The looming crisis in antitrust economics

Click here to read the full article online

As in so many areas of law and politics in the United States, antitrust’s center is at bay. From the right it is besieged by those who would further limit its reach. From the left, it faces revisionists who propose significantly greater enforcement. What the two extremes share, however, is denigration of the role of economics in antitrust analysis. The Supreme Court’s two most recent antitrust decisions at this writing reveal that economic analysis no longer occupies the central role that it once had. On the left, some proposals display indifference to their economic impact on important participants in the economy.

The antitrust laws speak of the conduct they prohibit in economic terms, such as “restraint of trade,” “monopoly,” or lessening of “competition.” They do not embrace any particular economic ideology, such as the Chicago School or institutionalism. Nor do they require the use of any particular economic model, such as perfect competition or oligopoly. This openness gives policy makers a great deal of room, but it is not an invitation to economic nonsense. Further, economics should not be a tool for picking a winning interest group and then manipulating the doctrine to get that result.

The Supreme Court’s 2019 Apple decision slighted the economics of passed on consumer harm, a central component in the analysis of private damage actions for more than forty years, and critical to measuring competitive injury. In AmEx, the Court neglected the kind of transactional analysis that would have uncovered the true injuries in that case, defined the “relevant market” in such a way as to make that term economically incoherent, rejected a superior methodology for assessing power in favor of an inferior one, completely misunderstood the meaning and appropriate scope of free riding, and lost sight of the fact that marginal rather than total effects are central.

Although the progressive wing of antitrust does a better job of identifying the economic problems that the economy faces, some of its proposed solutions are calculated to make them worse. The pursuit of business concentration or bigness for its own sake will injure consumers far more than it benefits small business, the intended beneficiaries. A proposal to forbid large platforms from selling their own products in competition with the products of others will harm both consumers and small business, although it will benefit some large firms.

When used correctly and without excessive ideology, economics is a powerful, neutral tool for helping people identify injuries to competition and appropriate fixes. Indeed, that is the first and best use of antitrust economics. Both extremes in this debate have ignored the first rule of rational antitrust policy: figure out who is getting hurt, and how.