Contrary to what Federal Trade Commissioner Maureen Ohlhausen says, there is in fact no meaningful proof that consolidation generates social benefits.
Editor’s note: In a recently published article, FTC commissioner Maureen Ohlhausen struck a note of discord with the growing number of scholars who believe that the United States has a monopoly problem and that federal enforcement agencies should take measures to resolve it. “The fact that industry concentration and firm profits trend upward for a time does not show that competition is in decline,” wrote Ohlhausen, who argued against more severe antitrust enforcement (“antitrust should remain a precision tool: a scalpel rather than a hammer”), and suggested that agencies focus on removing barriers to entry. We have asked Chris Sagers of Cleveland State University, one of the scholars Ohlhausen referred to in her article, to respond to her claims.
Over the summer, Federal Trade Commissioner Maureen Ohlhausen took me and several others to task in a speech, subsequently published as a journal article, in my case because of an op-ed I had published. The theme we’d all written about is whether we in the United States have a “monopoly problem,” and whether federal policy should try to do something about it.
It seems noteworthy that so many people are asking these questions, and that such a prominent federal official would take the time to react, because people are lately talking a lot about whether we’re seeing some kind of renewal of our antitrust that may drive a return to vigorous enforcement.
Aside from my piece, the commissioner took issue with reporting by the Wall Street Journal, op-eds by Paul Krugman, and a Yale law student making quite a name for herself, not one but two installments in The Economist, and above all an Obama Executive Order issued in April with an accompanying report by the Council of Economic Advisers, expressing alarm and directing a government-wide audit of competition-related policies.
Commissioner Ohlhausen didn’t even collect all the eyebrow-raising stuff that’s been going on lately. No less than Hillary Clinton has made antitrust a campaign issue, and Elizabeth Warren gave simply a barn-burning, eye-poppingly wonkish address on the topic at a time when she was widely thought to be short-listed as Secretary Clinton’s running-mate. Those two bits seem pretty dramatic, in the context of a policy that’s usually pretty sleepy as far as the public is concerned: prior to a campaign position paper issued by then-candidate Obama in 2008, antitrust seems not to have been a meaningful issue in presidential electoral politics in upwards of seventy years. In American antitrust, it seems, we are having a bit of a moment.
Well, Commissioner Ohlhausen had some pretty strong words. While I’m afraid I can’t agree with her views, they were a thoughtful, balanced statement by a good-faith public servant, who has earned well-deserved respect for many years of service. She meant to point out an honest difference of opinion.
But that said, I really can’t agree at all. For one thing, it is kind of unintentionally telling that the commissioner set the stage for her remarks by listing the fairly long list of preeminent thinkers who think she is wrong (inexplicably including me in that list). I, for one, don’t mind being lumped in with Jason Furman, Lina Kahn, Paul Krugman, the editorial board of The Economist, the entire Council of Economic Advisers, and Barack Obama.
More substantively, the commissioner’s views really just consist of the same flipping of policy priorities that has characterized conservative antitrust for decades, that lacks a basis in the law and congressional intent, and that in my humble opinion has left us in the regrettable place we are now in.
Specifically, she implies a very strong presumption against public interference in private markets, as indicated by her argument that there is not yet sufficient evidence that we have a monopoly problem. The argument seems to be that we must wait until we are very, very sure, beyond any reasonable econometric doubt, apparently, that there’s something wrong before we step in.
Let us pause first to observe the fact that none of the antitrust statutes say that at all, and the legislative history if anything states the opposite—in particular, the text and the legislative history of our primary merger statute are pretty strongly to the effect that we should err on the side of over-enforcement. But more importantly, the commissioner’s handling of the current empirical evidence is, with my apologies, pretty poor.
I will give credit for two points. The honest truth is that empirical measurement of competitiveness is difficult even with respect to individual markets, and it is true that we are not yet in a position to make strong generalizations about microeconomic competitiveness across the entire economy. Also, the commissioner correctly points to one thing that is probably a mistake in the much-discussed CEA report. The report focuses on increased concentration by using Commerce Department “NAICS” codes. For reasons well known among economists and antitrust lawyers, the NAICS codes cannot be used to measure increased market power; that’s why in antitrust law we have to define “relevant markets” and can’t just use census data. I’m not sure why they did that, though in their defense it was not the only evidence they pointed to, by a long stretch.
But anyway, Commissioner Ohlhausen basically criticizes that one argument, and then restates arguments from one forty-year-old law review article, and says that there is therefore no evidence to support alarm.
She is mistaken, and she ignores roughly a library-full of well-known, much more sophisticated empirical work. As for the old SCP literature that she mostly addresses, she observes that Harold Demsetz’s famous paper about it was a “devastating critique.” The critique was devastating—when it was written, more than forty years ago. She also points to two similar summary papers from 1983 and 1987.
She does not add, however, that after the original SCP literature was rejected by the knowing men and women of the academic consensus, its findings of a structure-market power correlation have been in fact increasingly corroborated in a long series of industry-specific studies and merger retrospectives, many produced by Commissioner Ohlhausen’s own agency, and catalogued in a book she briefly cites in a footnote, John Kwoka’s 2015 book on merger remedies. More importantly, that book—which the commissioner cites for an unrelated reason—as well as a follow-up paper by Professor Kwoka now being circulated in draft, presents quite a lot of evidence that has caught everyone by surprise, showing significant price increases following horizontal mergers at concentration levels well below those that the agencies now consider to be of concern.
There is an entirely separate, also large empirical literature that Commissioner Ohlhausen ignores, but that she shouldn’t, and in that again she is keeping character with the past several decades of conservative antitrust orthodoxy. Let us agree for the sake of argument that in fact there is a strong presumption against enforcement that has some basis in law and legislative history. Even if there is such a thing, so long as we agree with Commissioner Ohlhausen’s view that our policy should be based on social science and empirical evidence, then we should satisfy ourselves that there is actually some reason not to interfere. In other words, there should be evidence that mergers and other private conduct actually usually do something socially desirable before we say that the government should interfere only in the most serious cases.
Though she says that “[e]fficiencies are real”—citing no evidence for it in a speech critical of everyone else for failure to supply evidence—there is in fact no meaningful proof that consolidation generates social benefits. Especially in the case of mergers, a large and sophisticated empirical literature has been hunting for decades for evidence that mergers produce “efficiencies” or other benefits. The evidence has not been found. At least with respect to deals among publicly traded firms, the evidence tends to suggest that mergers do no good on average for shareholders of either acquiring or target firms, and if there were some efficiencies or larger social benefits, they should be measurable as benefits to shareholders. The empirical evidence has therefore confirmed the popular wisdom shared on Wall Street for years—that all this activity is not serving any good social purpose, though it might be helping executives and their bankers quite a lot.
In the end, the irony of these remarks is captured in this point: Commissioner Ohlhausen is pretty witheringly dismissive of a certain kind of evidence of market power, and implies that it would not support increased enforcement unless it can overcome a high methodological bar. But for her own countervailing evidence that in fact American markets are “fierce[ly] competiti[ve],” she says this: “Consider the new economy, which is a hotbed of technological innovation. That environment does not strike me as one lacking competition.”
In other words, the presumption against antitrust is so strong that evidence of harm must meet the most exacting standards of social science. To prove that markets are in fact competitive, however, needs nothing more than seat-of-the-pants anecdotes. Again, I mean no disrespect, and I think we have an honest difference of opinion. But this stance is not social science, and it is not good, empirically founded public policy. It is just ideology.
Finally, as for one separate point on which the commissioner aims strong words at me, saying that I am a “populist” who does not “understand competition policy,” she lists several big merger challenges by both agencies. Let me emphasize that I don’t mean to criticize anyone individually in the agencies and I’m very sorry that the public servants who work there must silently suffer so much external criticism. But again it is just too ironic that in a speech taking all critics to task for relying on anecdotes instead of unassailably robust statistical inference, Commissioner Ohlhausen says that policy has been adequate because she lists a short list of anecdotes.
It’s definitely true that the agencies have brought a bunch of challenges to a bunch of nasty mergers, and perhaps total enforcement numbers have gone up a bit. But that is because we are in the midst of a merger wave in which parties have been proposing breathtakingly massive, overwhelmingly consolidating horizontal deals. While there is a track record to be proud of in the administration’s enforcement, especially, as the commissioner observes, in the Commission’s campaign against hospital mergers, reverse-payment deals, SEP problems, and patent trolls, and who knows how many other matters, the fact remains that by and large the administration has mostly not taken action that any administration would not have taken, including the Reagan and both Bush administrations.
And that is again emphatically borne out in John Kwoka’s book, which reports that enforcement has for many, many years been against only the most massively consolidating mergers.
That just isn’t enough to say we even really have a competition policy at all.
(Note: Chris Sagers is the James A. Thomas Distinguished Professor of Law at Cleveland State University, where he teaches antitrust and other courses. He is author of Apple, Antitrust and Irony, forthcoming from Harvard University Press, and co-author of Sullivan, Grimes & Sagers, Antitrust: An Integrated Handbook.)
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