By Mark Jamison

On December 3, AEI hosted a web event to discuss what role economics has in antitrust analysis. For the discussion, I was joined by Babette E. Boliek, Bruce Kobayashi, Diana L. Moss, Howard Shelanski, David S. Sibley, and Scott J. Wallsten.

Below is an edited and abridged transcript of key highlights from our discussion. You can view the full event on AEI.org and read the full transcript here.

Mark Jamison: What is
the relationship between what Congress does and what economists do on
antitrust?

Scott J. Wallsten: The populist left and right agree that “whoever
controls the pipes controls the message” and that too much power is in the
hands of too few. Many argue that Democrats and Republicans have different
concerns regarding Big Tech, as Democrats are more concerned about
misinformation and Republicans are more concerned that Big Tech discriminates
against their views. However, there’s a clear “big is bad” mentality on both
sides. As such, Congress is pushing forward legislation which targets firms
almost exclusively based on their size.

Economics relates to Congress’ mentality in that it does not
support that particular view of antitrust. Moreover, this legislation targets
specific firms, which also isn’t really a part of antitrust. Thus, the question
becomes whether Congress should be taking a broader view of what new
legislation will look like (under the assumption there are actual antitrust
issues). Will Congress consider what economics says as to whether antitrust is appropriately
dealing with competition in the economy? That takes us into the issues that this
panel will discuss.

What’s the purpose of
antitrust, and how has economics lent to the development of that purpose?

Bruce Kobayashi: First, there’s a lot of controversy about
the current consumer welfare standard, and many argue that antitrust should be
addressing the absence of competition to Big Tech.

The hook to competition is that we have textbook models with
perfect competition which end in this ideal scenario where competition results
in the maximization of total welfare. The unfortunate thing is that these
examples only exist on textbook pages and not in the real world. Imposing such
an outcome through antitrust regulation is not a sensible goal, and that’s not
what antitrust has been doing for the last 40 years.

To answer the second part, antitrust economists at US
federal agencies use economic models and data to help identify transactions and
conduct that would harm competition. They use models and data to test and
refine the tools that they use to make and improve predictions about the
effects of the transaction. Oftentimes, economists serve to expand enforcement.
I think a great example of this is illustrated by the evolution of the
antitrust analysis of hospital mergers at the Federal Trade Commission (FTC)
and other agencies.

Diana L. Moss: Markets are a really unique phenomenon. They’re
very important, but markets do not self-regulate. Markets do really well when
there’s competition on both the supply and demand side. When there’s the impression
of market power, we see the need for referees in the market: antitrust enforcers.
We are at a point in the US economy where we are seeing declining competition,
rising concentration, growing inequality gaps, and transfers of wealth from
consumers to producers.

Economists have done what they excel at doing by going to
the most obvious sources of data, analysis, and ways to deploy methodologies.
However, they need to do more. Outside the hospital arena, we don’t see a lot
of modeling of quality or innovation effects, and I think economists can
greatly contribute there.

Lastly, I think it really behooves economists to think about
drawing in and collaborating with other important viewpoints and disciplines. An
economist’s research would be much more nuanced and have a lot more depth to it
if he or she worked with other disciplines.

What responsibilities
do economists take on in antitrust proceedings?

David S. Sibley: When we talk about economists’ role in Big
Tech antitrust matters, economists tend to be a little too narrow and focused. Economists
think about one main thing: What does this do to marginal costs (the costs of
increasing the amount of service provided)? Evidentially, economists play a big
role in horizontal mergers; however, the opposite is true in collusion as economists
play almost no role.

On the other hand, economists do a lot with monopolization
cases under Section 2 of the Sherman Act. Yet, even here, economists don’t have
a lot of impact — not because they could be doing or accomplishing much more,
but because in practice, monopolization cases tend to involve issues that are
quite subtle. These cases are hard to measure empirically and may involve
complicated issues of technology.

Now, in vertical mergers, economists don’t do much simply
because antitrust agencies don’t do a lot there. When I was at the Department
of Justice (DOJ), the staff told me they had only seriously investigated seven
vertical mergers, so inherently economists don’t do a lot there. To summarize,
I’d say where economists are the most active and most effective is probably
horizontal mergers. They could be more active and effective in vertical mergers,
but so far they haven’t been.

Howard, as both a
lawyer and an economist, how do you understand economists’ role in antitrust
today?

Howard Shelanski: I would say the most important role
economists play is in trying to drill down and understand the extent to which
structural presumptions or efficiencies presumptions are warranted.

When the FTC and DOJ economists review a merger, they look
to see whether a transaction that seems to be in an unconcentrated market will
nonetheless have some effects. Yet, in a transaction where harm is likely based
on the structure, they’re doing the narrower, more focused analysis to see what
they could do to go beyond the presumption to demonstrate a likelihood of
harmful effects. On the defense side, I think you see economists doing exactly
the opposite. Therefore, the role of an economist is to either add effects
analysis that will justify and vindicate the structural presumptions or to push
back against them.

I think one of the really valuable things economists can do
is to lay the tracks ahead of the doctrine. A lot of antitrust doctrine is
stuck on economic ideas that got embedded in case law, which has then led to
decisions that made it very hard for people to bring cases. Predatory pricing
is probably the area that most readily comes to mind.

Why does all of this
actually matter to non-economists?

Babette E. Boliek: Antitrust affects our constraints as both
families and individuals — in other words, what we can purchase. A question economists
ask is: What are the ultimate effects a merger might have on our day-to-day
constraints? When we’re talking about antitrust and the way that companies
might merge, the biggest question we ask ourselves is: Will prices go up?

However, another thing we look at is how services are distributed.
Courts have nixed mergers on the basis that the concentration of an array of
goods would be too high, which would subsequently impact competition’s ability
to survive. The question is: Did that do the American consumer any good, even
though that arguably protected competitors? Did that help me, an average
American? Or did it force me to spend my time driving to different places for
the benefit of supporting competitors I don’t really want to go to?

Lastly, the consumer cares about innovation. For example,
let’s look at a very large hypothetical company that is involved in breaking
down the DNA genome which is going to merge with another company. If the
resources of these companies are able to jointly result in research that could
help cure cancer, what’s antitrust to do? If prices don’t go up for consumers,
why block it?

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