A new paper by economists Steven C. Salop and Carl Shapiro explores what antitrust might look like under President Trump. In an interview with ProMarket, Shapiro explains why he doesn’t think Trump sees competitive markets “as something to be protected and nurtured.”
The news of Delrahim’s forthcoming nomination followed months of speculation as to who would fill the top antitrust positions within Trump’s administration. Trump has taken longer to fill his antitrust team than previous presidents (Delrahim’s nomination has yet to be made official as well), a fact that fueled widespread speculation and uncertainty about what antitrust might look like under Trump, particularly at a time when a number of big mergers—among them the mergers between AT&T Inc. and Time Warner, Bayer AG and Monsanto, and Dow Chemical and DuPont—are under review.
The choice of Delrahim, if true, could serve as an indication of the administration’s approach to antitrust. Delrahim, who previously served as a deputy assistant attorney general in the DOJ’s antitrust division (2003-2005), spent years as a lobbyist for a number of corporate clients, among them health insurer Anthem, which is currently contesting last year’s court ruling that blocked its merger with rival Cigna on the grounds that it would harm competition. Delrahim, who was still listed as a lobbyist for Anthem five months ago, will now head the office that Anthem lobbied to approve the merger.
The prospective appointment of Delrahim could be seen as yet another indication that Trump’s policies as president, particularly when it comes to antitrust and competition, will differ significantly from the statements he made during the run-up to the election. Two months into his presidency, Trump’s policy on antitrust and competition is still shrouded in uncertainty: as a candidate, Trump’s statements suggested a very aggressive approach to antitrust, particularly in regards to big mergers in the media sector. But some of his actions since becoming president (including Delrahim’s expected appointment) seem to suggest a more laissez-faire approach.
Last month, Steven C. Salop and Carl Shapiro published a paper that attempted to ascertain how competition policy might look during the Trump presidency.
In their paper, Salop and Shapiro explore the tension between the two rival approaches that could form the basis of Trump’s antitrust policy. They call them the “reining in corporate power” approach (the one that Trump’s aggressive rhetoric seemed to suggest) and the “laissez-faire” approach (which many of Trump’s actions since becoming president seem to indicate, and which is much more in line with traditional Republican policies). Despite the hopes of many Trump voters that President Trump will follow through on his campaign promises to fix America’s “rigged” system, the two argue that it looks more likely that the administration will lean toward the much more lenient approach.
What would an antitrust policy based on this “laissez-faire” approach look like under Trump? For one, Salop and Shapiro note, it would be “highly permissive” of both horizontal and vertical mergers. It would also be more friendly to so-called “pay-for-delay” deals, in which generic drug manufacturers that challenge the patents of branded drug firms agree to drop their challenges in exchange for sharing monopoly profits.
While they believe Trump is more likely to adopt the laissez-faire approach, Salop and Shapiro note that the direction of the administration’s policy has not been resolved as of yet. It’s possible that Trump’s picks at the FTC and the DOJ will adopt the “reining-in” approach, at least to some degree. They also note that should the administration cut antitrust enforcement, state attorneys general might become more active and “pick up some of the slack.”
Regardless of which approach to antitrust Trump decides to take, Salop and Shapiro note, there is still a concern about potential abuses of power. Though such concerns are rarely brought up in a U.S. context, the two highlight “worrisome signs” that Trump might use antitrust enforcement (or the threat of enforcement) “to further the political or economic interests of the President and his allies.”
Among the cases they highlight as raising concern is the run-up to the Carrier deal, during which Trump threatened Carrier’s parent company with the loss of of government contracts if it went ahead with its plans of moving jobs to Mexico. Also, they raise concerns over the numerous statements Trump has made against Amazon and the takeover of Time Warner by AT&T. Trump had promised that if elected he would block the AT&T-Time Warner merger and said that Amazon founder and CEO Jeff Bezos “has got a huge antitrust problem.” Trump’s stance, Salop and Shapiro note, could be based on genuine concerns over vertical mergers but could also be a way of threatening media outlets that Trump views as enemies, as many commentators have suggested.
In order to better understand the rival approaches that could shape antitrust in the age of Trump, we spoke to Shapiro, the Transamerica Professor of Business Strategy in the Haas School of Business at the University of California at Berkeley and a former member of President Obama’s Council of Economic Advisers (2011-12). In his interview with ProMarket, Shapiro discussed Trump’s future antitrust policy and the fears that he will use antitrust as a political weapon.
Q: You note in the paper that there’s a tension between the things Trump said as a candidate and the things he has done since becoming president. Which direction do you think the administration is leaning toward: “laissez-faire” or the interventionist approach?
I don’t think we’ll know until Trump nominates people to the antitrust leadership positions. The Trump White House has been very slow about sub-cabinet appointments generally, and we are still waiting for these nominations to be sent to the Senate. However, I have observed that Maureen Ohlhausen, in her speeches and tweets since she was made Acting Chair of the FTC, has adopted more of a laissez-faire rhetoric than she had used in her previous five years as a commissioner. This may be nothing more than the shift from her being in the minority to her being the Acting Chair, but it also suggests to me that she believes that the Trump White House welcomes a laissez-faire approach. That would be consistent with the strong anti-regulation rhetoric and executive orders coming from the Trump White House.
Q: You mention an exchange between Trump and Vice President Pence when they announced the Carrier deal: Pence said, “the free market has been sorting it out and America’s been losing,” and Trump responded by saying, “every time, every time.” This implies that at least some of the rhetoric might be the same, but what can it tell us about future policy?
It looks like President Trump will keep up the anti-free market rhetoric when it comes to trade. I do not see that stopping. The themes of economic nationalism, Make America Great Again, and the perceived harms from trade agreements seem like a fixture of the Trump presidency. How will this affect antitrust? If you have two American companies merging and they say that their merger will make them stronger to combat foreign firms, the administration may very well take a hands-off view. But they may have a completely different view if a foreign company seeks to acquire an American company. That type of differential treatment based on nationality would be a major problem for antitrust enforcement, because that is exactly what the United States has tried to stop other countries from doing for the past 20 years.
Q: In the paper, you explore the potential for abuse of power when it comes to antitrust. What is the potential here?
Whenever government officials make ad hoc decisions and do not follow the rule of law, the danger of corruption and abuse of power becomes much greater. It’s that simple. This has almost never been an issue in antitrust in the United States, although this happened to some degree during the Nixon administration. If the Trump administration starts to go in that direction, I hope that the antitrust community, Republicans and Democrats alike, will step up and say, “No, don’t go in that direction—we don’t want the White House leaning on the Justice Department.”
Q: You mention the Nixon administration a number of times as an example of an abusive use of antitrust. Do you feel there are similarities between Nixon’s handling of antitrust and what we’ve seen from Trump so far?
It is widely agreed that Nixon’s use of antitrust was inappropriate. The Tunney Act was passed after that because of Nixon’s conduct, to prevent similar things from happening in the future, but it’s imperfect.
What is striking now, at least in the couple of instances we’ve seen, is that we have the President of the United States meeting with top executives who have deals that are under review by the antitrust agencies. That is more overt than what Nixon did and very worrisome.
But the truth is, we don’t know yet. Maybe all this won’t amount to anything. Maybe things will change once President Trump and his senior advisors realize that there is a very good reason why previous White Houses have carefully avoided getting involved in merger reviews, just as they have avoided intervening in other law enforcement activities by the Department of Justice.
Q: When it comes to antitrust, would you say Trump is a pro-business or a pro-market president?
It’s too soon to say, really. The Trump White House wants to cut a lot of regulations and Wall Street loves that, as do many other businesses. But antitrust is different than regulation because antitrust is about protecting the free market, and very often there are businesses on both sides of an antitrust dispute.
There is no indication that Trump is pro-market, by which I mean pro-competition. To the contrary, the evidence so far indicates that Trump is more in the camp of “competition seems like it’s not working and it’s destroying jobs,” at least when it comes to competition from imports. I don’t see any indication that Trump sees competitive markets as something to be protected and nurtured, which is what antitrust is all about.
Q: Exchanges like the one you quote between Pence and Trump might imply that they are not necessarily pro-market.
Indeed, they are not as regards to import competition. Nor is there any indication that Trump appreciates how much damage will be done to the U.S. economy, and the world economy, if the United States adopts a protectionist stance. This is not a controversial point among international trade economists.
Q: Is it possible he’ll try to use antitrust as a weapon?
That’s definitely a fear. China put in place an antimonopoly law about 10 years ago, and it generated a lot of interest and commentary: the U.S. Chamber of Commerce got involved, and the DOJ and the FTC and other components of the federal government got involved. There was a lot of concern that the Chinese would use their antimonopoly law to further their national goals, as part of their national development strategy, and not in a legitimate way to promote competition and protect consumers. We saw some examples of that when foreign companies were blocked from acquiring Chinese assets. Both the George W. Bush and Obama administrations have been very strong about warning them off of that, saying that discriminatory treatment of foreign firms is inconsistent with proper antitrust enforcement.
A lot of people I have spoken with are now worried that, under Trump, the United States will start doing just what we told the Chinese and other countries not to do. If that happens, we would totally lose our moral authority in this area.
Q: How do you think Trump is going to deal with the big platforms? He attacked Amazon during the campaign, and other tech firms. The Obama administration maintained close ties to the big platforms and to Silicon Valley in general. Do we have any indication as to how Trump is going to deal with this?
I do not. But the issues where there are likely to be clashes between the Trump White House and Silicon Valley go far beyond antitrust. They encompass privacy, cybersecurity, skilled immigration, funding for scientific research, and more.
Disclaimer: The ProMarket blog is dedicated to discussing how competition tends to be subverted by special interests. The posts represent the opinions of their writers, not those of the University of Chicago, the Booth School of Business, or its faculty. For more information, please visit ProMarket Blog Policy.