SUMMER READING: Antitrust

Every now and again, beachgoers hoping to wade into the water encounter the dreaded lifeguard who takes his or her job just a little too seriously. Sudden approaches toward the buoy earn a long, high-pitched whistle, while any “roughhousing” is sure to merit a rebuke from the tall, white chair. The overzealous lifeguard has even been known to interfere in the occasional volleyball match, baselessly alleging unfair competition and collusion between the teams. While vacationers might laugh at their solemn protectors, their overzealous counterparts at federal antitrust agencies leave higher costs and lost jobs in their wake.

These officials interpret any ripple in the vast sea of competition as an imminent shark attack and waste countless taxpayer resources attempting to “rescue” consumers looking for better deals, entrepreneurs looking for investors, and businesses looking to better serve their customers. So, strap on your life vest and lather that sunscreen on your nose as the Taxpayers Protection Alliance (TPA) takes a deep dive into the murky waters of antitrust law.

As consumers and taxpayers unfortunately know too well, federal agencies use vague, sweeping laws to grow and concentrate their power. Antitrust agencies such as the Federal Trade Commission (FTC) and Department of Justice (DOJ) mainly ground their authority in the 1890 Sherman Antitrust Act and the Clayton Act of 1914. These statutes cover, well… anything a lawyer or bureaucrat wants it to cover. The nineteenth century language of the Sherman Act casts quite a broad net: “Every contract, combination in the form of trust or other- wise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal… Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a misdemeanor, and, on conviction thereof.”

The Clayton Act is similarly broad. Section 7 of the Clayton Act prohibits any merger or acquisition that “may be substantially to lessen competition, or to tend to create a monopoly.” But as Pepperdine University Economics Professor Gary M. Galles writes, “[H]ow much is ‘substantially’ and what determines it? How likely does ‘may’ have to be? How much of an increase in concentration counts as a ‘tendency’ to monopoly? The problem, then, is that Clayton Section 7’s incredible vagueness leaves its meaning to the eyes of the beholder regulators and courts, who can twist it into any conclusion desired.”

In the heyday of antitrust enforcement, officials at the FTC and DOJ interpreted these provisions broadly to attack a wide array of mergers and acquisitions, even if these business moves increased efficiency and were good for consumers. In a testament to the government’s wide latitude to pursue cases under antitrust law, Supreme Court Justice Potter Stewart once famously dissented, “The sole consistency that I can find is that… ’the Government always wins.’”

Additionally, agencies used antitrust law in conjunction with a 1936 law called the Robinson-Patman Act to target companies that were selling products to consumers at an “unreasonably low” price. As famed legal scholar Robert Bork noted back in 1967, “the Supreme Court continues to be concerned with the vagueness of a reasonable-price test…it has other approaches than a declaration of unconstitutionality to employ in its dialogue with Congress, in this case the device of statutory construction. The Court majority saved section 3 of the Robinson-Patman Act…only by interpreting it to prohibit sales below cost made with predatory intent.” These interpretive dilemmas, coupled with the difficulties of ascertaining the intent of companies offering low prices to consumers, prompted Bork to argue for a simpler, more straight-forward approach to antitrust law. Bork’s proposed a “consumer welfare standard” in which officials would refrain from antitrust enforcement as long as the business policy/transaction under scrutiny benefited consumers on net. In other words, corporate attempts to corner a market would get the green light from regulators as long as households ultimately came out ahead. President Reagan and his Oval Office successors readily embraced Bork’s alternative to the unruly status-quo, and from the 1980s until the 2010s, the FTC and DOJ took a relatively laid-back attitude toward alleged “anti-competitive” activities.

That is, until populism began to override proven economic principles under the Trump and Biden administrations. President Trump repeatedly railed against big tech companies such as Facebook, Twitter, and Google, accusing them of “doing a horrible thing for our country and to our country” by allegedly suppressing conservative voices and hammering down on any competition. In 2020, President Trump’s DOJ brought suit against Google, accusing the company of anti-competitive tactics to maintain an upper hand in online search and search advertising. As American Action Forum’s former director of technology and innovation policy Jennifer Huddleston noted at the time, “The DoJ’s decision to file a case against Google signals that technology companies are under increasing scrutiny from both the left and the right… The decision to file an antitrust case and the increasing scrutiny of tech companies from both sides of aisle may have impacts beyond just Google. The result may be that larger companies are more hesitant to engage in acquisitions or explore certain expansions for fear it may draw the attention of regulators and result in antitrust enforcement action.” And, once Trump signaled his willingness to weaponize antitrust, it was all-too easy for his successor to follow suit. After assuming office in 2021, President Biden appointed antitrust uber-hawk Lina Khan to helm the FTC. Khan had shockingly little experience in antitrust law, but quickly rose to fame after writing a viral paper called “Amazon’s Antitrust Paradox” in which the young scholar accused Amazon of ruthlessly driving competitors out of the market.

One of many flawed examples she used was the baby diaper market, which was allegedly being cornered by Amazon via predatory pricing. Khan argued, “Through its purchase of [competitior] Quidsi, Amazon eliminated a leading competitor in the online sale of baby products. Amazon achieved this by slashing prices and bleeding money, losses that its investors have given it a free pass to incur…” The future FTC head may have spoken too soon. According to American Enterprise Institute scholar Jeffrey Eisenach, “In the end, Quidsi proved to be a bad investment for Amazon: After spending $545 million to buy the firm and operating it as a stand-alone business for more than six years, it announced in April 2017 it was shutting down all of Quidsi’s operations, Diapers.com included. In the meantime, Quidsi’s founders poured the proceeds of the Amazon sale into a new online retailer — Jet.com — which was purchased by Walmart in 2016 for $3.3 billion. Jet.com cofounder Marc Lore now runs Walmart’s e-commerce operations and has said publicly that his goal is to surpass Amazon as the top online retailer. One recent report described the rivalry between the firms as ‘embittered’ and noted that it “is reshaping how we’ll buy everything in the future.”

Unfortunately, incorrect inferences and failed predictions hasn’t deterred Lina Khan as the leader of one of the most powerful federal agencies. In a 2023 recap of Khan’s tenure, Axios reporter Ashley Gold notes, “Khan’s FTC is pursuing a proposed ban of employers’ noncompete agreements and another rule that would keep companies from selling and sharing consumer data, looking to end ‘commercial surveillance.’” She’s also been eager to take companies such as Meta and Microsoft to court over allegedly harmful acquisitions, even though courts have handed her loss after loss. Khan keeps trying to expand government antitrust authority, and in collaboration with the DOJ, the FTC recently released strict new guidelines for dealing with vertical mergers. TPA Director of Policy Dan Savickas recently analyzed these guidelines, concluding they’re unwieldy and unworkable. Savickas writes, 

“Given the vague language in the 13-point guidelines released by the FTC and DOJ on Wednesday, it appears there is no intent to stop this foolish strategy. For example, point 1 stipulates, ‘Mergers should not significantly increase concentration in highly concentrated markets. ‘Point 2 goes on,’ Mergers should not eliminate substantial competition between firms.’ Rounding out the first three points, point 3 states, ‘Mergers should not increase the risk of coordination.’”

“Any literate observer will note the fungible language in just these first three points. How is one to know what a ‘significant’ increase in concentration is and whether or not a market is considered ‘highly’ concentrated already? How can a company know whether ‘substantial’ competition has been eliminated. Are companies expected to know whether or not their acquisition ‘increases the risk’ of coordination, even if there is no discernible coordination to be seen? All of this is up to the discretion of FTC bureaucrats under these guidelines.”

It remains to be seen whether the lifeguards at the FTC and DOJ will dive into this deluge of dubious precedent. No matter what happens, TPA is here to help taxpayers and consumers fight back against the rising tide of government intervention. For more information on the FTC, visit FTC Mission Creep.