Right before Thanksgiving, Josh Sisco wrote that the Federal Trade Commission is investigating whether the $9.6 billion purchase of Subway by private equity firm Roark Capital creates a sandwich shop monopoly, by placing Subway under the same ownership as Jimmy John’s, Arby’s, McAlister’s Deli, and Schlotzky’s. The acquisition would allow Roark to control over 40,000 restaurants nationwide. Senator Elizabeth Warren amped up the attention by tweeting her disapproval of the merger, prompting the phrase “Big Sandwich” to trend on Twitter.

Fun fact: Roark is named for Howard Roark, the protagonist in Ayn Rand’s novel The Fountainhead, which captures the spirit of libertarianism and the anti-antitrust movement. Ayn Rand would shrug off this and presumably any other merger!

It’s a pleasure reading pro-monopoly takes on the acquisition. Jonah Goldberg writes in The Dispatch that sandwich consumers can easily switch, in response to a merger-induced price hike, to other forms of lunch like pizza or salads. (Similar screeds appear here and here.) Jonah probably doesn’t understand the concept, but he’s effectively arguing that the relevant product market when assessing the merger effects includes all lunch products, such that a hypothetical monopoly provider of sandwiches could not profitably raise prices over competitive levels. Of course, if a consumer prefers a sandwich, but is forced to eat a pizza or salad to evade a price hike, her welfare is almost certainly diminished. And even distant substitutes like salads might appear to be closer to sandwiches when sandwiches are priced at monopoly levels.

The Brown Shoe factors permit courts to assess the perspective of industry participants when defining the contours of a market, including the merging parties. Subway’s franchise agreement reveals how the company perceives its competition. The agreement defines a quick service restaurant that would be “competitive” for Subway as being within three miles of one of its restaurants and deriving “more than 20% of its total gross revenue from the sale of any type of sandwiches on any type of bread, including but not limited to sub rolls and other bread rolls, sliced bread, pita bread, flat bread, and wraps.” The agreement explicitly mentions by name Jimmy John’s, McAlister’s Deli and Schlotzky’s as competitors. This evidence supports a narrower market.

Roark’s $9.6 billion purchase of Subway exceeded the next highest bid by $1.35 billion—from TDR Capital and Sycamore Partners at $8.25 billion—an indication that Roark is willing to pay a substantial premium relative to other bidders, perhaps owing to Roark’s existing restaurant holdings. The premium could reflect procompetitive merger synergies, but given what the economic literature has revealed about such purported benefits, the more likely explanation of the premium is that Roark senses an opportunity to exercise newfound market power.

To assess Roark’s footprint in the restaurant business, I downloaded the Nation’s Restaurant News (NRN) database of sales and stores for the top 500 restaurant chains. If one treats all chain restaurants as part of the relevant product market, as Jonah Goldberg prefers, with total sales of $391.2 billion in 2022, then Roark’s pre-merger share of sales (not counting Subway) is 10.8 percent, and its post-merger share of sales is 13.1 percent. These numbers seem small, especially the increment to concentration owing to the merger.

Fortunately, the NRN data has a field for fast-food segment. Both Subway and Jimmy John’s are classified as “LSR Sandwich/Deli,” where LSR stands for limited service restaurants, which don’t offer table service. By comparison, McDonald’s, Panera, and Einstein are classified under “LSR Bakery/Café”. If one limits the data to the LSR Sandwich/Deli segment, total sales in 2022 fall from $391.1 billion to $26.3 billion. Post-merger, Roark would own four of the top six sandwich/deli chains in America. It bears noting that imposing this filter eliminates several of Roark’s largest assets—e.g., Dunkin’ Donuts (LSR Coffee), Sonic (LSR Burger), Buffalo Wild Wings (FSR Sports Bar)—from the analysis.

Restaurant Chains in LSR Sandwich/Deli Sector, 2022

Chain	Sales (Millions)	Units	Share of Sales
Subway*	9,187.9	20,576	34.9%
Arby’s*	4,535.3	3,415	17.2%
Jersey Mike’s	2,697.0	2,397	10.3%
Jimmy John’s*	2,364.5	2,637	9.0%
Firehouse Subs	1,186.7	1,187	4.5%
McAlister’s Deli*	1,000.4	524	3.8%
Charleys Philly Steaks	619.8	642	2.4%
Portillo’s Hot Dogs	587.1	72	2.2%
Jason’s Deli	562.1	245	2.1%
Potbelly	496.1	429	1.9%
Wienerschnitzel	397.3	321	1.5%
Schlotzsky’s*	360.8	323	1.4%
Chicken Salad Chick	284.1	222	1.1%
Penn Station East Coast	264.3	321	1.0%
Mr. Hero	157.9	109	0.6%
American Deli	153.2	204	0.6%
Which Wich	131.3	226	0.5%
Capriotti’s	122.6	142	0.5%
Nathan’s Famous	119.1	272	0.5%
Port of Subs	112.9	127	0.4%
Togo’s	107.7	162	0.4%
Biscuitville	107.5	68	0.4%
Cheba Hut	95.0	50	0.4%
Primo Hoagies	80.4	94	0.3%
Cousins Subs	80.1	93	0.3%
Ike’s Place	79.3	81	0.3%
D’Angelo	75.4	83	0.3%
Dog Haus	73	58	0.3%
Quiznos Subs	57.8	165	0.2%
Lenny’s Sub Shop	56.3	62	0.2%
Sandella’s	51	52	0.2%
Erbert & Gerbert’s	47.4	75	0.2%
Goodcents	47.3	66	0.2%
Total	26,298.60	230,629	100.0%

Source: Nation’s Restaurant News (NRN) database of sales and stores for the top 500 restaurant chains. Note: * Owned by Roark

With this narrower market definition, Roark’s pre-merger share of sales (not counting Subway) is 31.4 percent, and its post-merger share of sales is 66.3 percent. These shares seem large, and the standard measure of concentration—which sums the square of the market shares—goes from 2,359 to 4,554, which would create the inference of anticompetitive effects under the 2010 Merger Guidelines.

One complication to the merger review is that Roark wouldn’t have perfect control of the sandwich pricing by its franchisees. Franchisees often are free to set their own prices, subject to suggestions (and market studies) by the franchise. So while Roark might want (say) a Jimmy John’s franchisee to raise sandwich prices after the merger, that franchisee might not internalize the benefits to Roark of diversion of some its customers to Subway. With enough money at stake, Roark could align its franchisees’ incentives with the parent company, by, for example, creating profit pools based on the profits of all of Roark’s sandwich investments.

Another complication is that Roark does not own 100 percent of its restaurants. Roark is the majority-owner of Inspire Brands. In July 2011, Roark acquired 81.5 percent of Arby’s Restaurant Group. Roark purchased Wendy’s remaining 12.3 percent holding of Inspire Brands in 2018. To the extent Roark’s ownership of any of the assets mentioned above is partial, a modification to the traditional concentration index could be performed, along the lines spelled out by Salop and O’Brien. (For curious readers, they show in how the change in concentration is a function of the market shares of the acquired and acquiring firms plus the fraction of the profits of the acquired firm captured by the acquiring firm, which varies according to different assumption about corporate control.)

When defining markets and assessing merger effects, it is important to recognize that, in many towns, residents will not have access to the fully panoply of options listed in the top 500 chains. (Credit to fellow Sling contributor Basel Musharbash for making this point in a thread.) So even if one were to conclude that the market was larger than LSR Sandwich/Deli chains, it wouldn’t be the case that residents could chose from all such restaurants in the (expanded) relevant market. Put differently, if you live in a town where your only options are Subway, Jimmy John’s, and McDonald’s, the merger could significantly concentrate economic power.

Although this discussion has focused on the harms to consumers, as Brian Callaci points out, the acquisition could allow Roark to exercise buying power vis-à-vis the sandwich shops suppliers. And Helaine Olen explains how the merger could enhance Roark’s power over franchise owners. The DOJ recently blocked a book-publisher merger based on a theory of harm to input providers (publishers), indicating that consumers no longer sit alone atop the antitrust hierarchy.

While it’s too early to condemn the merger, monopoly-loving economists and libertarians who mocked the concept of Big Sandwich should recognize that there are legitimate economic concerns here. It all depends on how you slice the market!

How many times have you heard from an antitrust scholar or practitioner that merely possessing a monopoly does not run afoul of the antitrust laws? That a violation requires the use of a restraint to extend that monopoly into another market, or to preserve the original monopoly to constitute a violation? Here’s a surprise.

Both a plain reading and an in-depth analysis of the text of Section 2 of the Sherman Act demonstrate that this law’s violation does not require anticompetitive conduct, and that it does not have an efficiencies defense. Section 2 of the Sherman Act was designed to impose sanctions on any firm that monopolizes or attempts to monopolize a market. Period. With no exceptions for firms that are efficient or for firms that did not engage in anticompetitive conduct.

This is the conclusion one should reach if one were a judge analyzing the Sherman Act using textualist principles. Like most of the people reading this article I’m not a textualist. But many judges and Supreme Court Justices are, so this method of statutory interpretation must be taken quite seriously today.

To understand how to read the Sherman Act as a textualist, one must first understand the textualist method of statutory interpretation. This essay presents a textualist analysis of Section 2 that is a condensation of a 92-page law review article, titled “The Sherman Act Is a No-Fault Monopolization Statute: A Textualist Demonstration.” My analysis demonstrates that Section 2 is actually a no-fault statute. Section 2 requires courts to impose sanctions on monopolies and attempts to monopolize without inquiring into whether the defendant engaged in anticompetitive conduct or whether it was efficient.

A Brief Primer on Textualism

As most readers know, a traditionalist approach to statutory interpretation analyzes a law’s legislative history and interprets it accordingly. The floor debates in Congress and relevant Committee reports affect how courts interpret a law, especially in close cases or cases where the text is ambiguous. By contrast, textualism only interprets the words and phrases actually used in the relevant statute. Each word and phrase is given its fair, plain, ordinary, and original meaning at the time the statute was enacted.

Justice Scalia and Bryan Garner, a professor at SMU’s Dedman School of Law, wrote a 560-page book explaining and analyzing textualism. Nevertheless, a basic textualist analysis can be described relatively simply. To ascertain the meaning of the relevant words and phrases in the statute, textualism relies mostly upon definitions contained in reliable and authoritative dictionaries of the period in which the statute was enacted. These definitions are supplemented by analyzing the terms as they were used in contemporaneous legal treatises andcases. Crucially, textualism ignores statutes’ legislative history. In the words of Justice Scalia, “To say that I used legislative history is simply, to put it bluntly, a lie.” 

Textualism does not attempt to discern what Congress “intended to do” other than by plainly examining the words and phrases in statutes. A textualist analysis does not add or subtract from the statute’s exact language and does not create exceptions or interpret statutes differently in special circumstances. Nor should a textualist judge insert his or her own policy preferences into the interpretation. No requirement should be read into a law unless, of course, it is explicitly contained in the legislation. No exemption should be inferred to achieve some overall policy goal Congress arguably had unless, of course, the text demands it.

As Justice Scalia wrote, “Once the meaning is plain, it is not the province of a court to scan its wisdom or its policy.” Indeed, if a court were to do so this would be the antithesis of textualism. There are some complications relevant to a textualist analysis of Section 2, but they do not change the results that follow.

A Textualist Analysis of Section 2 of the Sherman Act

A straightforward textualist interpretation of Section 2 demonstrates that a violation does not require anticompetitive conduct and applies regardless whether the firm achieved its position through efficient behavior.

Section 2 of the Sherman Act makes it unlawful for any person to “monopolize, or attempt to monopolize . . .  any part of the trade or commerce among the several States . . . .”  There is nothing, no language in Section 2, requiring anticompetitive conduct or creating an exception for efficient monopolies. A textualist interpretation of Section 2 therefore needs only to determine what the terms “monopolize” and “attempt to monopolize” meant in 1890. This examination demonstrates that these terms meant the same things they mean today if they are “fairly,” “ordinarily,” or “plainly” interpreted, free from the legal baggage that has grown up around them by a multitude of court decisions.

What Did “Monopolize” Mean in 1890?

When the Sherman Act was passed the word “monopolize” simply meant to acquire a monopoly. The term was not limited to monopolies acquired or preserved by anticompetitive conduct, and it did not exclude firms that achieved their monopoly due to efficient behavior.

As noted earlier, Justice Scalia was especially interested in the definitions of key terms in contemporary dictionaries. Scalia and Garner believe that six dictionaries published between 1851 to 1900 are “useful and authoritative.” All six were checked for definitions of “monopolize”. The principle definition in each for “monopolize” was simply that a firm had acquired a monopoly. None required anticompetitive conduct for a firm to “monopolize” a market, or excluded efficient monopolies.

For example, the 1897 edition of Century Dictionary and Cyclopedia defined “monopolize” as: “1. To obtain a monopoly of; have an exclusive right of trading in: as, to monopolize all the corn in a district . . . . ”

Serendipitously, a definition of “monopolize” was given in the Sherman Act’s legislative debates, just before the final vote on the Bill. Although normally a textualist does not care about anything uttered during a congressional debate, Senator Edmund’s remarks should be significant to a textualist because he quotes from a contemporary dictionary that Scalia considered useful and reliable. “[T]he best answer I can make to both my friends is to read from Webster’s Dictionary the definition of the verb “to monopolize”: He went on:

1. To purchase or obtain possession of the whole of, as a commodity or goods in market, with the view to appropriate or control the exclusive sale of; as, to monopolize sugar or tea.

There was no requirement of anticompetitive conduct, or exception for a monopoly efficiently gained.

These definitions are essentially the same as those in the 1898 and 1913 editions of Webster’s Dictionary. The four other dictionaries of the period Scalia & Garner considered reliable also contained essentially identical definitions. The first edition of the Oxford English Dictionary, from 1908, also contained a similar definition of “monopolize:”

1 . . . . To get into one’s hands the whole stock of (a particular commodity); to gain or hold exclusive possession of (a trade);  . . . . To have a monopoly. . . . 2 . . . . To obtain exclusive possession or control of; to get or keep entirely to oneself. 

Not only does the 1908 Oxford English Dictionary equate “monopolize” with “monopoly,” but nowhere does it require a monopolist to engage in anticompetitive conduct.

Moreover, all but one of the definitions in Scalia’s preferred dictionaries do not limit monopolies to firms making every sale in a market. They roughly correspond to the modern definition of “monopoly power,” by defining “monopolize” as the ability to control a market. The 1908 Oxford English Dictionary defined “monopolize” in part as “To obtain exclusive possession or control of.” The Webster’s Dictionary defined monopolize as “with the view to appropriate or control the exclusive sale of.” Stormonth defined monopolize as “one who has command of the market.”  Latham defined monopolize as “ to have the sole power or privilege of vending.…” And Hunter & Morris defined monopolize as “to have exclusive command over.”

In summary, every one of Scalia’s preferred period dictionaries defined “monopolize” as simply to gain all the sales of a market or the control of a market. A textualist analysis of contemporary legal treatises and cases yields the same result. None required conduct we would today characterize as anticompetitive, or exclude a firm gaining a monopoly by efficient means.  

A Textualist Analysis of “Attempt to Monopolize”

 A textualist interpretation of Section 2 should analyze the word “attempt” as it was used in the phrase “attempt to monopolize” circa 1890. However, no unexpected or counterintuitive result comes from this examination. Circa 1890 “attempt” had its colloquial 21st Century meaning, and there was no requirement in the statute that an “attempt to monopolize” required anticompetitive conduct or excluded efficient attempts.

The “useful and authoritative” 1897 Century Dictionary and Cyclopedia defines “attempt” as:

1. To make an effort to effect or do; endeavor to perform; undertake; essay: as, to attempt a bold flight . . . . 2. To venture upon: as, to attempt the sea.— 3. To make trial of; prove; test . . . . .

The 1898 Webster’s Dictionary gives a similar definition: “Attempt . . . 1. To make trial or experiment of; to try. 2. To try to move, subdue, or overcome, as by entreaty.’ The Oxford English Dictionary, which defined “attempt” in a volume published in 1888, similarly reads: “1. A putting forth of effort to accomplish what is uncertain or difficult….”

However, the word “attempt” in a statute did have a specific meaning under the common law circa 1890. It meant “an intent to do a particular criminal thing, with an act toward it falling short of the thing intended.” One definition stated that the act needed to be “sufficient both in magnitude and in proximity to the fact intended, to be taken cognizance of by the law that does not concern itself with things trivial and small.” But no source of the period defined the magnitude or nature of the necessary acts with great specificity (indeed, a precise definition might well be impossible).

It is noteworthy that in 1881 Oliver Wendell Holmes wrote about the attempt doctrine in his celebrated treatise, The Common Law:

Eminent judges have been puzzled where to draw the line . . . the considerations being, in this case, the nearness of the danger, the greatness of the harm, and the degree of apprehension felt. When a man buys matches to fire a haystack . . . there is still a considerable chance that he will change his mind before he comes to the point. But when he has struck the match . . . there is very little chance that he will not persist to the end . . .

Congress’s choice of the phrase “attempt to monopolize” surely built upon the existing common law definitions of an “attempt” to commit robbery and other crimes.  Although the meaning of a criminal “attempt” to violate a law has evolved since 1890, a textualist approach towards an “attempt to monopolize” should be a “fair” or “ordinary” interpretation of these words as they were used in 1890, ignoring the case law that has arisen since then. It is clear that acts constituting mere preparation or planning should be insufficient. Attempted monopolization should also require the intent to take over a market and at least one serious act in furtherance of this plan.

But “attempted monopolization” under Section 2 should not require the type of conduct we today consider anticompetitive, or exempt efficient conduct. Because current case law only imposes sanctions under Section 2 if a court decides the firm engaged in anticompetitive conduct,this case law was wrongly decided. It should be overturned, as should the case law that excuses efficient attempts.

Moreover, attempted monopolization’s current “dangerous probability” requirement should be modified significantly. Today it is quite unusual for a court to find that a firm illegally “attempted to monopolize” if it possessed less than 50 percent of a market.But under a textualist interpretation of Section 2, suppose a firm with only a 30 percent market share seriously tried to take over a relevant market. Isn’t a firm with a 30 percent market share often capable of seriously attempting to monopolize a market? And, of course, attempted monopolization shouldn’t have an anticompetitive conduct requirement or an efficiency exception.

Textualists Should Be Consistent, Even If That Means More Antitrust Enforcement

Where did the exception for efficient monopolies come from? How did the requirement that anticompetitive conduct is necessary for a Section 2 violation arise? They aren’t even hinted at in the text of the Sherman Act. Shouldn’t we recognize that conservative judges simply made up the anticompetitive conduct requirement and efficiency exception because they thought this was good policy? This is not textualism. It’s the opposite of textualism.

No fault monopolization embodies a love for competition and a distaste for monopoly so strong that it does not even undertake a “rule of reason” style economic analysis of the pros and cons of particular situations. It’s like a per se statute insofar as it should impose sanctions on all monopolies and attempts to monopolize. At the remedy stage, of course, conduct-oriented remedies often have been, and should continue to be, found appropriate in Section 2 cases.

The current Supreme Court is largely textualist, but also extremely conservative. Would it decide a no-fault case in the way that textualism mandates?   

Ironically, when assessing the competitive effects of the Baker Hughes merger, (then) Judge Thomas changed the language of the statute from “may be substantially to lessen competition” to “will substantially lessen competition,” despite considering himself to be a textualist. So much for sticking to the language of the statute!

Until recently, textualism has only been used to analyze an antitrust law a modest number of times. This is ironic because, even though textualism has historically only been championed by conservatives, a textualist interpretation of the antitrust laws should mean that the antitrust statutes will be interpreted according to these laws’ original aggressive, populist and consumer-oriented language.  

Robert Lande is the Venable Professor of Law Emeritus at the University of Baltimore Law School.

Over 100 years ago, Congress responded to railroad and oil monopolies’ stranglehold on the economy by passing the United States’ first-ever antitrust laws. When those reforms weren’t enough, Congress created the Federal Trade Commission to protect consumers and small businesses from predation. Today, unchecked monopolies again threaten economic competition and our democratic institutions, so it’s no surprise that the FTC is bringing a historic antitrust suit against one of the biggest fish in the stream of commerce: Amazon.

Make no mistake: modern-day monopolies, particularly the Big Tech giants (Amazon, Apple, Alphabet, and Meta), are active threats to competition and consumers’ welfare. In 2020, the House Antitrust Subcommittee concluded an extensive investigation into Big Tech’s monopolistic harms by condemning Amazon’s monopoly power, which it used to mistreat sellers, bully retail partners, and ruin rivals’ businesses through the use of sellers’ data. The Subcommittee’s report found that, as both the operator of and participant in its marketplace, Amazon functions with “an inherent conflict of interest.”

The FTC’s lawsuit builds off those findings by targeting Amazon’s notorious practice of “self-preferencing,” in which the company gathers private data on what products users are purchasing, creates its own copies of those products, then lists its versions above any competitors on user searches. Moreover, by bullying sellers looking to discount their products on other online marketplaces, Amazon has forced consumers to fork over more money than what they would have in a truly-competitive environment.

But perhaps the best evidence of Amazon’s illegal monopoly power is how hard the company has worked for years to squash any investigation into its actions. For decades, Amazon has relied on the classic ‘revolving door’ strategy of poaching former FTC officials to become its lobbyists, lawyers, and senior executives. This way, the company can use their institutional knowledge to fight the agency and criticize strong enforcement actions. These “revolvers” defend the business practices which their former FTC colleagues argue push small businesses past their breaking points. They also can help guide Amazon’s prodigious lobbying efforts, which reached a corporate record in 2022 amidst an industry wide spending spree in which “the top tech companies spent nearly $70 million on lobbying in 2022, outstripping other industries including pharmaceuticals and oil and gas.”

Amazon’s in-house legal and policy shops are absolutely stacked full of ex-FTC officials and staffers. In less than two years, Amazon absorbed more than 28 years of FTC expertise with just three corporate counsel hires: ex-FTC officials Amy Posner, Elisa Kantor Perlman and Andi Arias. The company also hired former FTC antitrust economist Joseph Breedlove as its principal economist for litigation and regulatory matters (read: the guy we’re going to call as an expert witness to say you shouldn’t break us up) in 2017.

It goes further than that. Last year, Amazon hired former Senate Judiciary Committee staffer Judd Smith as a lobbyist after he previously helped craft legislation to rein in the company and other Big Tech giants. Amazon also contributed more than $1 million to the “Competitiveness Coalition,” a Big Tech front group led by former Sen. Scott Brown (R-MA). The coalition counts a number of right-wing, anti-regulatory groups among its members, including the Competitive Enterprise Institute, a notorious purveyor of climate denialism, and National Taxpayers Union, an anti-tax group regularly gifted op-ed space in Fox News and the National Review.

This goes to show the lengths to which Amazon will go to avoid oversight from any government authority. True, the FTC has finally filed suit against Amazon, and that is a good thing. But Amazon, throughout their pursuance of ever growing monopoly power, hired their team of revolvers precisely for this moment. These ex-officials bring along institutional knowledge that will inform Amazon’s legal defense. They will likely know the types of legal arguments the FTC will rely on, how the FTC conducted its pretrial investigations, and the personalities of major players in the case. 

This knowledge is invaluable to Amazon. It’s like hiring the assistant coach of an opposing team and gaining access to their playbook — you know what’s coming before it happens and you can prepare accordingly. Not only that, but this stream of revolvers makes it incredibly difficult to know the dedication of some regulators towards enforcing the law against corporate behemoths. How is the public expected to trust its federal regulators to protect them from monopoly power when a large swath of its workforce might be waiting for a monopoly to hire them? (Of course, that’s why we need both better pay for public servants as well as stricter restrictions on public servants revolving out to the corporations they were supposedly regulating.)

While spineless revolvers make a killing defending Amazon, the actual people and businesses affected by their strong arming tactics are applauding the FTC’s suit. Following the FTC’s filing, sellers praised the Agency on Amazon’s Seller Central forum, calling it “long overdue” and Amazon’s model as a “race to the bottom.” One commenter even wrote they will be applying to the FTC once Amazon’s practices force them off the platform. This is the type of revolving we may be able to support. When the FTC is staffed with people who care more about reigning in monopolies than receiving hefty paychecks from them in the future (e.g., Chair Lina Khan), we get cases that actually protect consumers and small businesses.

The FTC’s suit against Amazon signals that the federal government will no longer stand by as monopolies hollow-out the economy and corrupt the inner-workings of our democracy, but the revolvers will make every step difficult. They will be in the corporate offices and federal courtrooms advising Amazon on how best to undermine their former employer’s legal standing. They will be in the media, claiming to be objective as a former regulator, while running cover for Amazon’s shady practices that the business press will gobble up. The prevalence of these revolvers makes it difficult for current regulators to succeed while simultaneously undermining public trust in a government that should work for people, not corporations. Former civil servants who put cash from Amazon over the regulatory mission to which they had once been committed are turncoats to the public good. They should be scorned by the public and ignored by government officials and media alike. 

Andrea Beaty is Research Director at the Revolving Door Project, focusing on anti-monopoly, executive branch ethics and housing policy. KJ Boyle is a research intern with the Revolving Door Project. Max Moran is a Fellow at the Revolving Door Project. The Revolving Door Project scrutinizes executive branch appointees to ensure they use their office to serve the broad public interest, rather than to entrench corporate power or seek personal advancement.

The Federal Trade Commission has accused Amazon of illegally maintaining its monopoly, extracting supra-competitive fees on merchants that use Amazon’s platform. If and when the fact-finder determines that Amazon violated the antitrust laws, we propose structural remedies to address the competitive harms. Behavioral remedies have fallen out of favor among antitrust scholars. But the success of a structural remedy cannot be taken for granted.

To briefly review the bidding, the FTC’s Complaint alleges that Amazon prevents merchants from steering customers to a lower-cost platform—that is, a platform that charges a lower take rate—by offering discounts off the price it charges on Amazon. Amazon threatens merchants’ access to the Buy Box if merchants are caught charging a lower price outside of Amazon, a variant of a most-favored-nation (MFN) restriction. In other words, Amazon won’t allow merchants to share any portions of its savings with customers as an inducement to switch platforms; doing so would put downward pressure on Amazon’s take rate, which has climbed from 35 to 45 percent since 2020 per ILSR.

The Complaint also alleges that Amazon ties its fulfillment services to access to Amazon Prime. Given the importance of Amazon Prime to survival on Amazon’s Superstore, Amazon’s policy is effectively conditioning a merchant’s access to its Superstore on an agreement to purchase Amazon’s fulfillment, often at inflated rates. Finally, the Complaint alleges that Amazon gives its own private-label brands preference in search results.

These are classic exclusionary restraints that, in another era, would be instinctively addressed via behavioral remedies. Ban the MFN, ban the tie-in, and ban the self-preferencing. But that would be wrongheaded, as doing so would entail significant oversight by enforcement authorities. As the DOJ Merger Remedies Manual states, “conduct remedies typically are difficult to craft and enforce.” To the extent that a remedy is fully conduct-based, it should be disfavored. The Remedies Manual appears to approve of conduct relief to facilitate structural relief, “Tailored conduct relief may be useful in certain circumstances to facilitate effective structural relief.”

Instead, there should be complete separation of the fulfillment services from the Superstore. In a prior piece for The Sling, we discussed two potential remedies for antitrust bottlenecks—the Condo and the Coop. In what follows, we explain that the Condo approach is a potential remedy for the Amazon platform bottleneck and the Coop approach a good remedy for the fulfillment center system. Our proposed remedy has the merit of allowing for market mechanisms to function to bypass the need for continued oversight after structural remedies are deployed.

Breaking Up Is Hard To Do

Structural remedies to monopolization have, in the past, created worry about continued judicial oversight and regulation. “No one wants to be Judge Greene.” He spent the bulk of his remaining years on the bench having his docket monopolized by disputes arising from the breakup of AT&T. Breakup had also been sought in the case of Microsoft. But the D.C. Circuit, citing improper communications with the press prior to issuance of Judge Jackson’s opinion and his failure to hold a remedy hearing prior to ordering divestiture of Microsoft’s operating system from the rest of the company, remanded the case for determination of remedy to Judge Kollar-Kotelly.

By that juncture of the proceeding, a new Presidential administration brought a sea change by opposing structural remedies not only in this case but generally. Such an anti-structural policy conflicts with the pro-structural policy set forth in Standard Oil and American Tobacco—that the remedy for unlawful monopolization should be restructuring the enterprises to eliminate the monopoly itself. The manifest problem with the AT&T structural remedy and the potential problem with the proposed remedy in Microsoft is that neither removed the core monopoly power that existed, thus retaining incentives to engage in anticompetitive conduct and generating continued disputes.

The virtue of the structural approaches we propose is that once established, they should require minimal judicial oversight. The ownership structures would create incentives to develop and operate the bottlenecks in ways that do not create preferences or other anticompetitive conduct. With an additional bar to re-acquisition of critical assets, such remedies are sustainable and would maximize the value of the bottlenecks to all stakeholders.

Turn Amazon’s Superstore into a Condo

The condominium model is one in which the users would “own” their specific units as well as collectively “owning” the entire facility. But a distinct entity would provide the administration of the core facility. Examples of such structures include the current rights to capacity on natural gas pipelines, rights to space on container ships, and administration for standard essential patents and for pooled copyrights. These examples all involve situations in which participants have a right to use some capacity or right but the administration of the system rests with a distinct party whose incentive is to maximize the value of the facility to all users. In a full condominium analogy, the owners of the units would have the right to terminate the manager and replace it. Thus, as long as there are several potential managers, the market  would set the price for the managerial service.

A condominium mode requires the easy separability of management of the bottleneck from the uses being made of it. The manager would coordinate the uses and maintain the overall facility while the owners of access rights can use the facility as needed.

Another feature of this model is that when the rights of use/access are constrained, they can be tradable; much as a condo owner may elect to rent the condo to someone who values it more. Scarcity in a bottleneck creates the potential for discriminatory exploitation whenever a single monopolist holds those rights. Distributing access rights to many owners removes the incentive for discriminatory or exclusionary conduct, and the owner has only the opportunity to earn rents (high prices) from the sale or lease of its capacity entitlement. Thus, dispersion of interests results in a clear change in the incentives of a rights holder. This in turn means that the kinds of disputes seen in AT&T’s breakup are largely or entirely eliminated.

The FTC suggests skullduggery in the operation of the Amazon Superstore. Namely, degrading suggestions via self-preferencing:

Amazon further degrades the quality of its search results by buying organic content under recommendation widgets, such as the “expert recommendation” widget, which display Amazon’s private label products over other products sold on Amazon.

Moreover, in a highly redacted area of the complaint, the FTC alleges that Amazon has the ability to “profitably worsen its services.” 

The FTC also alleges that Amazon bars customers from “multihoming:” 

[Multihoming is] simultaneously offering their goods across multiple online sales channels. Multihoming can be an especially critical mechanism of competition in online markets, enabling rivals to overcome the barriers to entry and expansion that scale economies and network effects can create. Multihoming is one way that sellers can reduce their dependence on a single sales channel.

If the Superstore were a condo, the vendors would be free to decide how much to focus on this platform in comparison to other platforms. Merchants would also be freed from the MFN, as the condo owner would not attempt to ban merchants from steering customers to a lower-cost platform.

Condominiumization of the Amazon Superstore would go a long way to reducing what Cory Doctorow might call the “enshittification” of the Amazon Superstore. Given its dominance over merchants, it would probably be necessary to divest and rebrand the “Amazon basics” business. Each participating vendor (retailer or direct selling manufacturer) would share in the ownership of the platform and would have its own place to promote its line of goods or services.

The most challenging issue is how to handle product placement on the overall platform. Given the administrator’s role as the agent of the owners, the administrator should seek to offer a range of options. Or leave it to owners themselves to create joint ventures to promote products. Alternatively, specific premium placement could go to those vendors that value the placement the most, rather than based on who owns the platform. The revenue would in turn be shared among the owners of the condo. Thus, the platform administrator would have as its goal maximizing the value of the platform to all stakeholders. This would also potentially resolve some of the advertising issues. According to the Complaint,  

Amazon charges sellers for advertising services. While Amazon also charges sellers other fees, these four types constitute over [redacted] % of the revenue Amazon takes in from sellers. As a practical matter, most sellers must pay these four fees to make a significant volume of sales on Amazon.

Condo ownership would mean that the platform constituents would be able to choose which services they purchase from the platform, thereby escaping the harms of Amazon’s tie-in. Constituents could more efficiently deploy advertising resources because they would not be locked-into or compelled to buy from the platform.

Optimization would include information necessary for customer decision-making. One of the other charges in the Complaint was the deliberate concealment of meaningful product reviews:

Rather than competing to secure recommendations based on quality, Amazon intentionally warped its own algorithms to hide helpful, objective, expert reviews from its shoppers. One Amazon executive reportedly said that “[f]or a lot of people on the team, it was not an Amazonian thing to do,” explaining that “[j]ust putting our badges on those products when we didn’t necessarily earn them seemed a little bit against the customer, as well as anti-competitive.”

Making the platform go condo does not necessarily mean that all goods are treated equally by customers. That is the nature of competition. It would mean that in terms of customer information, however, a condominiumized platform would enable sellers to have equal and nondiscriminatory access to the platform and to be able to promote themselves based upon their non-compelled expenditures.

Turn Amazon’s Fulfillment Center in a Coop

The Coop model envisions shared user ownership, management, and operation of the bottleneck. Such transformation of ownership should change the incentives governing the operation and potential expansion of the bottleneck.

The individual owner-user stands to gain little by trying to impose a monopoly price on users including itself or by restricting access to the bottleneck by new entrants. So long as there are many owners, the primary objective should be to manage the entity so that it operates efficiently and with as much capacity as possible.

This approach is for enterprises that require substantial continued engagement of the participants in the governance of the enterprise. With such shared governance, the enterprise will be developed and operated with the objective of serving the interest of all participants.

The more the bottleneck interacts directly with other aspects of the users’ or suppliers’ activity, the more those parties will benefit from active involvement in the decisions about the nature and scope of the activity. Historically, cooperative grain elevators and creameries provided responses to bottlenecks in agriculture. Contemporary examples could include a computer operating system, an electric transmission system, or social media platform. In each, there are a myriad of choices to be made about design or location or both. Different stakeholders will have different needs and desires. Hence, the challenge is to find a workable balance of interests. That maximizes the overall value of the system for its participants rather than serving only the interests of a single owner.

This method requires that no party or group dominates the decision processes, and all parties recognize their mutual need to make the bottleneck as effective as possible for all users. Enhancing use is a shared goal, and the competing experiences and needs should be negotiated without unilateral action that could devalue the collective enterprise.

As explained above, Amazon tie-in effectively requires that all vendors using its platform must also use Amazon’s fulfillment services. Yet distribution is distinct from online selling. Hence, the distribution system should be structurally separated from the online superstore. Indeed, vendors using the platform condo may not wish to participate in the distribution system regardless of access. Conversely, vendors not using the condo platform might value the fulfillments services for orders received on their platforms. Still other vendors might find multi-homing to be the best option for sales. As the Complaint points out, multi-homing may give rise to other benefits if not locked into Amazon Distribution:

Sellers could multihome more cheaply and easily by using an independent fulfillment provider- a provider not tied to any one marketplace to fulfill orders across multiple marketplaces. Permitting independent fulfillment providers to compete for any order on or off Amazon would enable them to gain scale and lower their costs to sellers. That, in turn, would make independent providers even more attractive to sellers seeking a single, universal provider. All of this would make it easier for sellers to offer items across a variety of outlets, fostering competition and reducing sellers’ dependence on Amazon.

The FTC Complaint alleges that Amazon has monopoly power in its fulfillment services. This is a nationwide complex of specialized warehouses and delivery services. The FTC is apparently asserting that this system has such economies of scale and scope that it occupies a monopoly bottleneck for the distribution of many kinds of consumer goods. If a single firm controlled this monopoly, it would have incentives to engage in exploitative and exclusionary conduct. Our proposed remedy to this is a cooperative model. Then, the goal of the owners is to minimize the costs of providing the necessary service. These users would need to be more directly involved in the operation of the distribution system as a whole to ensure its development and operation as an efficient distribution network.

Indeed, its users might not be exclusively users of the condominiumized platform. Like other cooperatives, the proposal is that those who want to use the service would join and then participate in the management of the service. Separating distribution from the selling platform would also enhance competition between sellers who opt to use the cooperative distribution and those that do not. For those that join the distribution cooperative, the ability to engage in the tailoring of those distribution services without the anticompetitive constraints created by its former owner (Amazon) would likely result in reduced delivery costs.

Separation of Fulfillment from Superstore Is Essential for Both Models

We propose some remedies to the problems articulated in the FTC’s Amazon Complaint—at least the redacted version. Thus, we end with some caveats.

First, we do not have access to the unredacted Complaint. Thus, to the extent that additional information might make either of our remedies improbable, we certainly do not have access to that information as of now.

Second, these condo and cooperative proposals go hand in hand with other structural remedies. There should be separation of the Fulfillment services from the Superstore and Amazon Brands might have to be divested or restructured. Moreover, their recombination should be permanently prohibited. These are necessary conditions for both remedies to function properly.

Third, in both the condo and coop model, governance structures must be in place to assure that both fulfillment services and the Superstore are not recaptured by a dominant player. In most instances, a proper governance structure would bar that. The government should not hesitate to step in should capture be evident.

Peter C. Carstensen is a Professor of Law Emeritus at the Law School of University of Wisconsin-Madison. Darren Bush is Professor of Law at University of Houston Law Center.

America’s working people and their elected representatives in the labor movement have been an untapped resource for antitrust enforcers. That should change. Not only are workers an underutilized source of information about the likely effects of a merger, but their labor organizations also offer an effective counter to employer power.

As signaled with the Executive Order on Promoting Competition issued in July 2021, the Biden administration has adopted a new approach to competition policy. The agencies have rhetorically defenestrated the previously hegemonic consumer-welfare standard, which held that low consumer prices and high output are the sole and sacrosanct goals of antitrust, to the exclusion of other aims set out by Congress, such as regulating competition to protect democracy and to preserve economic liberty. Consistent with the agencies’ charge from Congress, the Executive Order includes the protection of workers from employers’ power and unfair practices—economic liberty includes the freedom from exploitation.

Moreover, the agencies have welcomed the broader public into the heretofore esoteric and rarified domain of antitrust, where arid theories have long taken precedence over effects of corporate practices on human beings. For example, the Federal Trade Commission (FTC) now holds regular meetings that are open to the public, and the Department of Justice (DOJ) and FTC have solicited public comments on antitrust and competition regulations and policy documents from groups well outside the usual suspects in academia and the antitrust bar.

We’d like to focus here on one group in particular that has embraced the invitation to join the antitrust discussion: the labor movement. As it turns out, working people and their elected representatives in labor unions have a lot to say about competition policy. And as an antitrust economist and lawyer, we believe our community should listen carefully. In their public comments on the draft Merger Guidelines, labor unions have articulated a holistic approach to monopoly power that moves beyond the narrow recent obsession with consumer welfare and returns to the aims of Congress. For example, as the Service Employees International Union (SEIU) wrote in its comments, “[e]conomic concentration enables political concentration, which in turn corrodes democracy.” This echoes the concerns of the authors of the antitrust laws: the Supreme Court once described the Sherman Act as “a comprehensive charter of economic liberty.”

We’d like to highlight three themes emerging from the comments submitted by labor unions that speak powerfully to break with antitrust law’s recent friendliness to big business and return to the meaning of the statutes enacted by Congress. First, unions emphasize the need to treat workers and their unions as the expert market participants they are, with an immense store of untapped knowledge and experience to offer agencies throughout the merger review process. For example, SEIU’s comment contained several examples of harms from market power and mergers spoken directly by healthcare workers, who called on the agencies to include workers and representatives when they conduct merger reviews. While the antitrust agencies have sometimes informally consulted workers during merger reviews, unions have asked that this engagement be deepened and formalized. The Communication Workers of America (CWA) thus applauded the agencies for “mak[ing] explicit what has been an occasional, informal practice of consulting with labor unions,” pointing out that “workers’ deep knowledge of their industry is an invaluable input into the review process.”

Indeed, they are: Workers are deeply informed and have a unique perspective, not only on labor market matters, but on product markets and industry conditions as well. Workers are most likely to know “where the bodies are buried” in any given transaction, and thus represent a previously untapped source of rich qualitative and quantitative information on industrial and market conditions. They should be brought into the merger process and given a central role in a process long dominated by lawyers and economists with little relevant industry knowledge.

Second, comments from labor unions stressed the necessity of returning to the statutes by embracing strong structural presumptions against mergers tied to market share. CWA called for the use of market share tests instead of the “judicial fortune telling” that has prevailed for decades. The Strategic Organizing Center (SOC), a coalition of several labor unions including CWA and the SEIU, encouraged the agencies to lower the structural presumptions in the final guidelines. As part of this, they emphasized the need for the agencies to not weigh purported benefits to consumers as offsetting harms to workers—especially the practice of treating harms to workers as cost-saving “efficiencies” that putatively justify mergers that may lessen competition.

For example, SEIU noted that HCA, a major hospital chain, typically lowered staffing levels after acquiring a hospital. SEIU argued, correctly in our view, that while layoffs and lower staffing levels in healthcare may boost profitability, they should not be considered a benefit from mergers. CWA, for its part, called for a return to the plain language of the statute and controlling Supreme Court case law, which proscribe balancing out-of-market benefits against harms to other market participants, such as workers, in a relevant antitrust market. Meanwhile the AFL-CIO, the major labor federation in the United States, commented that proposed merger “efficiencies” have sometimes included layoffs that “fatten the bottom line” at the expense of workers and product quality. Urging the two agencies to go further than they did in the draft Merger Guidelines, the labor federation, relying on binding Supreme Court precedent, called on the DOJ and the FTC to explicitly reject an efficiencies defense for presumptively illegal mergers.

Third, labor comments importantly reminded the antitrust agencies of the inherent power imbalance in the employer-employee relationship. Given the unequal distribution of property and the necessity for most people to either work or starve, the 19^th century labor republican George McNeill wrote workers “assent but they do not consent, they submit but they do not agree.” In addition to the monopsony power stemming from employer concentration, the challenges of finding new work, and workers’ preferences for certain types of work and work environments highlighted by antitrust economists, virtually all workers are subject to employer power, embodied by take-it-or-leave-it employment terms and at-will employment.

Employer power is the rule in labor markets, not the exception. Labor, employment, and antitrust law have long recognized this basic fact, creating legal protections for workers, including the antitrust exemption for collective action, and providing the formal structure of collective bargaining to counteract employers’ wage-setting power.

And yet, as the AFL-CIO’s comments pointed out, “unions, collective bargaining and collective bargaining agreements are not explicitly mentioned” in the draft Merger Guidelines. This is an important oversight because, as the AFL-CIO points out, “unions and collective bargaining can provide a counterbalance to the effects of a merger on workers.” CWA went further, arguing that this omission risked continuing the “misguided trend of interpreting the employment relationship as based in individual contract, rather than being structured by labor market institutions.” The SOC urged the agencies to “to recognize collective bargaining as a structural remedy to concentrated corporate power.” Collectively bargained wages are no longer unilaterally set by employers but negotiated under threat of strike or alternative means like arbitration. Thus, unions and collective bargaining are an available remedy to employer monopsony power in labor markets. (While more likely to litigate troubling consolidations than they were in the past, the antitrust agencies continue to accept remedies in merger cases.) The positive effect of collective bargaining likely extends beyond the workers directly covered by the agreement: there is evidence of spillovers from collectively bargained wages to workers not covered by the agreement.

One area of policy disagreement: some of the labor comments encouraged the agencies to rely on certain practices as indicators of “market power.” These include the use of particular contractual restraints on workers and misclassifying employees as independent contractors. We agree that these practices are harmful, but believe that they are best addressed, not by implicitly tolerating such conduct and incorporating them into merger review, but by agency action to directly prohibit them. In particular, the FTC, with its expansive statutory authorities, should directly restrict these practices. For instance, the FTC should challenge the misclassification of workers as an “unfair method of competition.” As we have written elsewhere, we believe antitrust regulators can help workers most by challenging unfair business practices and models.

Brian Callaci is Chief Economist at Open Markets Institute. Sandeep Vaheesan is Legal Director at Open Markets Institute.

“Their goal is simply to mislead, bewilder, confound, and delay and delay and delay until once again we lose our way, and fail to throw off the leash the monopolists have fastened on our neck.” – Barry Lynn

Today, the name Draper is associated with either a fictional adman or a successful real-life venture capital dynasty.

Among the latter, the late Bill Draper was a widely respected early investor in Skype, OpenTable, and other top-tier startups. Less remembered now is the role of the family patriarch—Bill’s father, General William Henry Draper, Junior—in shaping the course of history in postwar Germany and Japan. Well before founding Silicon Valley’s first venture capital firm in 1959, the ür-Draper had made a name for himself in other powerful circles. A graduate of New York University with both a bachelor’s and a master’s in economics, Draper’s early career alternated between stints in investment banking and military service. During World War II, his experience spanned the gamut from developing military procurement policies to commanding an infantry. Socially savvy and obsessively hard-working, Draper was tapped to lead the “economic side of the occupation,” known as the Economics Division, well before Germany officially surrendered in May 1945.

The structure of the military government was cobbled together that summer and fall. Meanwhile, Washington hammered out the principles of occupation policy. Because Germany had surrendered unconditionally, the Allies had “supreme authority” to govern and reform their respective zones. Despite sharp rifts between U.S. agencies about whether Germany deserved a “soft” or a “hard” peace, some goals remained consistent after FDR’s death in April 1945. Notably, there was consensus that Germany’s political and economic systems would both have to be reformed to prevent war and promote democracy.

President Truman personally embraced such principles, which were spelled out in an order from the Joint Chiefs of Staff dictating the mission of the military governor, as well as in the August 1945 Potsdam Agreement between the Allies. The latter document instructed that “[a]t the earliest practicable date, the German economy shall be decentralized for the purpose of eliminating the present excessive concentration of economic power as exemplified in particular by cartels, syndicates, trusts and other monopolistic arrangements.” This policy was undergirded by years of Congressional hearings on how German industry had assisted Hitler’s consolidation of power and path to war.

So how did Draper approach building his Economics Division in light of these mandates? He entrusted an executive from (then monopoly) AT&T to hire men from their network of New York bankers and big business executives. An ominous start, running counter to the antimonopoly mission. There does not appear to have been any effort to recruit staff with more diverse business experience. Draper himself was still technically on leave from Dillon, Read, & Company—an investment bank that, in the decades after World War I, had underwritten over $100 million in German industrial bonds. Those bonds had enabled a German steel firm to buy out its competitors to become the largest steel combine in Germany—and then, the ringmaster of an international cartel.

When the military government’s organizational chart was finalized in the fall of 1945, the Economics Division had swallowed up several other sister proto-divisions, including the group that was investigating cartels and monopolies. This essentially inverted the structure of U.S. domestic enforcement: it was as if economists ran the Federal Trade Commission. Draper later denied engineering this chain of command, which indeed may have been prompted by other factors, including the inconvenient tendency of early decentralization leaders to make press leaks about the military government’s failure to remove some prominent Nazis from positions of power. And at first, Draper was not focused on what the group was doing—he initially viewed their work as tackling “just one of a great many problems.”

Archival footage of the early days

After Senate scrutiny jump-started recruitment of trustbusters en masse, the consequences of depriving the group of Division status became more apparent. The longest-serving leader of the “Decartelization Branch,” James Stewart Martin, had spent much of the war in an “economic warfare” unit investigating warmongering German firms. His team quickly dove into expanding this research and developing legal cases that would be ready to launch once the military government enacted the equivalent of an antitrust law.

Draper believed in bright line rules when it came to cartel agreements: they “should be eliminated, made illegal and prohibited.” Military government eventually passed a law which announced that participation in any international cartel “is hereby declared illegal and is prohibited,” and a year later issued regulations requiring firms to send “notices of termination” informing counterparties that cartel terms were illegal. But Draper viewed “deconcentration” (breaking up combines) differently. He later proclaimed agreement with the general policy, but carefully qualified his statements with loose caveats about not “breaking down the economic situation.” According to members of the Decartelization Branch, Draper and his men thought deconcentration would threaten Germany’s ability to ramp up production enough to sustain itself through exports—even though staffers repeatedly explained that deconcentration would increase output. (The Division’s incessant questioning of the premises of the official U.S. policy may not have been driven by corruption, but also does not appear to have been grounded in evidence, just ideological instincts borne from their professional circles.)

Draper and his men increasingly wielded their veto power to thwart deconcentration efforts. According to Martin, Draper personally teamed up with an intransigent counterpart on the British side to undermine the official U.S. position, successfully delaying negotiation of the law for a year and a half and ultimately weakening the final product. Draper allegedly insisted that accused German firms should be given procedural rights that exceeded those given to domestic companies under U.S. antitrust law—an extraordinary position to take in the context of a hyper-concentrated economy lead by firms that had proactively plotted how they would commandeer rivals in conquered nations. (The timeline allotted for objections and appeals would, coincidentally, postpone final adjudication until after the next U.S. Presidential election, when members of the Economics Division might expect headlines to read “DEWEY DEFEATS TRUMAN.”).

How that gamble turned out (hint: man on left is not Dewey)

There are rarely controls in public policy, but it is telling that the successes in decentralizing Germany’s economy occurred in areas beyond Draper’s veto power—that is, outside of the Decartelization Branch. One signature accomplishment of military government was breaking up the notorious chemical combine I.G. Farben. The United States had captured Farben’s seven-story headquarters in April 1945, and the deputy military governor personally focused on ensuring that a law authorizing the seizure and dissolution of Farben was enacted by all of the Allies by the end of that year. Draper seems to have essentially regarded Farben as the spoils of war, acknowledging that policy considerations other than any potential impact on production or German recovery took precedence in that decision. In any event, the officers in charge of overseeing Farben’s break up reported directly to the military governor, not to Draper. Although Farben was not dispersed to the extent originally envisioned, the military government followed through on reversing the merger that had cemented Farben’s monopoly by spinning off three large successors and a dozen smaller businesses. Another telling accomplishment was the reorganization of the banks into a Federal Reserve-like system. That was handled by the Finance Division, which had co-equal status with Draper’s Economics Division.

Farben and the banks were undoubtedly among the most important targets for decentralizing Germany’s economy, but were likely not the only worthy targets. Wartime investigations concluded that fewer than 100 men controlled over two-thirds of Germany’s industrial system by sitting on the boards of Germany’s Big Six Banks along with 70 industrial combines and holding companies. Although some major industries, such as steel and coal, were located in the British zone, over two dozen firms were based in the U.S. zone. The failure of the military government to launch any actions against any other combines after two years of occupation suggests that something other than good faith disagreements about particular procedures or particular companies was afoot.

There is much, much more to this story: a “factfinding” mission by U.S. industrialists, a cameo by ex-President Herbert Hoover, an untimely marriage, lies, press leaks, Congressional hearings, an internal Army investigation, righteous resignations, early retirements, and more. Not to mention that time Draper swooped into postwar Japan to copy-paste his preferred economic prescriptions over General MacArthur’s reform program there.

Of course, it would be a stretch to conclude that the Decartelization Branch failed to implement a robust antimonopoly program because of one man alone. Others have suggested that even an unhobbled program would have been doomed sooner or later by bickering Allies, changing control of Congress, and the beginning of the Cold War two years into the occupation. Or, perhaps, by the inherent irony of a centralized military tasked with decentralizing a society.

Yet these explanations divert attention from the key ingredients of the pivotal “first 100 days” of any endeavor: institutional structure and selection of mission-aligned leadership. Different choices at that crucial stage might have yielded some tangible early successes and built momentum that could have weathered later headwinds. Taking this possibility seriously underscores why, in modern times, President Biden’s establishment of the competition council and appointment of “Wu, Khan, and Kanter” were so essential—and why ongoing missed opportunities in the administration are so troubling. Elevating amoral excellence and reputed raw managerial ability over other leadership qualifications has consequences. The story of the Decartelization Branch also provides deeper context for understanding how trustbusters approached their work upon returning to the Department of Justice, and for the political will that drove adoption of the Celler-Kefauver Act of 1950.

The saga of the Decartelization Branch will be explored in detail in a forthcoming Substack series. This is, for the most part, not a new story, but it is apparently not well-known in antitrust circles; some of the most extensive accounts were written by historians who came across the saga in the course of researching bigger questions, such as the genesis of the Cold War and the rise and fall of international cartels. Perhaps most importantly, the series will be accompanied by new scans of primary sources, to facilitate renewed scholarship into this era.

Laurel Kilgour is a startup attorney in private practice, and also teaches policy courses. The views expressed herein do not necessarily represent the views of the author’s employers or clients. This is not legal advice about any particular legal situation. To the extent any states might consider this attorney advertising, those states sure have some weird and counterintuitive definitions of attorney advertising.

For years, journalists have reported numerous instances of worker exploitation, hazardous working conditions, and poverty wages in the nail salon and fast food industries. In a blockbuster 2015 New York Times investigation, for example, journalists found that New York nail salonists were “paid below minimum wage; sometimes they are not even paid…[and] endure all manner of humiliation, including having their tips docked as punishment for minor transgressions, constant video monitoring by owners, even physical abuse.” For Californian fast food workers, other investigations have revealed they endure routine wage theft, verbal abuse, and unsafe working conditions, including frequent assaults and robberies.

To combat these appalling conditions, in their recent sessions, the New York and California legislatures considered enacting new laws that would transform each industry. Among other obligations, both proposals create state regulatory councils, sometimes referred to as “wage boards” or “labor boards,” overseeing the respective industries that are staffed with lawmakers, industry workers, and experts endowed with the power to enhance wages, benefits, and working conditions. Such bold legislative actions are sensible given the abhorrent environment in each industry. They also underscore the idea that a well-functioning democracy requires that the people should be able to structure markets – through their political institutions – to meet their economic needs and agree upon a minimum set of fair working conditions for all workers in any industry.

New York’s bill is effectively stalled in the legislative labor committee. A version of California’s bill was signed in September. When both proposals become formally enacted and enforced, workers will undoubtedly benefit, and such policies should unquestionably be replicated across other industries.

Such praiseworthy reforms carry significant legal risk, however. Parties opposed to such measures have historically used the antitrust laws, the laws designed to protect the public against corporate power and ensure businesses use fair strategies to compete, to challenge these reforms – and could do so again. The antitrust laws, like the landmark Sherman Act of 1890, are sweeping in their application. Congress included provisions restraining all monopolistic practices by dominant corporate actors and restrictions on a host of unfair conduct. The restrictions imposed by the Sherman Act incentivized all firms in the economy to use fair methods of competition that enhance the public’s welfare to succeed in the marketplace. Most applicable here is the first section of the Sherman Act, which prohibits “every contract, combination, or conspiracy … in restraint of trade.” At first glance, such broad wording appears to set limits on the kinds of regulations enacted by state governments since they could ostensibly authorize conduct that a judge could be convinced to classify as a “restraint of trade” and, therefore, be prohibited by the Sherman Act.

However, to prevent the Sherman Act from becoming a law that empowers the federal judiciary to inhibit any conduct it solely deems as a “restraint of trade” – including regulations mandated from states legislatures – during the New Deal in the 1940s, the Supreme Court created a legal doctrine that facilitated Congress’s legislative intent with the Sherman Act by exempting certain conduct classified as “state action” from the antitrust laws. The state action doctrine, also known as Parker Immunity after the 1943 Supreme Court decision where the idea was formally codified, is profoundly important because how it is applied implicates who should control local economies – the federal judiciary misusing the Sherman Act or state governments working in conjunction with federal statutory law.

When Parker Immunity is interpreted in line with Congress’s intent with the Sherman Act, the doctrine encourages states to liberally use their regulatory power alongside the Sherman Act to structure markets to protect small businesses, enhance standards and wages for workers, and restrain unfair business practices – all while preventing powerful corporations from controlling the national economy. In effect, both Parker Immunity and the Sherman Act operate as two sides of the same coin on regulating corporate conduct to strengthen worker power and the vitality of independent businesses and local communities. Parker Immunity ultimately encompasses what is politically possible when governments are empowered to solve problems afflicting the public and is what will allow states like New York and California to be able to enact their respective policies.

The Beneficial Applications of Parker Immunity

The origins of Parker Immunity are rooted in situations analogous to the modern nail salon and fast food industries. In the 1930s, California raisin farmers faced a destructive price spiral whereby frenzied competition among raisin sellers led to increasingly and unsustainably low prices. To ensure a stable, sustainable, and fairer marketplace, California enacted a law that allowed producers to obtain fairer prices for their products – allowing all firms to be able to compete sustainably.

Specifically, California’s law allowed the creation of producer plans that established uniform standards for the selling of their products. The plan at issue established standards for when farmers’ raisins could be sold, the prices they could be sold for, and imposed limitations on how many raisins could be sold. California’s law also created an administrative agency to review the created plan and monitor the farmers to ensure compliance with the law.

The regulations were eventually challenged under the Sherman Act as unlawful restraints. The Supreme Court, however, would subsequently hold that California’s regulatory program did not violate the antitrust laws because the program was a result of “the execution of a government policy” derived from “state action” or “official action directed by a state.”

The Supreme Court justified its decision primarily based on two circumstances. First, the Supreme Court recognized that Congress specifically sought for the antitrust laws to set limits on how corporations could succeed in the market by restricting methods of competition that were unfair and inhibiting the power of dominant corporations. In other words, powerful corporations, not small businesses and workers, were the target. During the legislative debates, Senator Sherman articulated that his namesake act would not “interfere with” but instead cooperate with state regulatory efforts to “prevent and control combinations within the limit of the State” and that the aim of the law was to promote the “industrial liberty” of the people by “checking, curbing, and controlling the most dangerous [corporate] combinations.” In this sense, striking down California’s law would subvert Congress’s intent because it was duly enacted state law explicitly designed to support producing farmers. Second, the Court also recognized that Congress did not intend for the Sherman Act to undermine state governments’ ability to regulate their economies. Instead, Congress explicitly wanted the Sherman Act to work alongside state regulations.

With this viewpoint, the Supreme Court positioned the Sherman Act to not just prevent markets from being controlled by dominant businesses, but also as a legal tool of democratic market governance to facilitate responsive government by empowering state lawmakers to enact regulations with the Sherman Act acting as the foundation. Therefore, the Supreme Court at the time cast the Sherman Act as a democratizing law meant to ensure that the people maintained control over businesses operating within their communities. The public retaining their ability to shape their local economies through their state government while having their federal legislature establish minimum national standards for permissible corporate conduct were intertwined and complementary goals.

Empowered by Parker Immunity, states have enacted many policies designed to make competition fairer and promote other policy goals, such as supporting small businesses and ensuring appropriate workplaces. For example, alcohol distributors in many states like Connecticut are regulated under “post and hold” laws, where they must publicly post their alcohol prices and maintain those prices for a set period. Such regulations also work in conjunction with other regulations to restrict and inhibit the adverse effects of discriminatory volume discounts and alcohol from being sold below cost, and thereby inhibit national retailers from crushing smaller and local outlets. In addition to protecting the public by preventing the excessive consumption of alcohol, these laws are designed to promote local alcohol distributors and ensure fair competition between retailers.

Occupational licensing is also a product of Parker Immunity. State licensing, while seen as “deputiz[ing] incumbent firms in restricting the marketplace against new entrants” by conservative think tanks, actually protects workers and the public by establishing minimum professional standards and facilitating the creation of stable and fair-paying jobs for workers.

Parker Immunity can even authorize states to completely remake markets to ensure socially beneficial competition. States can facilitate the creation of cooperatives, alternative types of business entities where workers or small producers can come together to serve their interests, such as negotiating better pricing or obtaining ownership in a firm. Cooperatives can help workers and producers obtain fairer wages and prices.

More Democracy Inhibits Political Capture by Dominant Firms

For all its virtues, the state action doctrine can be a tool for corporate abuse. Consider a recent example from the state of North Carolina. The North Carolina legislature is considering enacting a new law to turn the University of North Carolina Health Care System into a state agency and allow it to acquire companies and engage in other collusive conduct without fear of violating the antitrust laws. Instead of creating a fair market, this action seeks to use state power to immunize a dominant corporate actor from the laws designed to restrain their conduct. The state action doctrine, therefore, can potentially serve as a potent legal vehicle for powerful corporations with access to near-unlimited financial resources to lobby state governments to enact legislation that will shield them from the laws specifically designed to create open, competitive, and fair markets by restraining monopolistic conduct.

Despite this kind of nefarious immunization, which in this case compelled the Federal Trade Commission to write a letter in June condemning the North Carolina bill, throwing the entire doctrine out with the proverbial bath water is unnecessary and undermines both Congress’s intent with the antitrust laws and the Supreme Court’s original construction of the state action doctrine it articulated in its Parker decision. As the highlighted examples above show, a broad state action doctrine that promotes fairer markets, better wages, and working conditions for workers can co-exist with antitrust law’s provisions condemning conduct that unfairly entrenches dominant corporations.

While such political-capture scenarios reveal the potential risks associated with Parker Immunity, the solution is more democracy, not relying solely on judges to manage state and local economic life through wielding the Sherman Act. Potential misuse does not necessitate abandoning Congress’s intent with the Sherman Act and completely barring state political institutions from governing their economies. Rather than leave marketplace rules to be determined by generalist judges, scenarios like that of the proposed legislation in North Carolina, which epitomizes deficient or misused governance, can be resolved with more, not less, democratic involvement.

Unionization Cannot Fill the Void

While by no means giving rise to its existence, granting antitrust immunity to state laws allows space for increased democratic market governance. Parker Immunity, therefore, symbolizes the importance of political engagement and responsive government by providing the opportunity and ability of the democratic process to become (even more) tightly integrated and present with actively governing the economy rather than substitute such a mechanism with judicial supervision and control. Those that are opposed to the state action doctrine could appear to innately fear the democratic process and would prefer unaccountable judges to govern the economy.

Moreover, consider if opponents of Parker Immunity got their way and the doctrine was abolished. Beyond the obvious moral implications of allowing workers, like nail salonists, to receive poverty wages and forcing them to tolerate inhumane working conditions, such as air so toxic it causes women to become practically infertile, in the name of hostility toward regulation and keeping prices low for consumers (the North Star of conservative antitrust policy), other options afforded to nail salonists to obtain fair conditions are problematic and hardly failsafe.

Nail salonists could attempt to unionize, as many workers across the United States are currently trying to do. Yet U.S. labor law makes unionization incredibly difficult. For one, unions can only be created in a piecemeal firm-by-firm fashion – think just because one Starbucks location unionizes does not mean the others become unionized as well. Unionization is also a protracted process – in almost 50% of instances, it takes more than a year for a union to obtain its first collective bargaining agreement. Of course, despite these obstacles, unionization should still be pursued as a critical means to enhance worker power and restrain corporate power. With a surfeit of nail salons and fast food restaurants, however, seeking to protect all workers through unionization will be an arduous task and will not set minimum standards across the industry. Moreover, given the weak penalties, corporations like Starbucks and Amazon are more than eager to flagrantly violate federal labor law to thwart their workplaces from becoming unionized.

Another alternative available to the salonists to potentially raise their wages is through merging their operations. As history has all too frequently shown, mergers consolidate markets and concentrated corporate power almost always inevitably hurt workers through the loss of jobs, depriving them of additional work opportunities and lowering wages. Furthermore, because mergers do not lead to workers obtaining power over firm decisions, merging their operations will almost certainly not solve the workplace conditions afflicting them. Overuse of mergers could also lead companies to confront the antitrust laws from another angle, since Congress has imposed a heavy restriction on merging to consolidate power.

A Wage Board for Every State

Here again, there is another way; while certainly not a trivial task, the state legislature can establish regulatory agencies to supervise the industry and enact market-wide standards to prevent unfair corporate practices and increase pay and working conditions, all while maintaining a deconcentrated market and providing consumers multiple options to obtain their services. Therefore, state-created regulations are perhaps the most practical, expeditious, and democratic means to alleviate the ills in the industries while concurrently preventing the harmful effects that Congress intended the antitrust laws to thwart. In other words, without Parker Immunity preventing the antitrust laws from proscribing state regulations, workers suffer as the Sherman Act effectively becomes a legal cudgel that only authorizes the federal judiciary’s conception of appropriate market regulation and work standards.

It is almost a foregone conclusion that reactionary legal advocates will attempt to use the antitrust laws as a pretext to challenge New York and California’s policies aimed at addressing the deplorable working conditions endured by nail salon and fast food workers. Regardless of the prospect of litigation and the heightened barriers the Supreme Court has imposed on obtaining Parker Immunity since the 1970s, it exists. Like New York and California, more states should enact and be prepared to fight for their regulations to enhance and protect the lives of working people by taking advantage of the immunity granted by the Supreme Court more than 80 years ago.

Daniel A. Hanley is a Senior Legal Analyst at the Open Markets Institute.

It has become quite common to accuse antitrust enforcers of bias and seek their recusal. FTC Chair Lina Khan and DOJ Antitrust Division AAG Jonathan Kanter have been the subject of calls for recusal in cases involving corporate giants such as Meta, Amazon, and Google.

The argument is that these individuals are biased in their enforcement of antitrust law. Ideology, in the case of Chair Khan, was initially honed by writing an article in law school and working for a non-profit. Learned and developed understanding is something that is somehow problematic to some in the pursuit of antitrust enforcement.

In contrast, nominees to run the DOJ and the FTC frequently have experience defending against agency enforcement. They will spend time at the agency, to varying degrees, making minute changes to the state of current enforcement (or lack thereof). Then, they will leave and go back to the defense bar. That does not create calls of bias. In fact, that time “in the trenches” is celebrated as valuable experience.

Whether defending an action or enforcing an action before returning to the defense bar, the reason that no one objects to that “bias” in those realms is that they share the same faith. Thus, it doesn’t matter if you once represented corporations—the common belief is that antitrust enforcement agencies should not delve too deeply into monopolization, there should be blessing of efficiencies in mergers, and that the risk of improper enforcement is greater than the risk of non-enforcement. All believers of the same principles cannot be biased, after all.

The faith is called “Consumer Welfare.”

But these new enforcement officials aren’t practitioners of that faith. And that is perhaps the primary reason that there is much ire about the draft Merger Guidelines and one if its (many) drafters, FTC Chair Lina Khan. The drafters of those guidelines are seeking to disrupt the Consumer Welfare faith, replacing it with the science of modern economics and a return to the statutory goals.

Yet disciples of the faith do not like change. And their belief system has been beneficial to everyone who spins through the revolving door, often times at rapid velocity. But that same system harms consumers, workers, independent business people, citizens, and anyone else lacking voice and who are not members of this particular faith.

In what follows, I detail why Consumer Welfare Theory is a faith, not science. I then explore how there are multiple sects within that faith and how they interplay with one another, all the while perpetuating the faith. I then detail ways in which the faith protects itself from challenge, both scientific and policy based. Finally, I propose a solution.

The Faith of Consumer Welfare

Consumer Welfare Is Internally and Irretrievably Flawed

A faith, according to one definition in Merriam-Webster dictionary, is a “firm belief in something for which there is no proof.”  Faith is closely held, and not readily dismissed even in the face of evidence to the contrary. Faith is powerful and should not be discounted.

But faith is not science. There is no ability to verify empirically someone’s faith. Nor is it necessarily logical. Logic suggests that should some assumption prove false; the claim is rejected. Faith exists even when there is evidence to the contrary.

Consumer Welfare, which is the faith adhered to by agency heads past, is not logical because it is based on disproven theory. Modern economics—the social science of economics and not the Consumer Welfare faith of antitrust practitioners—has disproven consumer welfare theory and surplus approaches to welfare. My coauthors and I have detailed this literature here, here, here, and here. In some instances, we have made new claims of intractable problems, and have been met with silence.

Consumer Welfare and its assumptions have also been empirically disproven in many aspects.

For example, mergers do not create efficiencies by and large, except perhaps by happenstance. But notions of efficiency that flow through merger have been disproven. Much of Consumer Welfare has even been disproven by its own followers, the Post-Chicago School. Yet its disciples cling on. There is also strong evidence of increasing concentration in industries across the United States, lower productivity, greater disparities of income. As a policy for the goals of antitrust, evidence suggests Consumer Welfare theory empirically performs poorly.

Despite these criticisms that condemn the theory, and even though modern economics as a science has moved on from it, Consumer Welfare Theory is embraced today in antitrust law. One might hope for a Kuhnian scientific revolution, but rejection of empiricism and logic is a faith-based decision. Indeed, it is fanatical devotion.

“Follow the Gourd! Follow the Shoe.”

In Monty Python’s The Life of Brian, Brian, a false prophet, drops his shoe and his gourd (literal, not metaphorical gourd). His followers splinter into camps of shoe followers and gourd followers. But Brian remains the leader of both sects.

Similarly, the Chicago School and the Post-Chicago School still cling to the same prophet of Consumer Welfare. The Post-Chicago School debunked many of the claims of the Chicago School, but still clung to the religion. To mark their distinction, the Post-Chicago School argued for a kinder, gentler form of Consumer Welfare: A new testament, if you will. Consumer Welfare as embodied in modern antitrust law was the faith created by High Priest Robert Bork and his followers who sought to curb antitrust enforcement. Yet the faith has expanded, in large part due to defenses of the Consumer Welfare standard stemming from people claiming that they are pro-enforcement.

But it’s hard to know what the various sects of this faith are. As Professor Scott-Morton and Leah Samuel point out, there is no clear definition among the devout about what consumer welfare means:

This divergence in terminology means that participants in a debate about CWS are often talking about fundamentally different things. At some point, despite the best efforts of many economists at many antitrust conferences, this barrier to effective communication has become insurmountable. For reasons that are entirely understandable, Neo-Brandeisians have won the terminology debate in policy discourse and the media. Clear communication isn’t possible among Neo-Brandesians, Borkians, and academic economists when they use different definitions of the same term. Making things worse, any quotation from jurisprudence or analysis of past decades reflects the definition of its time.

The lack of an objective reference is further evidence of the faith-based quality of Consumer Welfare among antitrust practitioners and scholars. However, followers of this approach often blend together and come back to the original faith.

Consider the “output” sect led by Professors Herb Hovenkamp and Fiona Scott-Morton, who appear to believe the goal of antitrust is to maximize output. In this discussion, there is an explicit recognition that output does not increase welfare without strict assumptions. Yet this sect exhibits a faith-based defense of using output to measure welfare and defending consumer surplus:  “When those tools [regulation, consumer protection, and product labeling] do a good job, output returns to its role as a good proxy for consumer welfare.”  

The authors add: “When an economist examines a practice and concludes that it increases ‘welfare,’ the evidence supporting that claim is commonly that the practice increased output or reduced price.” But that simply isn’t true anymore.

Thus, it appears that the output sect is linking output to consumer welfare (with some herculean assumptions). But not necessarily:  Professor Hovenkamp has said that you “don’t even need a welfare metric.”  So, output as a sect of welfare assumes output on its own is good. But then again, apparently not always.

Post-Chicago economics added the Trading Partners sect. This sect claims a pro-enforcement stance, but cling to a version of surplus measurement known as “trading partners.” As they point out, as several post-Chicago lawyers and economists stated in their comments regarding the draft Merger Guidelines:

We understand merger analysis to be concerned with the risk that a merger will enhance the exercise of market power, thereby harming trading partners (i.e., buyers, including consumers, and suppliers, including workers). Market structure matters in merger policy when it is an indicator of the risk that firms will have the ability and incentive to lessen competition by exercising market power post-merger (or an enhanced ability and incentive to do so), to the detriment of trading partners (buyers or sellers) in the relevant market.

Professor Hovenkamp, an apparent advocate of this sect as well, states:  

What we really want is a name for some class of actors who is injured by either the higher buying price or the lower selling price that attends a monopolistic output reduction. In the case of a traditional consumer the primary cause of this injury is reduced output and higher prices. In the case of a supplier, including a supplier of labor, the primary cause is reduced output and lower selling prices. In both cases there are also injuries to those who are forced out of the market.

As my coauthors and I have stated elsewhere, “This is really a wrinkle on the original Consumer Welfare Standard because it simply adds the input market surplus to the consumer surplus.”  It does not account, however, for all the other things that modern economics would include for consideration and the original intent of Congress. However, “to their credit, the Post-Chicago School has demonstrated that even when the antitrust inquiry is limited to prices and costs (that is, total surplus), the Chicago School’s program of weak merger enforcement is not justified.”  A New Testament for Consumer Welfare, if you will, without the hellfire and damnation cast toward enforcement like the original.

But that original school of Consumer Welfare still exists. Namely, the original notion that most, if not all intrusions by the government into the market will do more harm than good. While there might be exception for realms of naked price fixing, the remainder of antitrust enforcement should be restrained to a great degree. Let’s call this group the Inner Chamber.

Members of the trading partners sect, the output sect, and the Inner Chamber may be talking past each other in ways that science would not be able to grasp. However, stepping outside the “trenches,” one finds a very common meaning of consumer welfare and a very common understanding of welfare in the science of economics.

Let’s Not Call It Death Grip Consumer Welfare Anymore

In The Wire, Stringer Bell is tasked with the sale of an inferior product. It simply doesn’t work. To attract new customers, Stringer, after consulting his economics professor, decides to rebrand. He has some things to teach his followers:

Stringer: “Alright. Let’s try this. Y’all get jacked by some narcos. But y’all clean. Y’all got an outstanding warrant, like everybody in here, and what do you do?”

Poot: “Give another name.”

Stringer: “Why?”

Bodie: “Because your real name ain’t no good,”

Stringer: “All right — it ain’t good, and? Follow through.”

[silence]

Stringer: “ Alright. ‘Death Grip’ ain’t shit.”

Poot: “We change up the name.”

Stringer: “What else?”

Shamrock: “Yo I got it. Change the caps from red to blue. Make it look like we got some fresh shit.”

To maintain popularity, oftentimes faiths “rebrand.” The goal of rebranding, perhaps, is to regain appeal as time passes.

Rebranding has been advocated in the faith of Consumer Welfare. Consider Leah Samuel and Professor Scott-Morton’s take: 

Economists face a huge problem with the label they use for the textbook consumer welfare concept if they want to be understood by a larger society that uses the now-common restrictive definition. To foster understanding, economists should be happy to rebrand what they used to call “consumer welfare.” In his presentation to the FTC in 2018, Carl Shapiro suggested a “Protecting Competition” standard (cheekily subtitled “The Consumer Welfare Standard Done Right With Better Name”). It would have almost the same textbook economic meaning as consumer welfare, but the legal meaning would be explicitly framed as broader than the “consumer welfare standard” that is so railed against in the press and employed by courts. 

Rebranding seems like an odd thing for a science to do. If the polestar of antitrust were gravity instead of Consumer Welfare, would we tell academics to stay out of the antitrust lane because in antitrust we mean something different by gravity?  Maybe not call it gravity?  Apparently.

Physics principles, from which much of neo-classical economics is taken, is still called Physics, although I recognize sub-disciplines emerge. But those sub-disciplines cling to the same principles of science. One simply does not rebrand “gravity,” despite it being the source of many failures of grace.

On the other hand, if no one knows to what they are referencing before the rebrand, there is a risk of Charlatanism. It is already the case that some of the sect leaders move freely between the sects, and there is great potential that even a well-meaning, pro-enforcement sect will be coopted by the dominant anti-enforcement sect within the faith. No, that is not what we mean. You are wrong as to what we mean. As we’ve seen in the Google trial already and in the Microsoft trial, given this confusion, even one’s deeply held core beliefs might change depending on time and place. Take, for example, the cross-examinations of Hal Varian and Richard Schmalensee with their own teachings. Even Robert Bork’s faith has been questioned.

Keeping the Faith

Practitioners of a faith can be harsh to those outside their belief system

Unlike the truly devout, New Brandeisians hate low prices and more output, the story goes:

… Neo-Brandeisians generally do not reject the conclusion that larger firms can benefit from economies of scale and scope. Indeed, Neo-Brandeisians often point to expected economies of scale as a cause for concern regarding mergers and acquisitions because combined entities may be able to lower prices and out-compete some other incumbent firms. This demonstrates that the implementation of Neo-Brandeisian policy prescriptions would likely burden consumers with higher prices and reduced output and/or quality in exchange for some mix of Neo-Brandeisian priorities, such as smaller firm sizes and a larger number of total firms.

Because New Brandeisians take into account other considerations, they must be seeking to injure consumers. Low prices and greater output are THE goal, and competing notions will injure that goal. They are thus labeled “activists” who engage “bad faith” arguments and “myths.”  

Faiths frequently use parable to defend the defenseless notion. Rather than debate the importance of measures which modern economics (and ancient Congresses) have deemed important, easier to pin the label of “high price heretic” on the New Brandeisians.

This is perhaps why FTC Chair Lina Khan has been the subject of so much hostility in the antitrust world. The Wall Street Journal, the oracle of Consumer Welfare, has devoted enough space to the FTC Chair that no one could question its devotion to the faith. The defense bar is up in arms. And, with the new draft Merger Guidelines, there are even suggestions that the lords of Consumer Welfare—the Courts—would surely cast out such heresy.

It is common to see the New Brandeisians being cast as the zealots. In recent conversations, people have described the New Brandeisians as “activists” and the draft Merger Guidelines as a “manifesto,” perhaps coming from “Marxists.” Heretics aligned with such heresy must be cast out and shunned.

Faiths Appeal to Established Beliefs, Often to Protect Against a Threat

Faith-based anti-intellectual arguments are not new to economics. Consider the reaction to Pierre Sraffa’s “double switching argument,” which proved that the neoclassical theory of distribution was untenable. Sraffa proved, that in “general, there is no logical way by which the “intensity of capital” can be measured independently of the rate of interest — and hence the widely held neoclassical explanation of distribution of income was logically untenable.”

Paul Samuelson sought to defend the neoclassical religion from the logical contradiction Sraffa proved through allegory–an allegory with heroic assumptions. It was an attempt to defend a lapsed logical proof, but one that was still appealing as a religious allegory. As E.K. Hunt points out by citing Bernard Harcourt:

The neoclassical tradition, like the Christian, believes that profound truths can be told by way of parable. The neoclassical parables are intended to enlighten believers and nonbelievers concerning the forces which determine the distribution of income between profit-earners and wage-earners, the pattern of capital accumulation and economic growth over time, and the choice of the techniques of production associ­ated with these developments. . . . [These] truths . . . were thought to be established . . . before the revelations of the false and true prophets in the course of the recent debate on double switching.

The required assumptions for Consumer Welfare to be measured by output are nigh-impossible to be satisfied on earth. The trading partner approach has flaws that are equivalent to the flaws repeatedly detailed about Consumer Welfare theory. In fact, no sect in the Consumer Welfare religion is immune for these damning scientific criticisms. Unlike scientific revolutions, faith continues merrily on, although some have chosen to cast those proving such criticisms (and moving on to more sound policy) as heretics who seek to do harm, lacking in understanding of science.  

Indeed, with regard to any faith lacking in evidence, the appeal is to emotion. C.E. Ferguson, in his preface to the book, admits this (in defense of Samuelson’s parable):  “Placing reliance upon neoclassical economic theory is a matter of faith. I personally have the faith; but at present the best I can do to convince others is to invoke the weight of Samuelson’s authority.”

Joan Robinson concluded the debate about double switching with a quote that is apt about consumer welfare and its unproven and unproveable theory. In lambasting Ferguson for failing to engage in scientific endeavor:

No doubt Professor Ferguson’s restatement of “capital” theory will be used to train new generations of students to erect elegant seeming arguments in terms which they cannot define and will confirm econometricians in the search for answers to unaskable questions. Criticism can have no effect. As he himself says, it is a matter of faith.

If Consumer Welfare theory is faith, then I must still provide an answer as to why it is so appealing as such. My answer: Because all the players win.

Faith Is Rewarded

The popularity of a faith is in its ability to create comfort. Karl Marx’s famous line about religion was not disparaging: “Religion is the sigh of the oppressed creature, the heart of a heartless world, and the soul of soulless conditions. It is the opium of the people.” Thus, a religion makes you feel good. Or at least one would hope.

The faith of Consumer Welfare does make everyone involved feel good.

Practitioners and consulting economists can feel good because they are representing the parties before the agencies. They are limiting the excesses of government, while being paid well to do so. For government attorneys, a “win” involves a settlement (it does not matter the degree). A consent decree is a win, for budgetary purposes. A successful trial is a win. And, if the parties abandon a transaction, that is a win, too. While government attorneys are not paid well, they can take solace in doing the “people’s work,” or eventually leave to work on the better-paying side.

I am not stating that there are merchants in the temple that should be cast out. Because this faith allows for profiting from it.

The Faithful Gather to Reinforce Their Faith

Faith is based in part on gathering. The temple for Consumer Welfare adherents is the Marriott Marquis in D.C. The service is the ABA Antitrust Section Spring Meeting. During this service, the practitioners of the religion discuss the meanings of ancient texts. Some are rejected because of their age and in light of modern interpretations, such as Brown Shoe. Others are lauded still because they are consistent with modern thought, such as Marine Bancorp. (Justice Powell wrote the famous memo advocating for conservative antitrust and Consumer Welfare theory). High priests, people who have wrestled with these tomes—economists, law professors, and lawyers—debate within small margins the meanings of these sacred texts, often picking and choosing verses that appeal mostly to themselves.

Unlike other religions, debate (within limits) is welcomed, particularly those who play an important role on “both sides” of the debate. But the debate is friendly compared to the nastiness of attacks on the New Brandeisians. Here, people might switch sects in the Consumer Welfare faith and still be welcomed. They might even switch sides “in the trenches” between government and private practice. It’s not a war. No French crossed into German Bunkers in World War I without being called a traitor or deserter.

Friendly discourse in the faith does not yield an unending number of Wall Street journal op-eds attacking you personally, or your FTC Commissioner colleague calling you a Communist. Both sides, within each sect, is still within the Church of Consumer Welfare’s teachings.

This is perhaps why Chair Khan has been the subject of so much hostility in the antitrust world. The Wall Street Journal, the oracle of Consumer Welfare, has devoted enough space to the FTC Chair that it could itself be the foundation of its own faith. The defense bar is up in arms. And, with the new draft Merger Guidelines, there are even suggestions that the lords of Consumer Welfare—the Courts—would surely cast out such heresy from “Marxists.”

Faith Wavers, but Never Fails

Should one point out that the arguments of faith themselves go against the teachings of the faith, things get awkward. I have at various points sardonically argued that antitrust should only be about per se illegal activity such as price fixing and bid rigging. If monopolies cannot undermine the competitive process because they are temporary and most mergers are efficient, why create such huge taxes on corporations by applying the rule of reason? Indeed, detractors of recent proposed amendments to HSR filings have argued such a point.

If enforcement only makes sense for per se violations, and if the deterrent effect were properly understood by would-be cartels, shouldn’t nearly everyone in the ABA defense bar be out of a job? Shouldn’t most antitrust enforcers similarly be fired? Isn’t antitrust enforcement for single-firm monopolization and merger cases “inefficient?” The response to such a comment is usually that antitrust serves a useful purpose of deterring harmful conduct and mergers. But doesn’t it also create great Type I errors? Should we not weigh those? Raise this argument at the Spring Meeting and watch the rallying cry of the defense bar for the antitrust status quo.

But even those practitioners of the Consumer Welfare Religion who earnestly seek broader antitrust enforcement have limits in their faith. Consider an argument I pose frequently to disciples of efficiency (cost savings), a tenet of the Consumer Welfare religion. Consider a merger between two firms (both do business in the United States). Suppose one has beneficial ties to a country where child labor is legal, and the other has capital to build plants there. Suppose the firms prove (and the foreign government also corroborates) that the merger will lower costs, increase output, and use child labor as the basis of the lower costs. Disciples will call into question whether their religion has anything to say on this, despite the efficiency doctrine being right there for the taking. Implicit in the discomfort is a recognition that antitrust has other purposes at hand. The hypothetical tests their faith.

The point of this example is not that supporters of consumer welfare are pro-slavery and pro-child labor. The point of the example is that faith wavers, but not for long.

Adding Science by Killing Faith

When a discipline ceases being a science and becomes a faith, it can no longer accept advancements. Entrenchment becomes the norm. And ultimately, the field dies under its own ignorance, perhaps taking society down with it.

The New Brandeisians have modern economics—the science, not the Consumer Welfare faith—on their side as well as the original goals of Congress in passing the antitrust laws. Antitrust law was hijacked by Consumer Welfare theory, and it is time to put an end to that flawed economic science now undertaken as faith. To question the status quo, as Galileo discovered, no doubt creates hostility.

As New Brandeisians fight the fight, it is almost with glee that members of the Consumer Welfare Faith celebrate the losses. With the remorse is an gleeful tone when some members of the defense bar speaks of the FTC’s losing streak. As Homer Simpson once famously said, “Well son, you tried and you failed. The point is, never try.” In terms of single-firm monopolization cases, the agencies, until very recently, appeared to have taken this advice.

Some Solutions and a Conclusion

I do not have answers that will ever be implemented given the strength of the faith and the forces that propel it. I’m sorry if you thought I would, having taken my statement in the introduction that I had such solutions on faith.

That’s the thing about faith. Sometimes it isn’t warranted.

The views in this essay do not reflect the view of my coauthors, my employer (the Great State of Texas), the Utah Project, my school of Kung Fu, or any other group with which I’m affiliated. I speak solely for myself. I do not have any clients. I am not seeking any appointment to any government agency. Nor do I anticipate them seeking me. I don’t anticipate any of those things changing after I write this.

As the DOJ’s antitrust case against Google begins, all eyes are focused on whether Google violated antitrust law by, among other things, entering into exclusionary agreements with equipment makers like Apple and Samsung or web browsers like Mozilla. Per the District Court’s Memorandum Opinion, released August 4, “These agreements make Google the default search engine on a range of products in exchange for a share of the advertising revenue generated by searches run on Google.” The DOJ alleges that Google unlawfully monopolizes the search advertising market.

Aside from matters relating to antitrust liability, an equally important question is what remedy, if any, would work to restore competition in search advertising in particular and online advertising generally?

Developments in the UK might shed some light. The UK Treasury commissioned a report to make recommendations on changes to competition law and policy, which aimed to “help unlock the opportunities of the digital economy.” The report found that Big Tech’s monopolizing of data and control over open web interoperability could undermine innovation and economic growth. Big Tech platforms now have all the data in their hands, block interoperability with other sources, and will capture more of it, through their huge customer-facing machines, and so can be expected to dominate the data needed for the AI Period, enabling them to hold back competition and economic growth.

The dominant digital platforms currently provide services to billions of end users. Each of us has either an Apple or Android device in our pocket. These devices operate as part of integrated distribution platforms: anything anyone wants to obtain from the web goes through the device, its browser (often Google’s search engine), and the platform before accessing the Open Web, if not staying on an app on an apps store within the walls of the garden.

Every interaction with every platform product generates data, refreshed billions of times a day from multiple touch points providing insight into buying intent and able to predict people’s behavior and trends.

All this data is used to generate alphanumeric codes that match data contained in databases (aka “Match Keys”), which are used to help computers interoperate and serve relevant ads to match users’ interests. These were for many years used by all from the widely distributed Double Click ID. They were shared across the web and were used as the main source of data by competing publishers and advertisers. After Google bought Double Click and grew big enough to “tip” the market, however, Google withdrew access to its Match Keys for its own benefit.

The interoperability that is a feature of the underlying internet architecture has gradually been eroded. Facebook collected its own data from user’s “Likes” and community groups and also withdrew access for independent publishers to its Match Key data, and recently Apple has restricted access to Match Key data that is useful for ads for all publishers, except Google has a special deal on search and search data. As revealed in U.S. vs Google, Apple is paid over $10 billion a year by Google so that Google can provide its search product to Apple users and gather all their search history data that it can then use for advertising. The data generated by end user interactions with websites is now captured and kept within each Big Tech walled garden.

If the Match Keys were shared with rival publishers for use in their independent supply channel and used by them for their own ad-funded businesses, interoperability would be improved and effective competition could be generated with the tech platforms. Competition probably won’t exist otherwise.  

Both Google and Apple currently impose restrictions on access to data and interoperability. Cookie files also contain Match Keys that help maintain computer sessions and “state” so that different computers can talk to each other and help remember previous visits to websites and enable e-commerce. Cookies do not themselves contain personal data and are much less valuable than the Match Keys that were developed by Double Click or ID for advertisers, but they do provide something of a substitute source of data about users’ intent to purchase for independent publishers.

Google and Apple are in the process of blocking access to Match Keys in all forms to prevent competitors from obtaining relevant data about users needs and wants. They also prevent the use of the Open Web and limit the inter-operation of their apps stores with Open Web products, such as progressive web apps.

The UK’s Treasury Report refers to interoperability 8 times and the need for open standards as a remedy 43 times; the Bill refers to interoperability and we are expecting further debate about the issue as the Bill passes through Parliament.

A Brief History of Computing and Communications

The solution to monopolization, or lack of competition, is the generation of competition and more open markets. For that to happen in digital worlds, access to data and interoperability is needed. Each previous period of monopolization involved intervention to open-up computer and communications interfaces via antitrust cases and policy that opened market and liberalized trade. We have learned that the authorities need to police standards for interoperability and open interfaces to ensure the playing field is level and innovation can take place unimpeded. 

IBM’s activity involved bundling computers and peripherals and the case was eventually solved by unbundling and unblocking interfaces needed by competitors to interoperate with other systems. Microsoft did the same, blocking third parties from interoperating via blocking access to interfaces with its operating system. Again, it was resolved by opening-up interfaces to promote interoperability and competition between products that could then be available over platforms.

When Tim Berners Lee created the World Wide Web in the early 1990s, it took place nearly ten years after the U.S. courts imposed a break-up of AT&T and after the liberalization of telecommunications data transmission markets in the United States and the European Union. That liberalization was enabled by open interfaces and published standards. To ensure that new entrants could provide services to business customers, a type of data portability was mandated, enabling numbers held in incumbent telecoms’ databases to be transferred for use by new telecoms suppliers. The combination of interconnection and data portability neutralized the barrier to entry created by the network effect arising from the monopoly control over number data.

The opening of telecoms and data markets in the early 1990s ushered in an explosion of innovation. To this day, if computers operate to the Hyper Text Transfer Protocol then they can talk to other computers. In the early 1990s, a level playing field was created for decentralized competition among millions of businesses.

These major waves of digital innovation perhaps all have a common cause. Because computing and communications both have high fixed costs and low variable or incremental costs, and messaging and other systems benefit from network effects, markets may “tip” to a single provider. Competition in computing and communications then depends on interoperability remedies. Open, publicly available interfaces in published standards allow computers and communications systems to interoperate; and open decentralized market structures mean that data can’t easily be monopolized. 

It’s All About the Match Keys

The dominant digital platforms currently capture data and prevent interoperability for commercial gain. The market is concentrated with each platform building their own walled gardens and restricting data sharing and communication across. Try cross-posting among different platforms as an example of a current interoperability restriction. Think about why messaging is restricted within each messaging app, rather than being possible across different systems as happens with email. Each platform restricts interoperability preventing third-party businesses from offering their products to users captured in their walled gardens.

For competition to operate in online advertising markets, a similar remedy to data portability in the telecom space is needed. Only, with respect to advertising, the data that needs to be accessed is Match Key data, not telephone numbers.    

The history of anticompetitive abuse and remedies is a checkered one. Microsoft was prohibited from discriminating against rivals and had to put up a choice screen in the EU Microsoft case. It didn’t work out well. Google was similarly prohibited by the EU in Google search (Shopping) from (1) discriminating against rivals in its search engine results pages, (2) entering exclusive agreements with handset suppliers that discriminated against rivals, and (3) showing only Google products straight out of the box in the EU Android case. The remedies did not look at the monopolization of data and its use in advertising. Little has changed and competitors claim that the remedies are ineffective.

Many in the advertising publishing and ad tech markets recall that the market worked pretty well before Google acquired Double Click. Google uses multiple data sources as the basis for its Match Keys and an access and interoperability remedy might be more effective, proportionate and less disruptive.     

Perhaps if the DOJ’s case examines why Google collects search data from its search engine, its use of search histories, browser histories and data from all interactions with all products for its Match Key for advertising, the court will better appreciate the importance of data for competitors and how to remedy that position for advertising-funded online publishing. 

Following Europe’s Lead

The EU position is developing. Under the EU’s Digital Markets Act (DMA), which now supplements EU antitrust law as applied in the Google Search and Android Decisions, it is recognized that people want to be able to provide products and services across different platforms or cross-post or communicate with people connected to each social network or messaging app. In response, the EU has imposed obligations on Big Tech platforms in Articles 5(4) and 6(7) that provide for interoperability and require gatekeepers to allow open access to the web.

Similarly, Section 20.3 (e) of the UK’s Digital Markets, Competition and Consumers Bill (DMCC) refers to interoperability and may be the subject of forthcoming debate as the bill passes further through Parliament. Unlike U.S. jurisprudence with its recent fixation on consumer welfare, the objective of the Competition and Markets Authority is imposed by the law. The obligation to “promote competition for the benefit of consumers” is contained in EA 2013 s 25(3). This can be expressly related to intervention opening up access to the source of the current data monopolies: the Match Keys could be shared, meaning all publishers could get access to IDs for advertising (i.e., operating systems generated IDs such as Apple’s IDFA or Google’s Google ID or MAID).

In all jurisdictions it will be important for remedies to stimulate innovation, and to ensure that competition is promoted between all products that can be sold online, rather than between integrated distribution systems. Moreover, data portability needs to apply with reference to use of open and interoperable Match Keys that can be used for advertising, and that way address the data monopolization risk. As with the DMA, the DMCC should contain an obligation for gatekeepers to ensure fair reasonable and nondiscriminatory access, and treat advertisers in a similar way to that through which interoperability and data potability addressed monopoly benefits in previous computer, telecoms, and messaging cases.        

Tim Cowen is the Chair of the Antitrust Practice at the London-based law firm of Preiskel & Co LLP.

In July, a proposed $13 billion mega-merger between Sanford Health, the largest rural health system in the county, and Fairview Health Services, one of the largest systems in Minnesota’s Twin Cities metro, was called off. Abandonment of the merger came after concerted opposition from farmers, healthcare workers, and medical students, emboldened by passage of state legislation that creates much stronger oversight of healthcare mergers. The new law addresses several of the challenges the Federal Trade Commission (FTC) has encountered while trying to block hospital mergers and demonstrates the important role states can play in policing monopoly power. 

Hospital consolidation has been rapid and relentless over the past two decades, with over 1,800 hospital mergers since 1998 leaving the United States with around 6,000 hospitals instead of 8,000. This consolidation has raised healthcare costs, reduced access to care, and lowered wages for healthcare workers. Although nearly half of all FTC merger challenges between 2000 and 2018 involved the healthcare industry, that effort still only amounted to challenging around one percent of hospital mergers.

While the FTC has made efforts to protect competition among hospitals and health systems over the years, it has faced key obstacles, including (1) limits on pre-merger notification, (2) a self-imposed limit to focus exclusively on challenging mergers of hospitals within a single geographic region, and (3) exemptions in the FTC’s antitrust authority over nonprofits. 

Parties to small healthcare mergers don’t have to notify the FTC before merging due to the limits on pre-merger notification under the Hart-Scott-Rodino Act. Thus, the FTC is unaware of many smaller healthcare mergers, and the agency is left trying to unwind those mergers after the fact.

The FTC’s election to refrain from challenging ”cross-market mergers,” which involve hospitals operating in different geographic markets, has enabled such systems to become the predominant health system nationwide. This hands-off approach occurs despite mounting evidence that cross-market mergers give health systems even more power to raise prices. A study in the RAND Journal of Economics found that hospitals acquired by out-of-market systems increased prices by about 17 percent more than unacquired, stand-alone hospitals; these mergers were also found to drive up prices at nearby rivals. 

While the FTC has broad authority to challenge hospital mergers, the agency’s authority to prevent anticompetitive conduct is more limited. The FTC Act gives the agency the authority to prohibit “unfair methods of competition” and “unfair or deceptive acts or practices” but that authority does not extend to nonprofits, which account for 48.5 percent of hospitals nationwide. This has meant that antitrust cases like the one against Atrium Health in 2016 for entering into contracts with insurers that contained anti-steering and anti-tiering clauses, have been brought by the DOJ.

Minnesota Serves as a Testing Ground

Minnesota is no stranger to the hospital consolidation that has visited the rest of the country. Over two decades ago, 67 percent of Minnesota’s hospitals were independent, but because of a wave of consolidation that has bolstered the largest health systems, only 28 percent of Minnesota’s hospitals remain independent. Just six health systems control 66 of Minnesota’s 125 hospitals, compared to 51 a decade prior. Just three health systems (Fairview, The Mayo Clinic, Allina Health System) receive nearly half of all hospital operating revenue in Minnesota. Amidst this consolidation, Minnesota has lost ten hospitals since 2010 and seen per capita spending for hospital care rise from six percent below the national average in 1997 to over eight percent above the national average in 2021, according to Personal Consumption Expenditures data from the Bureau of Economic Analysis. 

The Sanford-Fairview hospital merger would have doubled-down on these trends. The combination would have given Sanford control of a fifth of Minnesota’s hospitals, with a geographic footprint spanning across several corners of the state. The merger also would have established the largest operator of primary care clinics. In addition to the sheer size of the merger, Fairview’s control of the University of Minnesota Medical Center, which is home to the teaching hospital that trains 70 percent of Minnesota’s doctors, generated labor concerns and provided an opening for passage of tougher regulations on healthcare transactions. 

The initial legislative activity around the Sanford-Fairview merger leveraged the work by Attorney General (AG) Keith Ellison when the transaction was first announced. Ellison’s office held four community meetings across the state to gather input from Minnesotans on the deal, and legislators followed with their own informational hearings. Initial legislative concerns specifically related to granting an out-of-state entity control over a teaching hospital. Because of the work of Ellison’s office alongside organizations like the Minnesota Farmers Union (the author’s employer), the Minnesota Nurses Association, and SEIU-Healthcare Minnesota, legislative discussions turned more broadly to fixing the lack of safeguards Minnesota law provided against healthcare consolidation.

Sanford and Fairview initially failed to provide information Ellison’s office needed to properly investigate the merger, which left Ellison publicly pleading with the systems to delay their initial timeline. While the entities agreed to do so, the delay created uncertainty over whether Ellison’s office would be able to conduct a proper review before the transaction was finalized. 

The law that passed makes three critical changes that help address the obstacles the FTC has run into. First, the law created a robust pre-merger notification regime that will give the Minnesota AG access to a broader set of information than the FTC currently receives under the HSR Act. This requirement is also much broader than the minimal notice requirements that previously existed in state law, and should help avoid a repeat of a key issue during Ellison’s review of the merger. Healthcare entities will now be required to provide specific information to the AG’s Office at the outset. The law also makes the failure to provide this information a reason for blocking a proposed transaction. Health systems will be required to provide geographic information, details on any existing relationships between the merging systems, terms of the transaction, any plans for the new system to reduce workforce or eliminate services as a result of the transaction, any analysis completed by experts or consultants used to facilitate and evaluate the transaction, financial statements, and any federal filings pertaining to the merger including information filed pursuant to the Hart-Scott-Rodino Act. 

Second, the new law requires that health systems provide a financial and economic analysis of the proposed transaction, as well as an impact analysis of the merger’s effects on local communities and local labor. This broad set of information in some ways resembles the changes that the FTC recently proposed to HSR filings. These first two requirements apply to any transaction that involves a healthcare entity that has average annual revenues of $80 million or more or will result in the creation of an entity with annual revenues of $80 million or more. This is a lower revenue threshold than contained in the HSR Act.

Third, the new law establishes a public interest standard for evaluating healthcare transactions. The law spells out a wide range of factors the AG can consider when determining whether a proposed transaction is in the public’s interest. These broad factors include a transaction’s potential impact on the wages, working conditions or collective bargaining agreements for healthcare workers, the impact on public health, access to care in affected communities, access to care for underserved populations, the quality of medical education, workforce training or research, access to health services, insurance or workers, costs for patients and broader healthcare costs trends.  

This broad public interest standard helps ensure that the narrowness of current antitrust law and its mountains of bad case law, do not restrict Minnesota’s ability to address the harms of hospital monopolies. Instead of having to fight with courts over technical definitions of healthcare markets, the AG can point to the many harms flowing from consolidation, regardless of whether the transaction is a cross-market merger. In addition to the public interest standard, the law explicitly prohibits any transaction that would substantially lessen competition or tend to create a monopoly or monopsony.

The New Law Soon Will Be Put to Practice

While Sanford-Fairview will no longer provide a potential test case of the new law, two mergers in northern Minnesota were proposed just last month. As policymakers were told throughout the legislative session, Sanford-Fairview was far from the last healthcare merger with which Minnesota would need to grapple. One proposal would combine Minnesota-based Essentia Health with Wisconsin-based Marshfield Clinics Health System into a four-state system stretching across northern North Dakota, Michigan, Minnesota, and Wisconsin. The other proposed merger would fold the small two-hospital St. Luke’s Duluth system into the 17-hospital Wisconsin-based Aspirus Healthcare.  

Whether in healthcare or elsewhere in the economy, mergers are not inevitable, nor are they beyond the capacity of state governments to address. With Congressional gridlock and legislative capture posing a challenge to any federal antitrust reforms, states are a necessary battleground for anti-monopolists. Minnesota’s battle with Sanford and Fairview can serve as an instructive model for the rest of the country. Mobilizing state legislators and state AGs to pass bold antitrust reforms and challenge corporate power not only creates a laboratory for these reforms, but also serves an important part of dealing with monopolists in a world where federal enforcers face significant resource and legal constraints. 

Justin Stofferahn is Antimonopoly Director for the Minnesota Farmers Union.

If I were to draft new Merger Guidelines, I’d begin with two questions: (1) What have been the biggest failures of merger enforcement since the 1982 revision to the Merger Guidelines?; and (2) What can we do to prevent such failures going forward? The costs of under-enforcement have been large and well-documented, and include but are not limited to higher prices, less innovation, lower quality, greater inequality, and worker harms. It’s high time for a course correction. But do the new Merger Guidelines, promulgated by Biden’s Department of Justice (DOJ) and Federal Trade Commission (FTC), do the trick?

Two Recent Case Studies Reveal the Problem

Identifying specific errors in prior merger decisions can inform whether the new Guidelines will make a difference. Would the Guidelines have prevented such errors? I focus on two recent merger decisions, revealing three significant errors in each for a total of six errors.

The 2020 approval of the T-Mobile/Sprint merger—a four-to-three merger in a highly concentrated industry—was the nadir in the history of merger enforcement. Several competition economists, myself included, sensed something was broken. Observers who watched the proceedings and read the opinion could fairly ask: If this blatantly anticompetitive merger can’t be stopped under merger law and the existing Merger Guidelines, what kind of merger can be stopped? Only mergers to monopoly?

The district court hearing the States’ challenge to T-Mobile/Sprint committed at least three fundamental errors. (The States had to challenge the merger without Trump’s DOJ, which embraced the merger for dubious reasons beyond the scope of this essay.) First, the court gave undue weight to the self-serving testimony of John Legere, T-Mobile’s CEO, who claimed economies from combining spectrum with Sprint, and also claimed that it was not in T-Mobile’s nature to exploit newfound market power. For example, the opinion noted that “Legere testified that while T-Mobile will deploy 5G across its low-band spectrum, that could not compare to the ability to provide 5G service to more consumers nationwide at faster speeds across the mid-band spectrum as well.” (citing Transcript 930:23-931:14). The opinion also noted that:

T-Mobile has built its identity and business strategy on insulting, antagonizing, and otherwise challenging AT&T and Verizon to offer pro-consumer packages and lower pricing, and the Court finds it highly unlikely that New T-Mobile will simply rest satisfied with its increased market share after the intense regulatory and public scrutiny of this transaction. As Legere and other T-Mobile executives noted at trial, doing so would essentially repudiate T-Mobile’s entire public image. (emphasis added) (citing Transcript at 1019:18-1020:1)

In the court’s mind, the conflicting testimony of the opposing economists cancelled each other out—never mind such “cancelling” happens quite frequently—leaving only the CEO’s self-serving testimony as critical evidence regarding the likely price effects. (The States’ economic experts were the esteemed Carl Shapiro and Fiona Scott Morton.) It bears noting that CEOs and other corporate executives stand to benefit handsomely from the consummation of a merger. For example, Activision Blizzard Inc. CEO Bobby Kotick reportedly stands to reap more than $500 million after Microsoft completes its purchase of the video game publishing giant.

Second, although the primary theory of harm in T-Mobile/Sprint was that the merger would reduce competition for price-sensitive customers of prepaid service, most of whom live in urban areas, the court improperly credited speculative commitments to “provide 5G service to 85 percent of the United States rural population within three years.” Such purported benefits to a different set of customers cannot serve as an offset to the harms to urban consumers who benefited from competition between the only two facilities-based carriers that catered to prepaid customers.

Third, the court improperly embraced T-Mobile’s proposed remedy to lease access to Dish at fixed rates—a form of synthetic competition—to restore the loss in facilities-based competition. Within months of the consummated merger, the cellular CPI ticked upward for the first time in a decade (save a brief blip in 2016), and T-Mobile abandoned its commitments to Dish.

The combination of T-Mobile/Sprint represented the elimination of actual competition across two wireless providers. In contrast, Facebook’s acquisition of Within, maker of the most popular virtual reality (VR) fitness app on Facebook’s VR platform, represented the elimination of potential competition, to the extent that Facebook would have entered the VR fitness space (“de novo entry”) absent the acquisition. In disclosure, I was the FTC’s economic expert. (I commend everyone to read the critical review of the new Merger Guidelines by Dennis Carlton, Facebook’s expert, in ProMarket, as well as my thread in response.) The district court sided with the FTC on (1) the key legal question of whether potential competition was a dead letter (it is not), (2) market definition (VR fitness apps), and (3) market concentration (dominated by Within). Yet many observers strangely cite this case as an example of the FTC bringing the wrong cases.

Alas, the court did not side with the FTC on the key question of whether Facebook would have entered the market for VR fitness apps de novo absent the acquisition. To arrive at that decision, the court made three significant errors. First, as Professor Steve Salop has pointed out, the court applied the wrong evidentiary standard for assessing the probability of de novo entry, requiring the FTC to show a probability of de novo entry in excess of 50 percent. Per Salop, “This standard for potential entry substantially exceeds the usual Section 7 evidentiary burden for horizontal mergers, where ‘reasonable probability’ is normally treated as a probability lower than more-likely-than-not.” (emphasis in original)

Second, the court committed an error of statistical logic, by crediting the lack of internal deliberations in the two months leading up to Facebook’s acquisition announcement in June 2021 as evidence that Facebook was not serious about de novo entry. Three months before the announcement, however, Facebook was seriously considering a partnership with Peloton—the plan was approved at the highest ranks within the firm. Facebook believed VR fitness was the key to expanding its user base beyond young males, and Facebook had entered several app categories on its VR platform in the past with considerable success. Because de novo entry and acquisition are two mutually exclusive entry paths, it stands to reason that conditional on deciding to enter via acquisition, one would expect to see a cessation of internal deliberation on an alternative entry strategy. After all, an individual standing at a crossroads would consider alternative paths, but upon deciding which path to take and embarking upon it, the previous alternatives become irrelevant. Indeed, the opinion even quoted Rade Stojsavljevic, who manages Facebook’s in-house VR app developer studios, testifying that “his enthusiasm for the Beat Saber–Peloton proposal had “slowed down” before Meta’s decision to acquire Within,” indicating that the decision to pursue de novo entry was intertwined with the decision to entry via acquisition. In any event, the relevant probability for this potential competition case was the probability that Facebook would have entered de novo in the absence of the acquisition. And that relevant probability was extremely high.

Third, like the court in T-Mobile/Sprint, the district court again credited the self-serving testimony of Facebook’s CEO, Mark Zuckerberg, who claimed that he never intended to enter VR fitness apps de novo. For example, the court cited Mr. Zuckerberg’s testimony that “Meta’s background and emphasis has been on communication and social VR apps,” as opposed to VR fitness apps. (citing Hearing Transcript at 1273:15–1274:22). The opinion also credited the testimony of Mr. Stojsavljevic for the proposition that “Meta has acquired other VR developers where the experience requires content creation from the developer, such as VR video games, as opposed to an app that hosts content created by others.” (citing Hearing Transcript at 87:5–88:2). Because this error overlaps with one of the three errors identified in the T-Mobile/Spring merger, I have identified five distinct errors (six less one) needing correction by the new Merger Guidelines.

Although the court credited my opinion over Facebook’s experts on the question of market definition and market concentration, the opinion did not cite any economic testimony (mine or Facebook’s experts) on how to think about the probability of entry absent the acquisition.

The New Merger Guidelines

I raise these cases and their associated errors because I want to understand whether the new Merger Guidelines—thirteen guidelines to be precise—will offer the kind of guidance that would prevent a future court from repeating the same (or similar) errors. In particular, would either the T-Mobile/Sprint or Facebook/Within decision (or both) have been altered in any significant way? Let’s dig in!

The New Guidelines reestablish the importance of concentration in merger analysis. The 1982 Guidelines, by contrast, sought to shift the emphasis from concentration to price effects and other metrics of consumer welfare, reflecting the Chicago School’s assault on the structural presumption that undergirded antitrust law. For several decades prior to the 1980s, economists empirically studied the effect of concentration on prices. But as the consumer welfare standard became antitrust’s north star, such inquiries were suddenly considered off-limits, because concentration was deemed to be “endogenous” (or determined by the same factors that determine prices), and thus causal inferences of concentration’s effect on price were deemed impossible. This was all very convenient for merger parties.

Guideline One states that “Mergers Should Not Significantly Increase Concentration in Highly Concentrated Markets.” Guideline Four states that “Mergers Should Not Eliminate a Potential Entrant in a Concentrated Market,” and Guideline Eight states that “Mergers Should Not Further a Trend Toward Concentration.” By placing the word “concentration” in three of thirteen principles, the agencies make it clear that they are resuscitating the prior structural presumption. And that’s a good thing: It means that merger parties will have to overcome the presumption that a merger in a concentrated or concentrating industry is anticompetitive. Even Guideline Six, which concerns vertical mergers, implicates concentration, as “foreclosure shares,” which are bound from above by the merging firms’ market share, are deemed “a sufficient basis to conclude that the effect of the merger may be to substantially lessen competition, subject to any rebuttal evidence.” The new Guidelines restore the original threshold Herfindahl-Hirschman Index (HHI) of 1,800 and delta HHI of 100 to trigger the structural presumption; that threshold had been raised to an HHI of 2,500 and a change in HHI of 200 in the 2010 revision to the Guidelines.

This resuscitation of the structural presumption is certainly helpful, but it’s not clear how it would prevent courts from (1) crediting self-serving CEO testimony, (2) embracing bogus efficiency defenses, (3) condoning prophylactic remedies, (4) committing errors in statistical logic, or (5) applying the wrong evidentiary standard for potential competition cases.

Regarding the proper weighting of self-serving employee testimony, error (1), Appendix 1 of the New Guidelines, titled “Sources of Evidence,” offers the following guidance to courts:

Across all of these categories, evidence created in the normal course of business is more probative than evidence created after the company began anticipating a merger review. Similarly, the Agencies give less weight to predictions by the parties or their employees, whether in the ordinary course of business or in anticipation of litigation, offered to allay competition concerns. Where the testimony of outcome-interested merging party employees contradicts ordinary course business records, the Agencies typically give greater weight to the business records. (emphasis added)

If heeded by judges, this advice should limit the type of errors we observed in T-Mobile/Sprint and Facebook/Within, with courts crediting the self-serving testimony by CEOs and other high-ranking employees.

Regarding the embrace of out-of-market efficiencies, error (2), Part IV.3 of the New Guidelines, in a section titled “Procompetitive Efficiencies,” offers this guidance to courts:

Merging parties sometimes raise a rebuttal argument that, notwithstanding other evidence that competition may be lessened, evidence of procompetitive efficiencies shows that no substantial lessening of competition is in fact threatened by the merger. When assessing this argument, the Agencies will not credit vague or speculative claims, nor will they credit benefits outside the relevant market. (citing Miss. River Corp. v. FTC, 454 F.2d 1083, 1089 (8th Cir. 1972)) (emphasis added)

Had this advice been heeded, the court in T-Mobile/Sprint would have been foreclosed from crediting any purported merger-induced benefits to rural customers as an offset to the loss of competition in the sale of prepaid service to urban customers. 

Regarding the proper treatment of prophylactic remedies offered by merger parties, error (3), footnote 21 of the New Guidelines state that:

These Guidelines pertain only to the consideration of whether a merger or acquisition is illegal. The consideration of remedies appropriate for otherwise illegal mergers and acquisitions is beyond its scope. The Agencies review proposals to revise a merger in order to alleviate competitive concerns consistent with applicable law regarding remedies. (emphasis added)

While this approach is very principled, the agencies cannot hope to cure a current defect by sitting on the sidelines. I would advise saying something explicit about remedies, including mentioning the history of their failures to restore competition, as Professor John Kwoka documented so ably in his book Mergers, Merger Control, and Remedies (MIT Press 2016).

Finally, regarding courts’ committing errors in statistical logic or applying the wrong evidentiary standard for potential competition cases, errors (4) and (5), the New Merger Guidelines devote an entire guideline (Guideline Four) to potential competition. Guideline Four states that “the Agencies examine (1) whether one or both of the merging firms had a reasonable probability of entering the relevant market other than through an anticompetitive merger.” Unfortunately, there is no mention that reasonable probability can be satisfied at less than 50 percent, per Salop, and the agencies would be wise to add such language in the Merger Guidelines. In defining “reasonable probability,” the Guidelines state that evidence that “the firm has successfully expanded into other markets in the past or already participates in adjacent or related markets” constitutes “relevant objective evidence” of a reasonable probably. In making its probability assessment, the court in Facebook/Within did not credit Facebook’s prior de novo entry in other app categories on Facebook’s VR platform. The Guidelines also state that “Subjective evidence that the company considered organic entry as an alternative to merging generally suggests that, absent the merger, entry would be reasonably probable.” Had it heeded this advice, the court would have ignored, when assessing the probability of de novo entry absent the merger, the fact that Facebook did not mention the Peloton partnership two months prior to the announcement of its acquisition of Within.

A Much Needed Improvement

In summary, I conclude that the new Merger Guidelines offer precisely the kind of guidance that would have prevented the courts in T-Mobile/Sprint and in Facebook/Within from committing significant errors. The additional language suggested here—taking a firm stance on remedies and defining reasonable probability—is really fine-tuning. While this review is admittedly limited to these two recent cases, the same analysis could be undertaken with respect to a broader array of anticompetitive mergers that have approved by courts since the structural presumption came under attack in 1982. The agencies should be commended for their good work to restore the enforcement of antitrust law.

This piece originally appeared in ProMarket but was subsequently retracted, with the following blurb (agreed-upon language between ProMarket’s Luigi Zingales and the authors):

“ProMarket published the article “The Antitrust Output Goal Cannot Measure Welfare.” The main claim of the article was that “a shift out in a production possibility frontier does not necessarily increase welfare, as assessed by a social welfare function.” The published version was unclear on whether the theorem contained in the article was a statement about an equilibrium outcome or a mere existence claim, regardless of the possibility that this outcome might occur in equilibrium. When we asked the authors to clarify, they stated that their claim regarded only the existence of such points, not their occurrence in equilibrium. After this clarification, ProMarket decided that the article was uninteresting and withdrew its publication.”

The source of the complaint that caused the retraction was, according to Zingales, a ProMarket Advisory Board member. The authors had no contact with that person, nor do we know who it is. We would have welcomed published scholarly debate versus retraction compelled by an anonymous Board Member.

We reproduce the piece in its entirety here. In addition, we provide our proposed revision to the piece, which we wrote to clear up the confusion that it was claimed was created by the first piece. We will let our readers be the judge of the piece’s interest. Of course, if you have any criticisms, we welcome professional scholarly debate.

(By the way, given that the piece never mentions supply or demand or prices, it is a mystery to us why any competent economist could have thought it was about “equilibrium.” But perhaps “equilibrium” was a pretext for removing the article for other reasons.)

The Antitrust Output Goal Cannot Measure Welfare (ORIGINAL POST)

Many antitrust scholars and practitioners use output to measure welfare. Darren Bush, Gabriel A. Lozada, and Mark Glick write that this association fails on theoretical grounds and that ideas of welfare require a much more sophisticated understanding.

By Darren Bush, Gabriel A. Lozada, and Mark Glick

Debate seems to have pivoted in the discourse on consumer welfare theory to the question of whether welfare can be indirectly measured based upon output. The tamest of these claims is not that output measures welfare, but that generally, output increases are associated with increases in economic welfare. 

This claim, even at its tamest, is false. For one, welfare depends on more than just output, and increasing output may detrimentally affect some of the other factors which welfare depends on. For example, increasing output may cause working conditions to deteriorate; may cause competing firms to close, resulting in increased unemployment, regional deindustrialization, and fewer avenues for small business formation; may increase pollution; may increase the political power of the growing firm, resulting in more public policy controversies and, yes, more lawsuits being decided in its interest; and may adversely affect suppliers. 

Even if we completely ignore those realities, it is still possible for an increase in output to reduce welfare. These two short proofs show that even in the complete absence of these other effects—that is, even if we assume that people obtain welfare exclusively by receiving commodities, which they always want more of—increasing output may reduce welfare. 

We will first prove that it is possible for an increase in output to reduce welfare under the assumption that welfare is assessed by a social planner. Then we will prove it assuming no social planner, so that welfare is assessed strictly via individuals’ utility levels.

The Social Planner Proof 

Here we show that a shift out in a production possibility frontier does not necessarily increase welfare, as assessed by a social welfare function.

Suppose in the figure below that the original production possibility frontier is PPF₀ and

the new production possibility frontier is PPF₁. Let U_SWF be the original level of social welfare, so that the curve in the diagram labeled U_SWF is the social indifference curve when the technology is represented by PPF₀. This implies that when the technology is at PPF₀, society chooses the socially optimal point, I, on PPF₀. Next, suppose there is an increase in potential output, to PPF₁. If society moves to a point on PPF₁ which is above and to the left of point A, or is below and to the right of point B, then society will be worse off on PPF₁ than it was on PPF₀. Even though output increased, depending on the social indifference curve and the composition of the new output, there can be lower social welfare.

The Individual Utility Proof

Next, we continue to assume that only consumption of commodities determines welfare, and we show that when output increases every individual can be worse off. Consider the figure below, which represents an initial Edgeworth Box having solid borders, and a new, expanded Edgeworth Box, with dashed borders. The expanded Edgeworth Box represents an increase in output for both apples and bananas, the two goods in this economy.

The original, smaller Edgeworth Box has an origin for Jones labeled J and an origin for Smith labeled S. In this smaller Edgeworth Box, suppose the initial position is at C. The indifference curve U_J0 represents Jones’s initial level of utility with the smaller Edgeworth Box, and the indifference curve US represents Smith’s initial level of utility with the smaller Box.  In the larger Edgeworth Box, Jones’s origin shifts from J to J’, and his U_J0 indifference curve correspondingly shifts to U_J0′.  Smiths’ US indifference curve does not shift. The hatched areas in the graph are all the allocations in the bigger Edgeworth Box which are worse for both Smith and Jones compared to the original allocation in the smaller Edgeworth Box.

In other words, despite the fact that output has increased, if the new allocation is in the hatched area, then Smith and Jones both prefer the world where output is lower. We get this result because welfare is affected by allocation and distribution as well as by the sheer amount of output, and more output, if mis-allocated or poorly distributed, can decrease welfare.

GDP also does not measure aggregate Welfare 

The argument that “output” alone measures welfare sometimes refers not to literal output, as in the two examples above, but to a reified notion of “output.” A good example is GDP.  GDP is the aggregated monetary value of all final goods and services, weighted using current prices. Welfare economists, beginning with Richard Easterlin, have understood that GDP does not accurately measure economic well-being. Since prices are used for the aggregation, GDP incorporates the effects of income distribution, but in a way which hides this dependence, making GDP seem value-free although it is not. In addition, using GDP as a measure of welfare deliberately ignores many important welfare effects while only taking into account output. As Amit Kapoor and Bibek Debroy put it:

GDP takes a positive count of the cars we produce but does not account for the emissions they generate; it adds the value of the sugar-laced beverages we sell but fails to subtract the health problems they cause; it includes the value of building new cities but does not discount for the vital forests they replace. As Robert Kennedy put it in his famous election speech in 1968, “it [GDP] measures everything in short, except that which makes life worthwhile.”

Any industry-specific measure of price-weighted “output” or firm-specific measure of price-weighted “output” is similarly flawed.

For these reasons, few, if any, welfare economists would today use GNP alone to assess a nation’s welfare, preferring instead to use a collection of “social indicators.”

Conclusion

Output should not be the sole criterion for antitrust policy. We can do a better job of using competition policy to increase human welfare without this dogma. In this article, we showed that we cannot be certain that output increases welfare even in a purely hypothetical world where welfare depends solely on the output of commodities. In the real world, where welfare depends on a multitude of factors besides output—many of which can be addressed by competition policy—the case against a unilateral output goal is much stronger.

Addendum

The Original Sling posting inadvertently left off the two proposed graphs that we drew as we sought to remedy the Anonymous Board Member’s confusion about “equilibrium.” We now add the graphs we proposed. The explanation of the graphs was similar, and the discussion of GNP was identical to the original version.

The Proof if there is a Social Welfare Function (Revised Graph)

The Individual Utility Proof (Revised Graph)