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Root and Branch Reconstruction in Antitrust: A Symposium

PUBLISHED

Sanjukta Paul (@sanjuktampaul) is Professor of Law at Michigan Law School.

This post introduces a symposium on Root and Branch Reconstruction in AntitrustRead the rest of the symposium here.

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The view that status quo antitrust policy and thinking needs a “root and branch reconstruction” has gained a much wider sympathetic audience in the last few years. Some external interlocutors of the academic research and policy program associated with this view, like Bill Kovacic and Dan Crane, have pointed out that it has yet to deliver mid-level affirmative principles to guide legal and policy reform. In its initial phase, much of the intellectual work has focused on critique and history, as well as empirical research, and on relatively fine-grained or sector-specific policy interventions. As the research program moves into a second phase—continuing to do all those things while also beginning to set out and illustrate some of the mid-level guiding principles that might anchor an antitrust reconstruction—this symposium is aimed at both marking this transition and bringing together some of the key affirmative principles being advanced.

But first, let’s reiterate the key conclusions of the basic critique. Many of us have argued that the currently conventional legal meta-norms—to promote competition or to promote consumer welfare—are insufficient as an analytical matter. Promoting competition, for instance, is incomplete as a goal of law because it fails to account for the fact that antitrust law (and law more generally) is always choosing among forms of economic coordination, always allocating economic coordination rights. The basic rule in favor of promoting competition therefore fails to guide the very choices—some of them the foundational policy questions that are up for debate today—that the law is already making. Importantly, this also undermines the notion that neoclassical perfect competition can provide a normative benchmark for law.

To be sure, the transaction cost literature that was central to the Chicago School revolution can be read as an attempt to solve this problem. It is this literature that ultimately supplied the substantive criteria with which Chicago School interventions came to shape antitrust law, through the idea that both massive firms and control over smaller counterparties in the economy are the preferred, efficient forms of economic coordination. Yet this strand of thought did not actually justify the choices about economic coordination that the law has made in the shadow of economic theory. It never allowed for a fair empirical investigation of the potential operational efficiencies offered by alternative forms of economic coordination—loose coordination among smallholders, for example, or a prime role for labor organizations in market governance—generally assuming they would reduce total economic output and thus total welfare.  

The status quo relies variously on the notion of intra-firm productive efficiency to grant absolute power to control groups within business firms, on the one hand, and the allocative efficiency of perfect competition to provide an ideal baseline against which between-firm conduct is evaluated, on the other. We question both notions individually, as well as their inconsistent application. When Robert Bork promoted a permissive posture toward mergers, he built upon an existing ambiguity in the structure of antitrust law as he found it, while muddying the analytical waters further by entrenching contemporary antitrust’s two-step dance between invocations of productive efficiency and allocative efficiency. As a result, the presumption of productive efficiency has been extended to protect certain forms of inter-firm coordination, typically undertaken by dominant parties, while also insulating the dominant parties from any responsibility for this activity and divesting smaller counter-parties of countervailing coordination rights. Mid-century antitrust law generally condemned such coordination as impermissible vertical restraints, not only because it displaces competition, but equally importantly because it preempts the independent business judgment of distinct business units. This earlier insistence on the autonomy of distinct business entities (in contrast to the regulatory treatment of the employment relationship, as illustrated in Marshall Steinbaum’s contribution to this symposium) ironically also protected the space for labor law to operate effectively—by ensuring that preemption of operational autonomy must be conjoined with countervailing, horizontal coordination rights. The root and branch approach recognizes the superiority of the earlier approach in this respect while seeking to extend rather than merely restore it (which is where the widening of horizontal coordination rights in Shae McCrystal’s contribution to this symposium comes in).   

More broadly, given the inherent shortcomings of the prevailing antitrust framework, a growing chorus of voices has been arguing for a ground-up normative reconstruction of competition law and policy. What would that look like? Well, it would need to openly embrace law’s role in choosing among forms of economic coordination, instead of selectively dismissing some forms of economic coordination as output-suppressing (while ignoring the existence of other kinds). It would need to then develop normative criteria for making these choices about forms of coordination and forms of market governance. Relatedly, it would need to acknowledge law and policy’s role in setting the terms of market competition, channeling it in particular directions. Similar to choices among forms of coordination, law already channels competition in specific ways. Legal standards are needed to guide both functions of law. These standards should promote productive efficiency in a more consistent and empirically grounded way than the status quo. They must also aim in more expressly democratic and egalitarian directions, as the normative foundations of antitrust law demand.

How to do this? Well, at a broad level, we advocate reallocating coordination rights from relatively concentrated, vertical, hierarchical forms to relatively dispersed, horizontal, democratic forms. This is not yet a concrete institutional prescription, but a basic guiding principle. It does however suggest that, generally speaking, we ought to move away from the currently dominant mode of market governance—namely oligopolistic market coordination—and toward more democratic forms of market coordination. This calls for legitimizing looser coordination among smallholders, with appropriate public oversight, as well as a prominent role for labor organizations in market governance. In particular sectors, it may call for more centrally coordinated public planning. We also advocate conscious development of norms of fair competition, both through existing tools of law (e.g., monopolization and vertical restraints) and through affirmative rule-making by agencies (e.g., the FTC). And in institutional terms, we urge a more affirmative role for administration—in terms of prosecution and adjudication, yes, but also in terms of reviving competition rule-making and ultimately in terms of supervising newly-liberalized forms of economic coordination outside powerful firms—along with a less prominent role for the courts.

The short essays in this symposium don’t cover these elements exhaustively, of course, but they represent some of the key pillars for affirmative reform. Sandeep Vaheesan’s essay focuses on the urgent need for a much more stringent attitude toward corporate mergers and acquisitions—not only in order to promote dispersal of coordination rights through more decentralized markets, but also to channel business competition and investment in productive rather than extractive directions. Marshall Steinbaum’s essay offers an in-depth examination of the economic dynamics of a business form that exemplifies the contemporary concentration of coordination rights perhaps more than any other—the so-called gig economy—and explains why reviving prohibitions on vertical restraints is crucial to reversing those dynamics. (At the same time, it’s an object lesson in how economic analysis can inform law without recourse to unrealistic models.) The “post-Chicago” economist and law professor Steve Salop—who has advocated for more antitrust enforcement by pushing the current framework away from the Chicago model, rather than by a wholesale “root and branch” reorientation—then offers a careful analysis of how cooperation among gig workers currently excluded from labor and employment law might be achieved under existing law, while also identifying some of the limits of that approach. This leads directly into our final post, by Australian academic lawyer Shae McCrystal, who offers a glimpse into an alternative universe in which horizontal coordination among small players is embraced as a social good

While there is much more to do in charting a ‘root and branch reconstruction’ of antitrust law, we hope this symposium serves as a step forward.