Antitrust Authorities Have Been Busy. The Public Needs to Get Involved, Too.
Open Markets Legal Director, Sandeep Vaheesan, published an op-ed in Barron’s on February 21, 2020 discussing the need to overcome the competition ideology and instead think about market rules for a fair and just economy.
Last week was unusually busy in the antitrust world. A federal judge cleared T-Mobile’s takeover of Sprint, the Federal Trade Commission announced an investigation of the many small acquisitions by the five leading tech firms, and a federal court of appeals in California heard oral argument in the FTC’s monopolization case against Qualcomm. These diverse cases share one important common element: federal judges and antitrust enforcers decided, or will decide, what constitutes fair competition. Which strategies and tactics can businesses use to grow and succeed, and which are off limits?
The dominant view, including in the antitrust world, is that competition is always good. It doesn’t, at least expressly, distinguish between healthy and unhealthy competition. Much like how teams in Major League Baseball cannot win by any means necessary, however, market competition has never been a free-for-all. One way or another, the rules set and enforced by the government allow and encourage certain business practices and restrict and prohibit others.
According to the standard narrative, market competition is associated with good outcomes for society. Firms compete against each other by lowering their prices, developing better products, and expanding their capacity to make things. Those that are attuned to popular preferences and invest in research and development thrive and become industry leaders. Firms gain market share and increase revenues and profits through practices that serve consumers and drive progress. In contrast, businesses that ignore changing customer tastes and stick with obsolete technologies stagnate and even fail.
This portrait of how firms compete is incomplete. Firms can grow through methods aside from product innovation and investment and succeed through conduct generally considered unethical or unfair. The examples are many. A soda company can prosper by asserting without proof that a rival’s drink contains arsenic. Instead of identifying and supporting the work of promising new authors, a publishing house can grow by reprinting the bestsellers put out by a competing publisher. By employing children on its processing lines, a chicken company can lower labor costs and thereby outcompete rivals on price.
Of course, Congress has enacted laws prohibiting these practices. Otherwise, all firms would face pressure to compete in the same way. False advertising laws prohibit businesses from making deceptive claims about competing products, copyright law bans the unauthorized publication of a work owned by another firm or individual, and fair labor law forbids the full-time employment of children. These examples show that laws and regulations limit and structure competition.
Antitrust law establishes similar limits on business conduct. Firms cannot simply buy up their rivals and establish a monopoly. From the 1950s through the 1980s, U.S. antitrust rules placed tight restrictions on growth through mergers and acquisitions, and they effectively directed businesses to grow through nonmerger means, such as improving their products and investing in productive capacity.
Today’s cases require courts and enforcers to draw lines between fair and unfair competition. In the Sprint/T-Mobile matter, the judge had to decide, in effect, whether T-Mobile and Sprint should be compelled to succeed as independent carriers or allowed to combine. Put another way, should Sprint’s parent company, the Japanese private equity fund SoftBank, be permitted to sell out to T-Mobile or pushed to make Sprint a dynamic player in the wireless market? Softbank has invested billions in another one of its holdings—the money-hemorrhaging commercial real estate venture WeWork—so surely it could do the same for the far less troubled and potentially very profitable Sprint.
In its investigation into acquisitions by Amazon, Apple, Facebook, Google, and Microsoft, the FTC will have to make similar assessments. Would the relevant markets have served users, advertisers, and the public better if these giants had been forced to grow in ways besides buying out emerging firms? In its broader tech investigations, the FTC, an agency with antitrust and consumer protection authorities, will face a question that is especially applicable to Facebook and Google: Should the public tolerate targeted advertising businesses that rely on large-scale and intrusive surveillance?
In FTC v. Qualcomm, three appellate judges will decide whether Qualcomm maintained a monopoly in modem chips for mobile phones and tablets through unfair conduct. (Full disclosure: The Open Markets Institute filed an amicus brief in support of the FTC that explains rules of fair competition under federal antitrust law.) For example, did Qualcomm behave improperly by paying Apple not to buy chips from rivals and by breaking its promise to license essential patents to all comers? The district judge answered yes to these questions in an opinion last May. The judges hearing Qualcomm’s appeal may not use the language of fair competition in their eventual decision, but they will inevitably rule whether the corporation’s strategy was fair or unfair.
Law already makes normative judgments about fair and unfair competition, channeling corporate behavior in certain directions and away from others. The issue is not whether to promote competition but what business strategies to allow and what to proscribe. Under one possible set of market rules, businesses thrive by disseminating false information, buying out competitors and suppliers, and paying customers not to deal with rivals. Under a very different configuration of rules, businesses grow by putting out truthful advertisements, developing better products, and expanding their productive capacities. Instead of delegating these legal choices to antitrust specialists and judges and concealing them under the language of “competition,” the public, members of Congress, and policymakers should have an honest and open discussion about how to structure a fair and just economy.