The Functional Logic of Antitrust: Oligarchy vs. Democracy

PUBLISHED

Sandeep Vaheesan is legal director at the Open Markets Institute.

PUBLISHED

Sandeep Vaheesan is legal director at the Open Markets Institute.

This post is part of the symposium celebrating the inaugural issue of the Journal of Law and Political Economy.

In the late 1970s, the Supreme Court initiated a radical reinterpretation of the antitrust laws. What the Court had described as “a comprehensive charter of economic liberty” in 1958 was reinvented as a “consumer welfare prescription” in 1979. The Department of Justice (DOJ) and the Federal Trade Commission (FTC) followed suit in the Reagan administration. In implementing this vision for antitrust, the Supreme Court and the antitrust enforcement agencies adopted two critical assumptions. First, the DOJ and the FTC presumed that corporate consolidation, in general, can create more productive enterprises with lower cost structures and thereby reduce prices for consumers. Given these assumptions, the two federal antitrust agencies adopted a highly tolerant posture on corporate mergers. Second, the Supreme Court and the DOJ and the FTC treated price coordination among rivals, whether large corporations or independent contractors, as categorically harmful. Accordingly, they made price-fixing and other collusion involving competitors the central focus of antitrust enforcement.

The result has been not bountiful consumer welfare, but oligarchy unleashed. Taking advantage of relaxed anti-merger enforcement, corporations have strengthened their power in a series of consolidation waves since the 1980s. In contrast to their deference to the combination of corporate property, the antitrust agencies, in enforcing the anti-coordination rule, have struck at independent contractors, professionals, and small firms and thwarted their efforts to organize and build power. The net effect is a concentration of power at the very top of the economy. Corporate executives and financial interests have consolidated control through mergers while independent workers and businesses have been stymied from collectively contesting managerial and Wall Street domination.

Antitrust can be a force for fairness and democracy again.

But, as I wrote in the Journal of Law and Political Economy, antitrust can be a force for fairness and democracy again. A reimagined antitrust law that restricts consolidation of business assets and permits certain forms of coordination among small actors would limit domination and disperse power.

In furthering the consumer welfare vision of antitrust law, the DOJ and the FTC adopted economic theories that view corporate consolidation as beneficial for consumers. Whereas antitrust enforcers and the courts restricted mergers on economic and political power grounds in the postwar era, the DOJ and the FTC since the Reagan years have viewed mergers as presumptively offering substantial consumer benefits. Among mergers that must be notified to the DOJ and the FTC, the two agencies take a close look at fewer than 5% of these consolidations in a given year.

The pro-merger theory of the DOJ and the FTC allowed corporations to go on a frenzy of consolidation. The DOJ and the FTC challenge very few mergers and, even when they do, often permit the transaction on the on the often ineffective condition that the parties divest a line of business or accept duties of fair dealing with rivals. Mergers are typically allowed even in concentrated markets in which only four or five firms compete. For instance, the DOJ permitted T-Mobile to acquire Sprint in 2019 and gave control of the national wireless market to just three carriers. (A subsequent multistate suit to stop the acquisition was unsuccessful.) Trillions of dollars in business assets are bought, combined, and swapped every year.

In contrast to the tolerance of consolidation, the DOJ, the FTC, and the courts have deepened the hostility to price coordination among rivals. The Supreme Court announced this per se rule on horizontal collusion in first decade of the Sherman Act, and it has been an essential part of the doctrinal landscape since 1940. In our present era, the rule has been affirmed and strengthened. The Supreme Court described collusion as “the supreme evil of antitrust” in a 2004 decision. In a case in which it condemned the strike activity of underpaid public defenders in Washington, D.C. as a per se antitrust violation, the Court compared this coordinated withholding of labor to stunt flying, an activity with private gains but with no redeeming public benefits.

The anti-collusion focus of the antitrust agencies has brought independent contractors and professionals into the antitrust dragnet. While workers classified as employees have the right to engage in concerted action such as collective bargaining and strikes, workers classified—or misclassified—as independent contractors do not have this right. Their concerted activity is an illegal restraint of trade. In addition to the case against public defenders in Washington, D.C., the FTC has filed complaints against music teachers, ice skating coaches, electricians, and physicians. In the past two decades, the FTC has sued dozens of independent contractor associations for their concerted activity. In displaying its zeal for enforcing the per se rule, the FTC draws no distinction between powerful and powerless actors. In a 2008 letter to an Ohio legislator, the FTC wrote that a proposed executive order granting collective bargaining rights to overworked and underpaid home health aides would authorize a violation of antitrust law. Antitrust investigations and lawsuits cast a long shadow over all organizing efforts by all workers outside the formal, and increasingly narrow, legal category of “employee.”

What principles can justify this favoring of consolidation of power into single firms at the expense of coordination across firms? It is not at all clear. In a 2014 blog post, an FTC official stated that general applicability of the per se rule to large corporations and individual workers alike and wrote, “It is a fundamental principle of antitrust law that competitors – whether businesses or individuals – cannot join together to limit the way that they offer products or services to potential customers, especially where there is no legitimate business purpose other than avoiding competition.” He added, “Strictly speaking, competitors are expected to compete.” This second point would come as news to the thousands of competitors that have combined forces over the last 40 years.

Nor can the notion of “consumer welfare” justify the shift. Ironically, in permitting consolidation and concentration across the economy, the DOJ and the FTC have bred market structures highly conducive to tacit collusion and undercut their own anti-collusion objective. Mergers frequently lead to higher prices and margins. Moreover, a wealth of research indicates that corporate mergers do not improve operational efficiency of firms and yield lower consumer prices. Due to their economic assumptions, the DOJ and the FTC often root out overt collusion in small and niche markets, such as heir location services, while permitting market structures that facilitate price leadership and other coordinated pricing on a large scale.

But stepping outside the confines of consumer welfare discourse, we should focus on functional logic: antitrust law has affirmatively promoted oligarchy. Compared to two decades ago, most markets and industries today feature fewer firms, meaning more power for boards and executives and higher returns for shareholders. Monopolistic and oligopolistic corporations wield great power in the marketplace, imposing terms on and controlling customers, workers, distributors, suppliers, and rivals. And this power extends beyond market transactions and relationships, corporations exercise extraordinary power in the political system and use their might to extract favors from government at all levels. An influential 2014 study found that Congressional decision-making is more consistent with an oligarchy than with a democracy. Whereas corporations have become larger and more powerful through corporations, independent workers and small firms, in general, cannot organize to challenge corporate hegemony and build alternative forms of market governance. Their organizing is a per se violation of antitrust law. In summary, antitrust law, as interpreted and applied since 1970s, has concentrated power in the hands of a few and stifled any attempt to build countervailing power.

The story of Uber is a good illustration of the perversity of antitrust law today—and its democratic potential. Uber has burned through billions of dollars in an effort to dominate local taxicab and delivery services around the world. In the United States, it faced little antitrust resistance in this campaign and even received supportive advocacy from the FTC. After failing to acquire rival Grubhub, Uber has its sights set on acquiring Postmates, another food delivery service. Even as Uber dominates markets through predatory pricing and acquisitions and spends tens of millions of dollars to overturn employment protections for gig workers in California, its drivers, who are disproportionately people of color and whom Uber has misclassified as independent contractors, cannot organize. Despite many drivers earning incomes less than the local minimum wage, their collective bargaining for higher wages and better terms of work likely would attract an investigation and lawsuit by DOJ or FTC.

The present pro-oligarchy antitrust paradigm, however, faces increasing political and popular resistance. This month, the House Antitrust Subcommittee published a 450-page report that documented the abuses and awesome power of Amazon, Apple, Facebook, and Google and offered a scathing assessment of the performance of the DOJ and the FTC. In the coming years, Congress and presidential administrations may transform the field. Once we lose the intellectual straightjacket of “consumer welfare” antitrust, we can interpret this resistance as a recognition of antitrust law’s role in allocating power and a striving for democracy against domination. An antitrust law remade to advance democracy instead of oligarchy would curtail the planning prerogatives of Uber executives and investors and grant Uber drivers the right to build power within the enterprise. And it could do much else besides.

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