Antitrust Brainstorming Board with John Newman

Below, we have provided the full transcript of the interview with Prof. John Newman, is a Professor of Law at University of Miami School of Law, recorded on September 10, 2021.

This interview was done as part of the Antitrust Brainstorming Board created by CPI with the support of the CCIA.

Thank you, Prof. Newman, for sharing your time for this interview with CPI.

A video of the complete interview is available HERE.

Do you think the current antitrust framework works for consumers?

Do you think the current antitrust framework works for consumers?

John NEWMAN:

I see two big problems with the current antitrust framework, loosely defined. The first is that it’s not really as intellectually cohesive as the Orthodox position suggests. And you can get at that a couple of different ways but one is to just ask whether it’s actually applied across the board in different types of cases. As an initial point on that, Hemphill, Rose, Melamed, antitrust insiders have starting to question that point and suggest that maybe we apply something more like a trading partner, welfare standard instead of a consumer welfare standard, so what we thought we were applying. The trouble with that then is that nobody’s done any, as far as I know, really rigorous theoretical work around what that trading partner welfare standard would mean in a given case. It seems like sometimes we’re applying in consumer welfare standards, sometimes we’re applying this trading partner welfare standard; that’s not very well defined. Or you could think about something like price discrimination, right?

Perfect price discrimination eliminates all consumer welfare, yet the Orthodox position is that it’s actually good because it tends to increase output that suggests that we adopt an allocative efficiency standard instead of a real consumer welfare standard. Or, think about labor markets, right, as another example I liked to go to on this point. Employers are the consumers of labor, just like they consume other inputs like electricity, et cetera. When we talk about say a merger that might raise electricity prices, we just look at consumers. In this case that would be a bunch of employers who run factories. So far so good for a consumer welfare framework. But when we start talking about labor, all of a sudden things start to look a lot different. If say a bunch of employers conspire to lower wages, the consumers/employers are better off because of that.

So consumer welfare actually increases when employers conspire to drive down their input costs, but that’s treated as if it’s per se illegal and isn’t even criminal under this supposed consumer welfare standard. We’re doing something else when it comes to those labor cases. And then something like the NCAA cases just blows everything up to my mind, right? So there, you’ve got consumers of education, students. Consumers of labor, schools, and then consumers of some different product altogether, live or televised sporting events.

What does the consumer welfare standard even do with that? There’s no guidance for how to balance things or trade them off. Courts have suggested maybe that TV audiences welfare might trump everybody else’s welfare, like workers. We kind of ignore schools in all this. So that may suggest some kind of final or end use consumer welfare standards that we don’t apply anywhere else.

All that’s to say this supposed simple unitary framework starts to look pretty messy when you actually look closely at it. I think that’s a problem that has gone kind of unrecognized. And then I think turning away from theoretical problems there’s a lot of empirical research suggesting that we’ve just gone too far in favor of defendants. Too many false negatives have been happening, even in areas like horizontal merger policy where we still have some antitrust left. And forget about it when it comes to vertical mergers. Rule of reason cases have become almost impossible to win. I think those are the two big things I see. Theoretical problems, and then when you look at the actual empirics, again, suggests that consumers haven’t been served very well.

Do you believe the vertical merger guidelines need to be changed?

NEWMAN:

I think the answer to that question depends on what you believe the purpose of merger guidelines is, right? So if the purpose of merger guidelines is simply to reflect current agency practice, I think that vertical merger guidelines do a pretty good job of that. They are quite permissive, right? They’re, they’re fairly laissez-faire and that is how the agencies treat vertical mergers. Challenges are very, very rare, they do happen. The FTC is litigating a vertical merger case right now against Grail and Illumina, but they’re very rare relative to the overall number of vertical mergers that are cleared every year.

To the extent that vertical merger guidelines are simply meant to reflect current vertical merger policy I think these are pretty accurate. Of course, if you think that merger guidelines should be a kind of leading indicator or a Vanguard, and you think that vertical merger policy should change to be more pro-enforcement, less permissive, then I would say yes, the vertical merger guidelines should be changed, because again, they are quite permissive.

Do you approve of the shift from competition towards regulation?

NEWMAN:

Yes, I think that our discourse, certainly in antitrust communities, and I think in broader communities as well, has this unfortunate tendency in this area to kind of lump the big four, the big tech companies together and treat them as if they’re all basically the same. Maybe we should just regulate all of them like their public utilities for all purposes apparently.

To my mind, Amazon is a far different company than Google. Google’s a far different company than Facebook, even though they both make most of their money from advertising. There’s very  different business models, different competitive concerns, different implications for things like democratic dialogue, political functioning or lack thereof. And then you’ve got Apple, which again is quite different, I think. In some ways, similar to Google, right? They both do a lot of business on smartphone operating systems, but a lot of differences as well.

I don’t think it would be a good idea to lump all of these big companies together and just say all of them should be treated as if they’re public utilities for all purposes. Whether that’s true for certain purposes I think is a different question and frankly, one that I’m not sure antitrust people have a ton of useful things to say about. If your concern, for instance, is fake news disseminating through Facebook and Instagram then I think to some extent that could be viewed as a competition problem, but in large part it’s something else, right? And antitrust people should be in dialogue with political scientists, free speech theorists, et cetera, when we talk about this type of policy move, which would be a huge one.

How would you ensure antitrust is enforced vigorously if no changes are made to the current antitrust system?

NEWMAN:

Well, if we’re not changing the current system, right? And we’re not changing say the substantive statutes that underlie the antitrust laws, then to my mind the biggest change that needs to happen is with either the current judiciary makeup or with educating the judiciary on how economics actually works, right?

You could look at a case like Amex and the Supreme Court’s decision. I think there’s actually pretty wide consensus among serious antitrust scholars. That that was a huge failure. That that was not an instance of antitrust laws being applied and forced correctly. I think there were some unusual wrinkles about the case, but the Supreme Court badly mangled the decision and in large part I think they did so because they were relying on a bad idea about how antitrust economics law is supposed to work. In particular, they were fixated on the idea that output is what really matters and as long as output goes up, consumers must be better off and if output goes down they must be worse off, and so plaintiffs should have to prove that output actually went down in these markets. That’s just a bad idea.

So whether you need new judges that have better understanding of how antitrust economics works, or whether that’s just a job for us, in the antitrust community, to better educate judges about how antitrust works. I think that would make a big difference and that could go a long way actually without changing the underlying framework.

What are your thoughts regarding start-up acquisitions?

NEWMAN:

I think some restrictiveness in our merger policy, relative to the current status quo, which is very permissive is warranted. I think there are serious competitive concerns when companies buy startups. We in the antitrust community have long said that innovation competition is perhaps the most important type of competition, the most beneficial type of competition. And a starter pack position posed an obvious threat, especially when you’re talking to direct horizontal rivals, even when you’re talking some vertical cases or combinations of complimentary assets, there’s some obvious competitive concerns here.

On the other side of the scale would be the potential for efficiencies, right? That maybe these startups and acquisitions and mergers should be allowed because they produce some kind of efficiency, whether that’s dynamic efficiency or whatever.

I think there’s an emerging body of research that suggests efficiencies are not all we thought they were. But they aren’t as common, they aren’t as sizable, they aren’t as substantial. So ,the side of the scale that we thought was countering our competitive concern doesn’t have as much on it as we thought.

I also think there’s an additional competitive concern people don’t talk about as much. And that is, forget about kind of the original innovation, let’s say. A startup often has a unique culture. It just approaches the world in a different way. And that’s what led it to make that initial innovation in the first place.

If you have a combination that startup gets folded into an incumbent. Has its own way of doing things it’s more locked in place. You might not just lose out on the initial kind of innovation in say a killer acquisition type of way. But you might also lose out on any other innovations that unique startup would have made along the path to reaching consumers and growing its product. So yeah, I think there’s less on the efficiency side of the scale than we thought. And there may be even more on the competitive concern side of the scale.

Is break-up the best solution for the digital economy and for consumers?

NEWMAN:

I would say just like with the discussion around public utility style regulation. Here, I think we need to be very careful about making broad pronouncements. For instance, would breaking Google Search into two competing searches, big Google, and little Google I guess. Would that yield immediate consumer benefits? I’m not convinced of it. Whereas when you’re talking about something like Facebook/Instagram, I think it looks different, right? For one thing, you have two companies that were separate and then sort of combined and sort of not. And, I think that the case for user benefits is maybe clear with something like Facebook/Instagram breakup. You could think of a lot of potential benefits that might arise. One that I’ve talked about though, is the idea of competition for our attention.

There’s some decent empirical research that suggests when you have two companies competing against each other to get our eyeballs. It’s better than when you just have one. In the sense that there’s more pressure to not jam so many advertisements down our screens. In other words, you can lower attention costs through competition for users. I think that’s not so easy to quantify as a price effect, but it is a kind of classic benefit from competition that we may be losing out on. In that case maybe a breakup is a good answer, but again, I would say, it probably should be case-by-case.

How do you see the role of the FTC and the DOJ in ensuring competition works for consumers?

NEWMAN:

I think the Department of Justice is a law enforcement agency. That’s what it does well, that’s what it does best. That’s what it’s always done. I think it certainly has a role to play in shaping policy too, right? Competition policy advocacy is an important role that DOJ plays issuing joint agency guidelines. All of that is important in shaping policy. But in large part I think of the DOJ as a law enforcement agency.

The FTC, I think, was tasked by Congress with a much broader role. They’re able to do vast industry studies and really gather information about new developing sectors, practices that were thought to be pro-competitive may not be. They’re given rulemaking authority, which the DOJ is not. And so I see the role ideally of the FTC as more active than it has been and broader than just law enforcement.

I think there are some clear steps being taken in that direction under the current chair. And I view that as a good thing, right? Now we can talk about specific instances of rulemaking or studies and ask whether those are good. But in general, the FTC fulfilling its congressionally mandated role, I think would be good.

How would you reconcile competition and competitiveness? Should antitrust reforms take into account the potential impact on proposed changes vis-à-vis China?

NEWMAN:

Yeah, I think we in the antitrust community are used to thinking about competition as if it’s a good thing and it’s our basic framework for looking at market interactions. I’m not so sure that’s true when it comes to the foreign policy arena and I’m not sure competition is the best framework for us to look at foreign policy issues now, if it ever was. But when we’re in a world where we’re dealing with the two biggest issues, I think to my mind, being the coronavirus pandemic and climate change. Competition doesn’t seem like a good solution or fix for either of those problems. So I’m less convinced that we should extend our idea about competition being ideal and competitiveness being an ideal way to approach the world outside of traditional sort of partial equilibrium, look at a relevant market type scenarios. When we look at foreign policy, I get a little wary when people start talking about China as our rival and how we need to out-compete China. I think cooperation is probably the ideal approach in general these days.

Any final comments you would like to make?

NEWMAN:

I think that antitrust is long been a very interesting area. Now it’s definitely more interesting than it has been in my lifetime. So it’s exciting. I think sometimes people in the antitrust community get very nervous when they see potential changes coming on the horizon, but I don’t think that’s anything to be afraid of, right? I think the world is changing. I think we need to evolve and adapt along with it and it should be exciting. There are new voices, new ideas, and all of that’s a good thing, not a bad thing.