California’s Anti-Competitive COMPETE Act

In the place of the preferences of consumers, California lawmakers prefer the prescriptions of lawyers; in the place of genuine competition, the bespoke market arrangements that Sacramento politicos deem “fair;” in the place of certain, well-defined regulatory standards, vague and discretionary provisions which render arbitrary enforcement a virtual inevitability. These preferences were enacted last week when Gov. Gavin Newsom (D) signed the COMPETE Act, a statute purporting to frustrate monopolies and monopolistic business practices. So naming this menagerie of reactionary antitrust policy resembles incorporating an organization to promote veganism under the name “the Meat Eater’s Alliance.”

Whither Californian antitrust law will tend remains, to a large degree, uncertain. “It is unlawful for every person to monopolize or monopsonize, attempt to monopolize or monopsonize, maintain a monopoly or monopsony, or combine or conspire with another person to monopolize or monopsonize any part of trade or commerce,” the statute reads. What businesses are to do with such text is a question that can be answered only in the course of expensive investigations, lawsuits, and settlement processes. “California courts must…develop a new body of law governing unilateral conduct, with federal interpretations serving only as guidance,” notes Alden Abbott, a senior research fellow at the Mercatus Institute.

Consumer welfare, the solid basis of federal antitrust law, is not a loadstar in the constellation of the COMPETE Act’s priorities. Instead, its authors preoccupied themselves with preventing “false negatives”—the inadvertent allowance of anticompetitive conduct, distinguished from “false positives,” the injunction of legitimate business practices resulting from an overzealousness of enforcement. The text is explicit on this point: “Courts shall liberally interpret California’s antitrust laws to best promote free and fair competition and be mindful that California favors ‘maximizing’ effective deterrence of antitrust violations,” the act states. Practically, this will produce a two-fold problem: Businesses whose only offense is working to provide their customers with better and cheaper goods and services will become objects of at best irksome, and at worst crippling, enforcement; and their customers will, consequently, be denied the benefits that result from such labors. Entrepreneurs engaged in perfectly fair business practices will be the civilian casualties of California’s fundamentalist warfare against big business.

Federal antitrust law, too, once neglected consumer welfare in favor of rampant intervention. The result was, economically speaking, nonsense—and legally speaking, arbitrary. Enforcers acted against businesses on flimsy and discretionary bases, predicated more on their own myopia than empirics or sound evidence of anticompetitive conduct. Commenting on merger-related jurisprudence and capturing the general state of mid-century antitrust law, Supreme Court justice Potter Stewart suggested in 1966 that the “sole consistency” was that “the Government always wins.” To escape this quagmire, a new generation of regulators and academics labored to enshrine consumer welfare as the end of antitrust enforcement. It is to this sort of quagmire that California would return.

There is a certain paranoia that pervades the reasoning undergirding the COMPETE Act. Every large business is an incipient monopolist. Every business practice that lies beyond the imagination of regulators is suspected of being anticompetitive. The costs of overenforcement are to be endured lest some stray anticompetitive business practice be overlooked. Such a paranoia can be reconciled with neither a free economy nor the very entrepreneurialism that is the engine of all prosperity.