for blocking anticompetitive mergers under Section 7 of the Clayton Act (15 U.S.C. § 18) (“Section 7”). Specifically, the bill sets new thresholds for merger review, clarifies that Section 7 forbids mergers that pose an “appreciable risk of materially lessening competition,” and obliges proponents of a certain kinds of mergers to justify them, rather than placing the burden on the DOJ’s Antitrust Division or the FTC.
Suspect mergers include any of the following: (1) a merger that “significantly increases market concentration” (per a standard HHI review); (2) a dominant’s firm’s acquisition of a competitor (per specific criteria); or (3) “mega-mergers” (per specific criteria). Any such merger might be permitted, but only if its proponents can show that it does not pose “an appreciable risk of materially lessening competition” in a properly defined market.
Codification of the Exclusionary-Practices Test. Senator Klobuchar’s bill also clarifies that a dominant firm’s “exclusionary conduct” is presumptively unlawful under Section 2 of the Sherman Act (15 U.S.C. § 2) (“Section 2”). In its current format, this provision has occasioned unnecessary controversy: critics argue that it could be invoked to condemn a dominant firm merely for improving its offerings, winning customers as a result, and thereby harming its competitors.
But that is not the intent of the provision, whose wording should be therefore refined as follows: a firm violates Section 2, if it obtains or nearly obtains monopoly power by using practices whose primary purpose and effect are not to improve its own offerings, but to prevent or impede one or more rivals from competing against it. That standard is already controlling law. Codifying the standard would place it front and center in Section 2 cases, where it belongs.
Other Measures. Senator Klobuchar’s bill also establishes significant whistleblower protections, imposes new civil fines for antitrust violations, increases funding of public antitrust enforcement, and commissions a comprehensive review of our antitrust laws and their public and private enforcement.
Antitrust Reform Has Become Necessary. These provisions might seem like obscure tinkering to most people, but if enacted they will likely prove a great boon for our economy, our overall prosperity, and the very well-being of our society: too many of our markets have ceased to be competitive, perhaps in large measure because the courts have evolved into overly cautious, reluctant enforcers of antitrust laws during an era when vigorous enforcement is arguably more important than at any time since the first Gilded Age: back then, the emergence of gigantic “trusts” after the Civil War eventually gave rise to a clamor for reform and the ensuing passage of Sherman Act by a nearly unanimous Congress in 1890.
A Dearth of Competition. As The Economist magazine has expertly chronicled, markets in the United States rank among the least competitive among the highly developed economies of the world. Multinational companies report startlingly higher profit margins from their sales in US markets than from sales made abroad, and those margins have been persistent and increasing – a circumstance that suggests that these firms impose monopoly rents in their US markets. In competitive markets, a firm that enjoys high returns usually attracts competitors, which then place downward pressure on prices over time. That has not been happening in the United States.
The Economist survey further showed how a surprisingly large number of markets in the United States are dominated by one, two or a mere handful of firms. The consequence has been lasting harm to society at large and just about everyone other than the lucky few who control the dominant firms. That harm can be empirically demonstrated by expert economists and brought to life by attorneys who call witnesses to the stand.
Economists can demonstrate how monopolies, duopolies, and oligopolies generally tend to restrict output to increase profits, resulting in substantial losses to the economy. They can further demonstrate how oligopolies and duopolies are inimical to competition even when they do not collude. So-called “non-coordinated Cornelian oligopoly” occurs when each seller in a highly concentrated market closely observes the others and sets its prices and output in anticipation of what the others have done or are expected to do in response to its own decisions. It gets the job done (resulting in restricted output and higher prices) nearly as efficiently as does naked collusion, but without any risk of antitrust liability. That much can be empirically demonstrated, and the ensuing “social costs” borne by society impose lasting burdens: society and its members are deprived of increased, improved output because monopolists and oligopolists gain by suppressing and restricting it.
These points, however unanswerable, likely seem obscure and dull to everyday Americans and even to the few readers of this article who have managed to make it this far. It therefore falls to us antitrust lawyers to show the real-world outcomes. That we can do by having customers, employees, and entrepreneurs recount their hardships to juries: anticompetitive acts routinely lead to real-life human dramas that did not need to happen.
In uncompetitive markets, customers tend to pay significantly higher prices for fewer and inferior offerings than they would receive in competitive product markets; employees at nearly every position tend to receive lower pay and fewer career opportunities than they would enjoy in competitive labor markets; and good businesses are too often co-opted or destroyed by far larger competitors before they ever get off the ground. Innovation and prosperity suffer in direct consequence. A monopolistic economy thus stultifies prosperity and economic independence for most of us. Antitrust law is supposed to be a market-oriented remedy of these evils.
It’s A Wonderful Life. The evils hardly end there. Studies show that dominant firms, if unchecked by competition, eventually gain too much influence over our politics and society, corrupting every aspect of our lives and changing our very way of life. Antitrust stands between us and such a society.
Think of the immortal movie It’s a Wonderful Life, starring Jimmy Stewart. Towards its unforgettable end, an angel dispatched from Heaven shows the despondent hero what the world will become if he ends his days by casting himself off the bridge. Our hero quickly comes to his senses, runs home, and saves his world.
Antitrust is another such hero, even if it is less likely to move us to tears. Without it, industrialized economies tend to develop winner-take-all markets that offer colossal riches and nearly unlimited power for the lucky few, but worsening disappointment, frustration, and precarity for millions, who find that they must toil and struggle thanklessly in an unpromising land that offers only poor opportunities. History teaches that such circumstances lend themselves to social upheaval, extremist political movements, and a wide array of economic, social and political evils that every healthy society naturally wishes to avoid. That way lies revolt, counter-reaction and all manner of dreadful outcomes. Our own very recent history offers some alarming omens.
Antitrust law is not a sufficient antidote, but is surely a necessary one. Properly understood, it establishes the essential commercial liberties and protections. It ensures that our markets are competitive; that our sellers are kept on their toes and honest; that none of them becomes too powerful, since all are kept in check by the others; and that every incentive is given to promote the success and liberty of all hardworking members of our society who seek to improve their own fortunes by offering goods and services that are useful to others. That way lies lasting peace and prosperity.
With refinement, Senator Klobuchar’s bill would promote these aims. It can be enacted by our current Congress and Administration. It would codify new merger standards and finally arrest our inexorable march towards ever more extreme market concentration. It would re-affirm the central importance of the exclusionary-practices test. Our markets and society need this kind of reform, and it is neither beyond reach, nor liable to miscarry, as might be true of other, more “transformative” proposals. I therefore hope that the bill becomes law after its provision on exclusionary practices is better clarified. Antitrust surely needs other reforms, but this bill by itself is a great start.
A Stepping Stone to End the Logjam in Congress? A further benefit of enacting this bill would be the fact of its enactment in a closely divided Congress, which has resolutely refused to accomplish much of anything at least since 2010 (except for budgetary reconciliations and emergency relief). That is not how things work in a prosperous, forward-looking Republic. If Senator Klobuchar’s bill were to become law, it would be an actual bipartisan passage of a landmark, non-budgetary bill in Congress. That by itself would be big news and would reflect favorably on all Members who voted for it. That success might even nudge them in the right direction and show them how they can work together, reach productive compromises to address the country’s challenges, and gain massive support from their constituents for their efforts. Wouldn’t that be a great way to move forward early in this new year?
© William Markham, 2021