A few weeks ago I wrote about John Vickers’ recent defence of consumer welfare as the guiding principle of competition law and policy. Some contrary views to John’s were then expressed at the Fordham competition law conference, with Lina Khan saying that she puts more emphasis on the importance of protecting the competitive process. Another speaker was Eric Posner, who has argued for the consumer welfare standard to be replaced by “a competition test, based on market power or margin”.
The debate about the overall objective of competition policy is an important one – but I sometimes wonder if it matters more in theory than in practice, certainly when it comes to predicting an agency’s likely enforcement stance.
As part of my strategy role at the CMA, I would occasionally join meetings of agency heads internationally when they were discussing their approach to enforcement. I recall one such discussion beginning with each participant setting out what they thought the fundamental purpose of antitrust enforcement was.
One agency head said it was about protecting consumers. Another said it was about removing barriers to entry so that the competitive process could flourish. Another said it was about promoting freedom.
Those are three quite different objectives – and they could have led us into quite a deep debate about their compatibility – but I was struck that when we got into discussion about what our agencies’ activity should look like in practice, there was a remarkable degree of alignment.
So having different objectives can still lead to similar enforcement outcomes.
And the reverse is true as well. Having the same objective can sometimes lead to very different enforcement stances.
For example, I alluded earlier on to the debate about whether the goal of antitrust enforcement should be to pursue a particular outcome (e.g. consumer welfare) or to protect the competitive process.
Here, I don’t imagine that Tim Wu feels himself owing a great intellectual debt to Friedrich Hayek. But if you read ‘The Curse of Bigness’ alongside ‘Law, Legislation and Liberty’ (there must be a market for this book group…) there is one respect in which they take a very similar view of competition.
Both are sceptical of the idea that agencies and regulators should aim to deliver a market with a particular outcome. Both prefer to focus on the importance of the competitive process. But this leads them to very different views of what that should mean for enforcement.
For Wu, markets have a tendency towards greater concentration and this has to be countered by robust enforcement. For Hayek, by contrast, the best constraint on powerful economic actors is likely to come from other economic actors, while government intervention in the competitive process would do more harm than good.
Another relevant point when thinking about the stated objectives of antitrust enforcement is that agency heads are likely to talk about competition in different ways based on their institutional set-up and domestic political dynamics. For example, in the United States, the Assistant Attorney General for Antitrust is a political appointee of a Democratic President who is leading an administration with a progressive policy agenda. The Chief Executive of the CMA, on the other hand, is a non-political appointee of an agency that has been established to work at arms-length from government and who will be expected to serve out her term whoever wins a general election. Their speeches are likely to sound quite different.
That doesn’t tell you much about whether they agree with each other or not. It tells you that they have different jobs in different systems.
And in my time at the CMA, I would put a different emphasis on the various benefits of antitrust enforcement based on the most pressing public policy challenges at the time. For example, when the war in Ukraine led to a spike in energy prices, I put more emphasis in public remarks on the role of competition in keeping prices down and helping with the cost of living. When political attention switched to driving economic growth, I would speak more often about the benefits of competition for productivity. With a Labour government in place, the CMA might well emphasise the particular benefits of competitive markets for people on low incomes.
But this mainly tells you that competition can make a helpful contribution to achieving a wide range of public policy objectives, whether you’re on the left or the right of the political spectrum. It doesn’t tell you a huge amount about the agency’s enforcement stance (other than its likely approach to prioritisation and case selection).
So if I’m right that debating the ultimate objective of antitrust enforcement isn’t the most important discussion to be having, what should we be talking about instead?
If you’re thinking about whether an agency’s approach to enforcement is too tough, too soft or about right, I think the most important questions to focus on are these:
● What trade-off do you see between competitive markets and incentives to invest and innovate?
● How do you see the balance of risks between overenforcement and underenforcement?
In both of these questions, some important historical debates are being revisited. In the first, it’s often seen as Schumpeter vs Arrow. Are incentives to invest and innovate likely to be greater where markets are vigorously competitive or where companies have a greater opportunity to appropriate the returns from investment?
And in the second it’s Easterbrook vs the neo-Brandeisians. Is the bigger danger at the moment of ‘good’ mergers being blocked or ‘bad’ mergers being cleared? And is the deterrent effect of the agencies’ approach likely to fall more on foregone ‘bad’ mergers (as intended) or on foregone ‘good’ mergers (as unintended)?
Whatever your view on antitrust enforcement, these seem to be me to be particularly important questions to answer right now. And the agencies’ answers to these questions are likely to give a better clue to their enforcement stance than would a discussion of the overall objective(s) they are seeking to pursue.
