Antitrust law has garnered significant popular attention in recent months, with increased calls to dramatically expand enforcement to combat a perceived rise in market concentration and the widespread use of unfair commercial practices by so-called “dominant” firms. We’ve recently posted our new draft article, “Requiem for a Paradox: The Dubious Rise and Inevitable Fall of Hipster Antitrust,” which analyzes this new populist movement and its calls for fundamental changes to modern antitrust institutions, including abandoning the focus on consumer welfare as the lodestar of antitrust law and instead using antitrust to deal with various social challenges ranging from economic inequality to protecting small business. The new populist movement—sometimes described as Hipster Antitrust or the New Brandeis Movement—seeks to return modern antitrust to an earlier era before it fully incorporated an economic focus. In our article, we examine the theoretical and empirical foundations of the Hipster Antitrust movement’s various claims and policy proposals, find them lacking, and predict the movement’s demise.
Here are some main points of the paper:
What Is Hipster Antitrust and What Would It Do?
The Hipster Antitrust movement calls for the return of populism in antitrust enforcement and has been remarkably successful in promoting its ideas in academic, political, and popular circles. The central ideas have been highlighted in academic articles and the popular press, such as the New York Times, and incorporated into the political platform of the Democratic Party and into proposed legislation. Hipster Antitrust advocates claim that modern antitrust enforcement and its focus on consumer welfare (i.e., judging whether a merger or commercial practice is permissible, based on whether it makes consumers better or worse off) has been insufficient to protect markets and has caused a widespread rise in corporate concentration, an increase in income inequality, and a pervasive and dramatic increase in the exercise of monopoly and monopsony power to the detriment of competition and consumers.
Alongside its general grievances and wide range of targets, the Hipster Antitrust movement offers several specific policy proposals. They include a return to “big-is-bad” antitrust enforcement based upon firm size, without regard for effect on consumers, making presumptively unlawful broad categories of mergers and acquisitions (e.g., all mergers beyond a certain size, even in the absence of potential horizontal or vertical issues), and abandoning the consumer welfare standard to take into account effects on income inequality and wages. Indeed, some populist proposals call for blocking all transactions that result in a combined company with a market share as low as 8 percent. In short, the Hipster Antitrust movement intends that the role of antitrust be reconceived from a backstop to protect markets from the rise of durable monopoly power to a cure for various perceived socio-political problems, including rising inequality, employee wage concerns, and the concentration of political power.
We’ve Been Here Before: Hipster Antitrust and Antitrust History
Hipster Antitrust proposals often suffer from a tendency to neglect the lessons of antitrust history. Before discussing the merits of the consumer welfare standard, it is important to understand where the standard came from. Indeed, the rise of the consumer welfare standard and modern antitrust’s exclusive focus on economic concerns is attributable primarily to the failure of an antitrust regime focused on simultaneously achieving a hodgepodge of social goals.
The result of this multi-dimensional, socio-political approach to antitrust was conflicting holdings and outcomes, no consistent reasoning underlying those outcomes, and little sense that application of antitrust doctrine was achieving any of its many goals. Antitrust enforcement targeted and condemned procompetitive practices just as often, or even more often, as it did anticompetitive ones. Competition and consumers were made worse off by antitrust institutions. Individual rivals out-competed in the marketplace were able to find protection from competition by using the antitrust laws to subvert competition. It was this state of affairs that led Robert Bork to describe the “Antitrust Paradox,” and antitrust luminaries like D.C. Circuit Judge Douglas H. Ginsburg to declare provocatively that, “[f]orty years ago, the U.S. Supreme Court simply did not know what it was doing in antitrust cases.”
Against this background of self-contradiction and confusion that plagued antitrust for decades, significant debates over appropriate rules and standards ensued (and continue to this day), and eventually some unifying themes and insights emerged. Those insights provide a coherent and consistent framework for analyzing allegedly anticompetitive conduct and a workable set of standards for enforcers and courts. For its various imperfections and debates around the margins, there is widespread agreement that the adoption of the consumer welfare standard and the rejection of the earlier approach made consumers better off. Indeed, antitrust practitioners, scholars, and economists (regardless of political party affiliation) who specialize in the area today nearly universally acknowledge that the adoption of the consumer welfare standard transformed antitrust law and the lives of consumers for the better.
Evaluating Hipster Antitrust Against the Available Data
In our paper, we examine a non-exhaustive list of the most significant Hipster Antitrust policy claims and the strength of their underlying empirical evidence. We think it’s important, as a logical matter, to separate the different types of claims that have been made in the current debate, and we identify three related but distinct claims that lie at the heart of the Hipster Antitrust movement:
Empirical support for each of these claims involves important new work by economists. But upon close examination, the empirical claims that the Hipster Antitrust movement cites as evidence do not survive and are plagued by a combination of measurement problems, weak inference, and lack of identification.
To discuss just one example, the second main Hipster Antitrust claim—that the consumer welfare standard resulting in lax antitrust has failed to prevent a widespread increase in market power—is largely based upon studies analyzing evidence that purportedly describes increasing industrial concentration at the sector level. Many of these studies, however, examine concentration across broad sectors (e.g., retail, agriculture, or construction) rather than relevant antitrust markets, and therefore do not actually analyze effects on competition. Moreover, as industrial organization economists have long understood, cross-sectional price- or profit-concentration studies like those that make up a significant portion of the available data relied upon by critics of modern antitrust are inherently unreliable. A fundamental problem with cross-sectional price- or profit-concentration studies is that they are often hindered by endogeneity and lack of identification. As basic economic theory shows, concentration could reflect a decline in competition but could equally reflect the forces of competition at work.
Conclusion
The current debate tends to underestimate the virtues of the consumer welfare standard. The standard provides a disciplined and objective framework for courts and enforcers to assess a challenged conduct’s likelihood to harm competition and making consumers worse off. As a result, the consumer welfare standard has helped reduce abuses in the enforcement of the antitrust laws. It also has been flexible over time, changed when evidence called for it, and rejected ideas unsupported by evidence.
In contrast, Hipster Antitrust proposals fail on both theoretical and empirical grounds when evaluated as a set of serious policy proposals that call for dramatic change to antitrust enforcement and its institutions. Hipster Antitrust proposals that advocate for mixing or replacing the consumer welfare standard with vague new standards and broad discretion would, ironically, invite rent-seeking and grant large, powerful corporations the ability to exert undue influence over the antitrust agencies’ decision-making.
We believe that the foundations of the evidence-based approach to antitrust are strong, that the consumer welfare standard will retain its rightful place as the lodestar of antitrust through superior performance, and that the Hipster Antitrust proposals will inevitably fail for its theocratical flaws and lack of empirical support.
This post comes to us from Joshua D. Wright, University Professor and Executive Director, Global Antitrust Institute at Scalia Law School; Jonathan Klick, a professor at the University of Pennsylvania Law School; Jan M. Rybnicek, a senior associate, at Freshfields, Bruckhaus Deringer LLP; and Elyse Dorsey, attorney adviser to Commissioner Noah Phillips at the United States Federal Trade Commission. It is based on their recent article, “Requiem for a Paradox: The Dubious Rise and Inevitable Fall of Hipster Antitrust,” available here. The views expressed herein are those of the authors and do not necessarily reflect the views of the Federal Trade Commission or any of its commissioners.