Antitrust Policy in the 21st Century: Is There a Need for Reform? – Session 4

Below we have provided the full text transcript from the fourth panel of our recent roundtable discussions, Antitrust Policy in the 21st Century: Is There a Need for Reform?, from July 31.

Randal PICKER:

Hi. I’m Randy Picker, and I’m a professor at the University of Chicago Law School. The House Subcommittee on Antitrust has been undertaking an extensive investigation of platforms. They had this epic hearing just Wednesday with the four horsemen of the apocalypse. I think that’s who was there. So it was great. I can’t tell you the last time I’ve watched television for five and a half hours consecutively, but that is what I did on Wednesday. In connection with the House hearings, they asked people to write some statements and I wrote a statement and there were a bunch of statements and CPI, who’s hosting all of this, has put those statements up on the website, so you can go there and get those. They’re very much worth reading. I then sent out a tweet and on LinkedIn and said, “Oh, we should have some sessions on these. These are great papers.”

Academics talk about papers, workshop culture. That’s what we do. And CPI reached out and said, “That’s a great idea. Let’s do it.” So that’s why we’re here, and so this is a fourth of them. Our presenters today are Maureen Ohlhausen, Bill Kovacic. Feel very lucky to have them there and we’ve been remarkably able to attract pretty high-end people to these sessions, so that’s fabulous. People will introduce themselves eventually once they start to talk. We’ve got a sequence we’ll go through and then we’ll have a more open conversation. You should identify any conflicts you might have just so we get those out on the table. I think I am conflict-free, like the best kind of diamonds, I guess. So with that, I think we’re going to start with Maureen. Maureen, you’re on mute so you’ll unmute and you’ll get going.

Maureen OHLHAUSEN:

Great. Thanks so much, Randy. I’m really delighted to be here with so many of my colleagues in the antitrust world, and particularly in such a big week for antitrust with that hearing. So Maureen Ohlhausen, former commissioner. Acting chairman of the Federal Trade Commission. I filed several comments with the House Judiciary Committee Antitrust subcommittee in my own name, under my own steam. I’m not supported by anyone, but I will mention that I do have several clients in the tech space, including Google and Facebook. So with that out of the way, let me just touch briefly on the three points that my comments to the Judiciary Committee raise, which are, what is the purpose of antitrust law? What are we trying to do in this endeavor? Then secondly, what can current antitrust law already reach? What’s permissible or not permissible under that?

What can we do with current law before we decide what should change, if anything? And included in that, the important part of what makes up a successful antitrust case. And then the third thing that I talked about is, if an antitrust violation is found, what is the type of remedy that we’re supposed to be looking for? I’ll give a little more color on all of those things. But the other thing that I want to talk about is the fact that all of this in the US is taking place in a bigger legal system where we have Congress that passes the law. We have the courts that interpret the law, and we have the agencies that enforce the law. I think that’s very important to keep that in mind, because one of the things that we’re seeing in this debate in the US and around the world is moving away from that kind of model where now you maybe have an agency, without any legislative blessing, ruling that something is permissible or not permissible.

I do have some concerns about that, particularly because during my time at the commission, we started out with five commissioners, then four, then three, then two, and eventually there was one morning where I was the Federal Trade Commission. I was the sole commissioner.

PICKER:

It’s FTC Survivor. This is great. You won.

OHLHAUSEN:

FTC Survivor. I didn’t try to take any actions, but that’s something to keep in mind that if we are going to put all this authority onto a single agency, we really need to think carefully about what that means for the types of checks and balances and constitutional form of government that we have in the US. So stepping back from that, I’ll just briefly touch on, in my comments I talked about, what’s the purpose of antitrust law. Now, the purpose of antitrust law is based on the idea that, our belief, that over time competition in the market is going to provide the best outcomes for consumers, and that antitrust law should be directed towards consumer benefits. What’s consumer… Prices, quality, those kinds of things. One of the things, though, I think probably came clear to a lot of people who viewed the hearing the other day is consumer interests were not discussed very much. Much, much more focus on competitor interests.

Now, of course, there can be follow-on. Impacts on competitors can have follow-on impacts on consumers. I don’t mean to discount that, but the focus of antitrust law has very much been on consumers. I didn’t get the sense that there was a clear argument to move away from that. It somehow just wasn’t really taken on directly. So one of the things that antitrust law tries to protect is this competition in the marketplace, and even for a dominant company, a company with large market share, our courts have made it very clear that that company can continue to compete and continue to try to win based on competition on the merits, right? It can continue to try to innovate and bring new products to consumers and continue to grow into new fields. But what it can’t do is engage in exclusionary conduct that keeps others out of the market with no benefit to consumer.

So here we think about the Microsoft case that really talked about that. I often like to think about the FTC Smith Wayne case, which was upheld in the 11th circuit as examples of that type of antitrust enforcement. So moving on to, how is antitrust enforcement really done, right? So that’s the goal of antitrust enforcement and then how has it really done? And in my comment, I talked about the three pillars of a successful antitrust case, and that’s where you have the facts, right? So you have a really good understanding of the factual record and the impact of the behavior or the likely impact of the behavior. The law. What does the law say? How does this conduct violate that law? And the economic evidence that shows the likely or the current impact of those behaviors.

Over my time as an enforcer, I found that when you have those three pillars, you can bring successful enforcement. I think that goes to our common law and legal system, that those are the kinds of things. And economics, of course, plays such a strong role in antitrust these days. One of the things that I noticed during the hearing is there seemed to be this presumption that if you had any competitor complaining, or if you had a document from a company that said, “We see this company as a competitor,” that that was enough for an antitrust violation. That merely having disappointed competitors or people who were not happy with the outcome or had been not allowed into the market or lost their place in the market, that that was enough.

Or if you had an executive or someone in an organization saying, “I see the competitive landscape this way,” that that would be enough for a case and if the agencies didn’t act, it means the agencies had failed. But I think we really need to think very carefully about that based on the three pillars. I mean, no more would an agency, say, accept a document that says, “Everything’s fine here,” right? Versus a document that says… We’ve all seen that. Sometimes hot docs are useful and probative, but they’re not always, and you need more than that. So then the third thing I just want to talk about is remedies. So antitrust, as I think the DC circuits said this really well in the Microsoft case, there’s this theory or idea being passed around that these companies are big and big companies should be broken up.

And it’s a punishment, right? Essentially a punishment for being a big company is that you should be broken into smaller pieces. And not the idea that we’ve had, that there’s an antitrust violation that’s been found that a breakup remedy will make better. And that’s really the standard that we need to be looking at and applying is, if there’s an antitrust violation, will a breakup remedy solve that competitive problem that the violation caused? That’s something that I talked about in my comment that I also think we need to think about carefully because as courts have said, breakup remedies are very uncertain. They can cause a loss of innovation that can cause a loss of consumer welfare. But I’m very hesitant to say that we should just jump to that as a way to discipline companies where we don’t like what they’re doing for some reason.

I’ll just end on that point, with the idea that we also need to pay careful attention to the difference between antitrust and regulation. I think a lot of the discussion at the hearing was focusing on the kinds of things like privacy or other kinds of values that, not that they’re not important values, but antitrust I don’t see as the appropriate tool for those. If we want a certain privacy standard, Congress should pass a privacy standard or the FTC has enforced it’s privacy law if we have other kinds of provisions that we want.

Because to put it in the hands of antitrust enforcers as if we are the all-knowing experts in every other field and we know how to craft an antitrust approach that will pursue all these other values, I think is challenging, to say the least, beyond our areas of expertise for the most part, and creates a system where you are trying to optimize a various array of goals that I think it makes it very, very difficult and opens up the door for mischief to use antitrust for things like industrial policy or other purposes. So that was the gravamen of my comments to the committee.

PICKER:

Great. Great.

OHLHAUSEN:

I’m happy to have…

PICKER:

So help me to see what I heard there, I think. So I think you’re a little concerned about a possible shift away from the core institutions of democracy. We’ll call that Congress, two agencies, a little bit. I heard the story about you being the only FTC commissioner at some point. I didn’t know that. That was really interesting. So we start with that point. Then we go to this question of, what is it that antitrust is really trying to do. And the core idea there is protection of competition, but even in that context, big successful firms, you cite to the Microsoft case, they get to compete in that space as well and there may be restrictions on what they can do. They can’t exclude them exclude anyone, but they get to continue to compete. So I heard that. A sense of what the traditional structure of an antitrust case is and the importance of that. Questions about remedy.

I always think of that as the dog catches the bus, what are you going to do with it? And so the remedy question’s a serious question. And then at the very end, you snuck in a fourth point, which was this question about the boundaries between antitrust and regulation and what the comparative advantage of antitrust regulators are, and that there are a lot of really important issues, but the fact that it’s an important issue doesn’t necessarily mean it’s an antitrust issue. Okay, good. That’s a great way to start the conversation. We’re going to turn to Bill Kovacic next. Bill’s going to unmute and we’ll turn it over to you.

Bill KOVACIC:

Thank you, Randy, and thank you Elisa for the opportunity to participate in the conversation and to my colleagues who will be joining the discussion. I teach at George Washington University in Washington, DC and Kings College, London. My main affiliation outside of teaching is not consulting, but serving as a non-executive director on the board of the UK Competition and Markets Authority. So I’m not speaking in the capacity of a CMA official, but I’m certainly drawing on that experience to talk a bit about institutional arrangements. My colleague at Kings, Alison Jones, and I submitted a comment that focused on the third of the committee’s questions, which deals with the adequacy of existing institutional structures. We don’t try to answer the question about whether competition laws should go to the moon. Should we try moonshot? We assume we’re going, that Jack Kennedy has given a famous speech in 1961 and saying, “We’re going.” We’re turning to the engineers and asking how to do it and what you have to do to get there. I spent three years with a law firm where the main client I worked for was an aerospace company.

I talked with an engineer once who said the physics of going to the moon was pretty straightforward. The engineering was really hard. So Alison and I are talking about the engineering, which tends to be treated as an afterthought. Captain Picard, “Make it so.” In doing this, you’re going to think in large terms about what you would do in order to do it because certainly a major message, I think reinforced from the hearings which really tells us what’s going to be in the committee’s report, is that we are going to the moon. We’re going to try. We’re going to be ambitious. We’re going to take bigger risks. And what’s at stake, as the subcommittee chair Congressman Cicilline said in his wrap up, is democracy itself. So one assumes and I take at face value that this is important and worth doing. Let me suggest several institutional enhancements that are important if this is to work.

The first deals with personnel, human capital. When I was a young person at the FTC, I saw the results of the last time that the US agency sought to bring about the kind of structural change that we’re talking about here. The FTC and DOJ together brought a number of bet-your-agencies big structural competition cases. The FTC was running over 15 major trade regulation rule proceedings. At one time in the mid-seventies. This was an exceptionally ambitious program and what it drove home to me is how, if you create a mismatch, a big mismatch between human capability and commitments, you have a formula for failure. That would be my biggest concern in trying to go to the moon here, is not spending what it takes and doing what it takes in order to ensure, and this was Kennedy’s admonition, “We’re going to send someone to the moon and bring him home safely to earth.” That last part’s very important.

So first, personnel. My view about the US system is that we want heroic performance and we want to pay peanuts in order to get it. So, one thing that Alison and I propose is a major increase in salaries. It’s not just a matter of increasing total resources. We’d do some of that, but it’s how much you pay the people you have in order that you recruit and retain good people. Our modest proposal is at least to put the competition agencies and the FTC, which we use as a prototype, on the same platform as the CFPB. In Dodd-Frank, we thought it was so important to save the financial services sector, to give them higher wages. The CFPB premium’s about 25% above the general civil service scale.

So if you want to do this, at least recognize that this is as important as the reforms in Dodd-Frank, go up to the CFPB scale, which would make a big difference in the retention, especially more senior people. But our moonshot think big approach is to triple the FTC budget and give it a billion dollars for 10 years. And me, I’d say, “Wow, a billion dollars. To save democracy? To save the well-being of the economy? A billion a year. Too much?” NASA spent a lot of money to get to the moon. But if you think going to the moon is important, then you do it and you pay market rates for senior leadership and key case handlers. You raise their salaries and conduct an experiment that the United States has never conducted with civil service, and you do it for 10 years to see whether or not it works.

My bet is that you recruit a lot more good people and, crucially, you keep them and you address the concern for so often now about the revolving door, people coming and going. Basically under the current regime, getting compensation in the form of a boost in income when they leave. I want to discourage that. If you want to slam the revolving door shut, you better do something like this if you want to bring in and keep good people,.I’d like to test what happens if you take a significant public agency and pay something that resembles market rates. That’s our billion dollar moonshot 10 years proposal, but a minimum put it on the same platform as the CFPB. To me and to Alison, this is a basic test of the sincerity of all of the reform proposals. If you say, “Oh dear, it costs too much,” or, “Oh dear, resources are really short,” but you want to go to the moon, you can’t go to the moon cheap here.

If you want to do this right. Otherwise you have the 1970s repeat of the biggest mismatch. Second, we proposed a number of changes to the administrative architecture that deals with the FTC in particular. You’ve got to get rid of these anachronistic jurisdictional carve-outs that prevent the FTC from having jurisdiction over common carriers, over banks, over not-for-profit organizations, over insurance. Congress has known about this. As much as they ridicule the FTC, the FTC has been begging for 20 years to fix these jurisdictional loopholes and we’re simply told ,as I was many times as a witness, “Oh, it’s too hard. Too difficult.” Too hard? Then don’t go to the moon. Second, you have to change the Sunshine Act in order to allow FTC commissioners to deliberate without the transparency requirements with respect to priorities and planning. You have to allow the members of the FTC to deliberate about these matters in the way that a board is expected to deliberate.

I compare my time at the FTC with my time at the CMA and my colleagues at the CMA can not believe the extraordinary restrictions, the disabling restrictions that are imposed on the collegial body. This has to be changed if you’re going to have a sensible selection of priorities. And my third reform to the administrative process is to allow the FTC to select administrative law judges on the basis of expertise in, this is a shock, competition law and consumer protection law. That is not a requirement the FTC can impose today. And I compare the panel system, of which Phillip was a member, at the CMA. They pick experts. They have real experts deciding these matters, but the FTC can’t demand that. If you want to enhance the FTCs role and do work in this area, why not pick ALJs who know what they’re talking about and maybe have a panel system that is the way of going about it.

Last suggestion. We’re going to have a basic showdown about the framework of US enforcement going ahead. Are we going to have two agencies or one? Several? I wouldn’t necessarily pick up the issue of whether or not you collapse the number of agencies at the federal level to one. I would demand more cooperation. I would say the US, again, can learn from what the Europeans have done with the European competition network, what happens in the UK with the UK competition network and integrate activity by contract. And with the other reforms I mentioned, rely on the FTC more to do administrative adjudication with more capability and to undertake this breathtaking program of rulemaking, which will probably be part of the legislative package, some form of regulatory command. In order to carry out those functions, my last slot, we could have a very useful examination of past experience.

The FTC has had experience with drafting really good rules. It’s not impossible. With discipline and rigor you can do really good rules and make them work. But the suggestion in the debate yesterday, the FTC was almost as big as a bad guy as the tech leaders themselves, is that this is a hopelessly failed institution. If you take that view, you don’t learn anything from what happened before. They did some really good rules. You want to study that if you want to do more. And yeah, let’s look back at some of the other decision-making efforts, not to decide whether the FTC made the call right and save Facebook, Instagram, but to understand better how the decision was taken.

Why did the FTC decide to stand down? What evidence did it look like, in addition to the emails that were featured in the hearing yesterday? if the FTC did not collect this evidence, did not run a proper second request, that’s worth identifying and thinking about it going ahead. But I don’t believe that’s what happened, but I’d like to see the examination of that as well as more disclosure about what happened with Google Search in 2013 and with Google DoubleClick, in which I was a participant. Let’s put more information in the public domain for the purpose of asking what was wrong…

Public domain for the purpose of asking what was wrong or limited about the decision making process that we can learn from in the future? Thanks.

PICKER:

Good. Thank you. So that’s so interesting. So I heard that, if you want good government, you got to pay for it. The talent doesn’t come cheap, and the talent has alternatives, and that has consequences. It means you’re losing people who develop great expertise just at the point where they can really bring that to bear and you want to make it possible for them to, as it were, collect internally and not have to go out into the marketplace to collect. And that creates all these revolving door issues. So completely hear that.

The administrative architecture. That was really interesting. The piece … I tell my students, “You should think of yourself as an institutional engineer. That’s what lawyers do. They build institutions, and you’re really hardcore on how to make this a better institution.” So I thought that was super interesting as well. Maybe a consolidation of the two agencies. At least more cooperation. And then this point, at the very end, which I thought was really interesting, about retrospectives. Looking at what the FTC has done.

I was on Twitter about this last night after reading the Facebook Instagram emails as well. What did the FTC know at that point? Did they see these? How did they think about it? What was Facebook saying? I’d love to know all of that as well. You’d like the other half of the Google Search doc, I take it, is what you’re saying. As everyone knows, in a FOIA request, half of the internal investigation was inadvertently released. The other half we’d never seen. And then a little on Google DoubleClick. Well I will say I was on … I consulted on the losing side on that one. So it would be great to know why we lost. Okay, good. Thank you so much. Philip. You’re up next.

Philip MARSDEN:

Thank you, Randy, and thank you Maureen and Bill. I’m Philip Marsden. I’m professor at the College of Europe. I’m deputy chair of the Bank of England Enforcement Committee and, disclosure, I’m also a special advisor to CRA which advises across the tech space. As Bill mentioned, I’m a former inquiry chair of the Competition and Markets Authority in the UK, and I was a board member of its predecessor, the Office of Fair Trading.

So I’m going to talk more from a sort of an international perspective, and we’ve heard two very reasonable and very passionate speakers already but, in discussing antitrust approaches to high-tech markets today, I want to remind us about two outliers and about the mean. And the outliers, to me, are the chicken littles and the ostriches, and the mean is the real international consensus.

So if you’re too busy, here’s my too long, don’t listen, conclusion. There are a lot of noisy debates but we should look for the signal not the noise. And the signal is that there are strong reasons for not changing the core foundations of antitrust, but there are also very strong reasons for applying new forms of ex ante regulation to address new problems that antitrust can’t address sufficiently quickly.

So first the outliers. The chicken littles. In the last few years, popular narrative, and a populist one, is that the sky is falling. Competition authorities have allowed too many mergers. Digital markets are tipping. Suppliers are being excluded or exploited. Consumers are being hoodwinked and losing choice. And the chicken littles call for substantive changes to the consumer welfare standard, for more intervention based on economic dependency theories of harm, and the loudest of them want breakups.

Now battling the chicken littles are the ostriches with their heads stuck in the sand, but kicking back no less fearlessly. And one ostrich voice is from the large tech firms and they say, “Move along. Nothing to look at here. Competition is a click away. And, by the way, you should all be grateful for the innovation.” And another ostrich voice is from one or two competition authorities with the same message. “Move along. Nothing to look out here. Antitrust is fit for purpose. Don’t change the consumer welfare standard. And, definitely, don’t regulate. Instead, maintain evidence-based inquiries. Use existing leveraging theories, cite past cases against pre installation, against tying and against self preferencing. And just do more of those cases.” And, most unsurprisingly, these competition agencies call for more capacity. For more resources. And Bill and Maureen have made important submissions, both written and verbal, today to that end as well.

Now I mentioned chicken little and the ostriches. Two noisy outliers. What about the mean? Is there another voice? And I think there is a growing signal, if you will, that is gaining a lot of credence in international antitrust debate, and it’s a voice that we raised in our Furman Report for the British government. And we questioned the noisy narratives. Chicken little is not correct. The sky is not falling. The tech giants are not all run by creeps and there are immeasurable benefits from their offerings. But the ostrich’s aren’t right, either. Clearly competition is not truly a click away. Clearly data is not sunshine. Not in the world of walled gardens. And, clearly, we have evidence of actual ill intent and actual harms from some tech offerings. And while a lot of that harm is from conduct that is just old wine and new bottles, and so our traditional competition law analysis of leveraging and exclusion can handle many complaints, the problem is that any enforcement comes far too late.

So it’s not true that we should just move along. That there’s nothing to look at here. If anything, we have to move faster. And importantly, as Bill talks about, authorities have to get better at the engineering. I agree with Bill. The physics, that is the consumer welfare standard, is sound. As a mountain runner some of my injuries over the years show me very clearly that you shouldn’t battle physics or even pick a fight for that matter. Bill talks about not battling physics, but getting better at the engineering. At the implementation. And many, many antitrust agencies agree. On the procedural front, they need to develop their processes for requiring interim relief. And, frankly, they just need to act quicker when they can.

Now, on substance, I think a lot of authorities are recognizing that they need to recognize that a market tends towards one or only a few firms, often for positive reasons, but there is good evidence, and the recent CMA digital market study out of the UK is full of evidence on this. Evidence that there are some harms associated with tech platforms and aggregators. Now this isn’t surprising. Right? But nor is it mere populous liberal rhetoric. We should expect some digital platforms to raise competition concerns. Why? Well, because with multi-sided platforms or aggregators with significant network effects, the name of the game is competition for the market. There is very little competition in the market. And that’s to be expected. And these markets do not seem to be self-correcting. And so, even if you trot out Myspace or AltaVista or BlackBerry and say, “Hey, these markets self-correct over time,” that might be quite a long period of time during which there is scope for significant consumer harm.

And anyway, what Myspace then Facebook, and what Blackberry then iPhone are examples of really is, again, competition for the market and we need that to be faster since, in high-tech, competition for the market is crucial. It’s all the more reason for us to ensure that innovative new entrants are able to compete for this market. Now this has two implications. For ex post antitrust enforcement, it implies the competition authorities need to be alert to the danger of incumbents seeking to a hinder competition for the next set of markets. And that’s a real danger.

Incumbents have an incentive to hinder competition to be the next winner because they have incumbent profits to protect. And one way in which they seek to do this is by leveraging their existing competitive position into adjacent markets in order to reduce the danger of new entry from those adjacent markets. And antitrust can handle that, and has, in a rare few cases. The problem is that it takes too long. This leads to the second implication when considering how to facilitate competition for the market. And that is that governments cannot just play catch up. They need to get ahead of some of the problems. And that leads me to the international consensus about the R word. Regulation.

All the studies over the last year have concluded that some form of regulation is necessary. Furman, Stigler, the CMA study. Many, many words. But also action. Germany, France, and the excellent work in Australia just announced today, which is already getting on with regulation, codes and arbitration. Now, no one is thinking in terms of standard utility style price regulation. That’s a total straw man. Instead, we’re thinking about how to keep markets open so that the competitive rules of the game allow potential competitors to succeed.

And so, in our Furman Report, we proposed codes of practice, norms of competitive conduct on how firms with strategic market status could act with respect to smaller firms and consumers who depend on them. And this getting ahead of problems part has to include a code that changes the defaults. In these markets, hashtag defaults matter. So we need a code to mandate interoperability between services that allows connections, and innovations, and new entry, and spurs innovation in term in turn by the incumbents. And we’re already seeing this in the UK open banking work as a result of a CMA market investigation, which I was honored to be part of.

So how do we build common ground on this kind of ex ante regulatory approach? Well, we need a true dialogue of all interested parties. A true dialogue. Not just barking questions at tech CEOs and not allowing them time to answer, hashtag dialogue matters, because we need to understand their business models, the good, the bad, and the occasionally ugly sides of them, and we need to be able to foresee the likely good and avoid any ugly aspects of our potential regulatory solutions.

So finally, it doesn’t make sense to pretend that a no new regulation world is plausible. A head-in-the-sand-nothing-to-see-here approach runs the risk of getting bad regulation imposed. It’s going to happen. Definitely in Europe. No question. Gatekeeper regulation and new enforcement tools to address structural market problems, even absent dominance. And it’s already happening in Australia and other nations.

So as entertaining as the battle between the chicken littles and the ostriches is, and it is great conference fodder and great TV at congressional hearings, I wish less energy went into that, and more went into the actual regulatory initiatives and engineering that are happening, and every side of the debate can contribute to that. So we can design sensible ex ante regulation that doesn’t chill innovation incentives, but does get ahead of, and thus prevent, the worst abuses of market power. Thank you, Randy.

PICKER:

Wow. That was really interesting. So I wasn’t expecting a full tour of all of the birds that are out there. No mention of American Eagles, which I think are what these four companies are, but we can have a conversation about that.

So here’s what I heard. I heard that the key idea there really is about timing, and about pace, and about the need for a faster tool, and that that tool is not an antitrust tool. Yeah. That’s what I heard. And the regulation that will come and I keep downloading documents from Europe. They come every morning, it seems. I wake up, and I turn on my iPad, and I look at Twitter, and I see what Europe has done. That’s how my day starts.

And I love the fact, Phillip, that you’re hashtagging live as you’re talking. Wow. It shows you how this has affected what we do. And then your confidence about the inevitability of regulation in Europe and, therefore, what we ought to focus on is getting that right. The engineering problem that Bill was talking about earlier. Okay. And I confess I’m reading the CMA report. I’m not done. There’s so much to read. Okay, good. Koren, you’re up next.

Koren WONG-ERVIN:

Right. Thank you, Randy, and thank you to CPI for including me. Thank you, Maureen and Bill. It’s always great to hear you and nice to virtually see you. So I’m a partner at Axinn and we have a number of clients, including Google, that have an interest in the things we’re talking about today, namely in the direction of US antitrust law.

So in reading Maureen and Bill’s statements, the first thing that struck me is how much I share Maureen’s concerns about the legislative proposals that would outright ban certain mergers and create presumptions of illegality for others, including presumptions against vertical restraints despite the empirical literature that has long indicated that they’re generally pro competitive or benign. So I wrote a CPI article earlier this year and I talked about the potential for serious adverse consequences from some of the proposed legislation we’re seeing in the US including the risk of higher prices for consumers and reduced innovation from greater risk of false positives.

The legislation also risks having a chilling effect across the marketplace and deterring otherwise pro competitive conduct. So, even under our existing case by case analysis, we’re bound to have errors in both directions. And I think, particularly, when we’re calling upon the agencies to make predictions about future market realities. But these errors are likely to only be exacerbated under rigid prohibitions that would dispense with our fact specific analysis, which is really needed to determine whether a specific merger is likely to harm or a specific conduct has harmed competition and consumers.

And there’s other practical potential costs as well. So under the proposal to outright ban mergers based on certain market share thresholds, including of nascent competitors, we risk short circuiting the integration of pioneering new technology into existing products what could have otherwise benefited consumers. We also risk harming the startup industry and activities. We can harm potential nascent competitors by depriving them of the significant resources, and know how, and synergies that many inquiring companies bring to the table, which can really result in the success of an acquired product to the benefit of consumers.

I think there’s this real assumption lately that, well, even without the merger and without those resources, the acquired company would have had the same exponential output growth and would have been just as successful in the market. So in my paper from earlier this year, I look at a couple examples of prior DOJ and FTC cases in which the agencies either blocked a merger or they impose conduct remedies based on predictions that the conduct or merger would have entrenched a market leader. And in these few cases I looked at, when you look at the actual evidence of what happened in the marketplace, we really see just how difficult it is to predict these future market realities.

So one example is the FTC’s 2000 decision to block the baby food’s merger between Heinz and the Milnot on the grounds that it would have really resulted in a reduction of competition from three to two. And FTC economists did a very nice retrospective analysis of this and found that, in the eight years following the FTCs decision to block, both concentration and prices significantly increased. Specifically, prices significantly increased for the leading firm, which is Gerber. Now, one possible explanation for this is what the merging parties had predicted, which is that the merger would have created a more efficient second competitor that could have taken on Gerber, the industry leader. So, in other words, the FTC’s decision to block could have deprived the market from the strong number two that could have disciplined prices to the benefit of consumers. Now I’m not saying any of this to criticize the agencies but just to point out the difficulties under our existing standards as they are, and the dangers, and the potential costs of false positives, and how much more so if you have rigid formulas.

So two more points. One I’ll talk briefly about. Market studies and interim measures. So Bill, as always, I always learn so much from you and I enjoyed your statement. I am concerned about your proposal that the US adopt a UK-like market studies approach. Specifically, I’m concerned with the part about conferring upon the agencies the power to impose remedies regardless of whether the conditions or conduct violates the antitrust laws. So I think Maureen talked about this, alluded to this, that this would really risk turning the agencies into regulators. And I think the proposal lacks the necessary limiting principles.

With respect to Phil’s points about we’re not moving fast enough. I know he had some different suggestions, but I know that … Bill’s statement mentioned interim measures. And I think that in the US we already have a robust body of law around equitable relief, including preliminary injunctions and that that’s sufficient. I would be really worried about giving the agencies interim measure powers like some agencies abroad have. That they could impose things absent the necessary procedural safeguards of a court.

So my very last point is about Phil’s points about the proposals for mandatory codes of conduct. So there’s some nice research by Ribstein and Kobayashi, and Bruce, since you’re on, please jump in and correct me if I get this wrong. And, in this research, they look at the costs and benefits of uniform rules or regulations versus preserving a variety of approaches that can really enable competition to supply the applicable standard. And I think this research is instructive for uniform codes of conduct.

One of my concerns is that having a rigid uniform code of conduct could sacrifice the benefits of decentralized decision making, including by individual firms who might otherwise be coming up with very creative and beneficial private ordering solutions. And I think this is particularly the case when you have a situation where there’s not a one size fits all. So as Ribstein and Kobayashi talk about in their research, uniformity may have some benefits, but it can also come at costs, including the difficulties of keeping up with the fast moving technologies and fast moving markets when you don’t know how a particular set of best practices is going to function over time. And so I think that uniformity is generally ill suited to these dynamic markets.

To stay with the Ribstein Kobayashi research. There’s a nice quote. They say the basic problem is that uniformity proceeds by punctuated equilibrium rather than gradual evolution. And so, with gradual evolution, or one of the likely reasons that gradual evolution is more superior to these sort of uniform rigid codes, is that even the best drafters can only draft something with the particular conditions before it in mind. And if it becomes clear that the market has evolved and you need to change these codes, these drafters may not be aware. They may not be aware in time. Or they may decide, coming back to Bill’s point, that they just can’t expend the very limited, scarce resources they have to make the changes.

And the very last point is just that uniform, kind of rigid codes of conduct can really risk sacrificing the experimentation and the variation. So again, coming back to private ordering solutions, it can halt the incentives for many, many companies that might have more collective wisdom than a single drafting committee to come up with solutions that really benefit consumers and competition. And I’ll stop there.

PICKER:

Good, good, good. So here’s what I heard there. So a concern about sort of hardcore prohibitions on mergers. A sense that the agencies often don’t get those right. That predicting the future is hard. I always teach the AOL Time Warner merger in class, and yeah, exactly. Everyone got that one wrong. So we’re a pox on everybody but you go through with the FTC did and you go, “Wow. Really? Okay.” So I understand that.

It sounds like someone at the FTC owes me a check for the baby food markets since I have three children, and it sounds like I’ve overpaid relative to what I should have paid. So I hear all that. Concerns about, as it were, remedies without violations. And that’s how you see the market study idea. And then concerns about regulation and its inability to match sort of decentralized decision making, a substitution of uniformity for variety and the losses that you will get from that. And then sort of an early insight into what, maybe, we’ll hear about next exactly about Bruce Kobayashi’s his work. And so Bruce is up next. And so Bruce will … did Koren get it all right? Maybe even better than she was saying.

Bruce KOBAYASHI:

Well, I always say that I don’t really care as long as you get cited. Right?

PICKER:

Yeah, exactly.

KOBAYASHI:

But, yeah, I think that my work with Larry … we were really talking about Nicusa, which, Randy, I know you’re called something else.

PICKER:

I was for a while.

KOBAYASHI:

But you’re familiar with it.

PICKER:

Yeah. I am.

KOBAYASHI:

And, actually, you were there at Chicago when I gave the paper there. But yeah, I mean, I’ll try and get to … I have lots of handwritten notes on antitrust and regulation and I’ll say, since we’re doing cross citation, antitrust and regulation, go read Carlton and Picker. Right? 2006.

PICKER:

Wow. Okay. Who could be opposed to that? I think, Bruce, I think you’re done. I don’t think you need to say anymore.

KOBAYASHI:

Yeah. I think I’m done. So I’m Bruce Kobayashi. I’m a professor of law at Antonin Scalia Law School at George Mason University. I’m also a affiliate of the Global Antitrust Institute at George Mason University. I actually stay away from the donor side. So look at the New York Times to figure out who our donors are, but I don’t get paid directly by them. And from May, 2018, to Christmas Eve, 2019, I was the director of the Bureau of Economics at the FTC.

So I want to talk about the economic side. And I was an engineer. I got my undergraduate degree as a BS in Economics and System Science. So I really like Bill’s stuff. I always like Bill’s stuff. Bill forgets more about FTC institutions than I’ll ever even come close to knowing, but I want to say a couple of things which really put a point on some of the great frustrations that I had as Bureau director there. First of all, one of the things that you realize once you get to the FTC and.

As once you get to the FTC and … I hadn’t thought about mergers in two decades, but mergers are really what are the bread and butter, it’s sort of like our mandatory jurisdiction. The Hart-Scotts come in, they have the deadlines, you have to staff them. And there’s obviously a lot of growth in Hart-Scott-Rodino over the past couple of years when I was there. And when that happens, something has to give. And what gave at the Bureau of Economics of the FTC, is research. And my whole sort of plan was … When I was at the FTC in the early ’90s, I was in a division, that’s no longer there, called Division of Economic Policy Analysis, and it was a great job. Is the greatest government job that existed, because there were really great people, Paulini Al.

I mean, if you look at the people I work with, I mean, we all got academic jobs, and that’s because we sat there, we didn’t have casework, and we just did research. I mean, I came out of that during my time where it was Epilito and Mafiosi on the claims by cereal companies, and really a lot of good work. I did a lot of FTC stuff. But I really said, “That’s really what I would like to do,” because part of the FTC’s mandate and Maureen ran OPP, but is to provide that expertise and do studies. And it was always a point of pride that the Bureau of Economics at the FTC did a lot of great studies. Including in particular, retrospective analyses that are based on causal designs, and tries to at least identify the effect of whatever you’re looking at, a merger conduct, right?

And so when I got there, what I was presented with was a shrinkage of FTEs, about ten, in sort of the decade preceding my arrival there. And about an equivalent of a five FTE decrease in time billed to research. And it really was sort of a shocking thing to see. Because one thing, and this goes to Bill’s point about us being on the GS scale, one of the things that we used to attract good people to the Bureau of Economics, which even during my time, we were able to do, was that we said, “Look, we’ll give you lots of opportunities to do interesting work, including time to do research.” And when that shrinks and you have to staff two active Hart-Scotts going to litigation at one time, and you don’t have time to work on … You have to do it on nights and weekends, that sort of takes away our main ability to compete on non-price dimensions.

The other thing is that, and we faced this, we had a couple people … Some of the DOJ and the Trust Division’s best economists said they wanted to leave. We actually hired one, and his alternative offer was CFPB, and the differential was … I mean, it was significant. And what we convinced him was that our work was better. I said, “If you want to go and do consumer protection, I can give you that here.” He was an antitrust guy, and I think that at some point, even that will be untenable. The other one went to the Fed, which is also not on the GS scale. So I think Bill’s engineering lesson is that, it’s not just positions, it’s we’re getting noncompetitive with respect to salaries. And if you want people to do good research, you have to be able to recruit pretty high level people.

Why is this important? Well, mission relevant economic research is really the critical input into anyone who wants to do evidence-based antitrust, right? If you don’t have the research and the knowledge, you can’t do evidence-based antitrust, and I’d rather just go back to structural presumptions and simple rules, right? But if you’re going to do the type of evidence based antitrust, that I particularly prefer, then you have to sort of know what you’re doing. That includes if you want to sort of do new presumptions, whether they’re structural presumptions, or new types of bi-object or per se rules, or any type of rulemaking, you have to have a lot of knowledge. And I think that’s one of the things Randy’s … I’m not just gratuitously fighting Halton and Picker, but I think you guys say that antitrust is good at saying no and regulation is good at saying yes. In that in your book?

PICKER:

It’s fair. I mean, obviously it’s a historical dive, particular era, but yeah. Okay.

KOBAYASHI:

And I of course come from George Mason, which is the home of public choice. And so both of them are imperfect, but if you think about ex-ante, and this goes to Phillip’s point, there are things antitrust doesn’t do. We don’t do price regulation. We have a very limited duty to deal because if you create a duty to deal, when it mattered, when it’s binding, you have to have price regulation. And we just don’t have the capacity with generalist judges, and generalist agencies, to sort of do price regulation. We don’t have industry specific knowledge.

So I think, the point about antitrust and regulation is a good one, and there is certainly room. I mean, we had interconnection duties in telecom and that gave us Tricko and NYNEX and a lot of antitrust cases, which are the sort of hallmarks of the limit antitrust movement. But one of the things that I think Randy and Dennis point out in their chapter, in that book, that ’06 book. Is that, yeah, ex-ante, you think about what antitrust and regulation does well and what doesn’t do well, and if you’re doing intelligent design and engineering, then you basically assign various tasks to various forms of regulation, antitrust or sector regulation.

So I think maybe if you want to think about that, that’s the sort of rational way to do it, and you have to take each one with all of its warts. But I think the problem with … and I think what Marina he is pushing back on, is that one of the things evidence-based antitrust did was it sort of tore down a lot of the misguided per se rules that we had. Especially in vertical, but also we de-emphasized the structural presumptions because they probably weren’t that useful. And if you want to put them back, I think we ought to have some evidence, at least some credible causal evidence that that’s going to do some good. And I think what we don’t see is a lot of … There’s a lot of correlative evidence that people have criticized, but not a lot of sort of credible causal evidence that it’s going to be a good idea to do these types of structural presumptions, or sector specific ex-ante regulation that have been posed.

I want to just sort of close on talking about something that I saw in Maureen’s … I, unlike Randy, stay off Twitter as much as possible. Because early in the morning, I just like to be in a better mood. But there was this point about a mandate for a retroactive review process for consummated mergers, and to review all past mega mergers since January, 2000 and as the Bureau Director of the Federal Trade Commission, Congress told us to do a lot of stupid things.

And the reason that I want to talk about it is that the Bureau of Economics is sort of retrospective view. I mean, if you want to look at some great work, look at the FTC hospital program and the retrospectives that went above. I mean that the story, Mike Vita and Dan Hoskin have a great writeup of that, but the DOJ and FTC had lost 11 hospital mergers in a row and they were … The problem was that using a Hogarty test is drawing these really huge geographic markets, and what they did was they did … I think Tim was responsible for it.

And then he said, “Look, we got to figure out what’s going on.” And there were double digit price increases. And that really sort of helped turn things around. The FTC has a recent certificate of public advantage workshop, another thing close to Maureen’s heart, under the state action doctrine. And what the preliminary research that was presented in the workshop was that, these competition displacing laws, that states basically issue certificates of public advantage to … They’re basically allowing anti-competitive mergers.

So one of the things that retrospective studies are a way that we get knowledge. They’re really hard to do. You need the relevant data, you need the data to cover the transaction and before, you also need a control group. And a lot of mega mergers are national, and there’s no control group, there’s no good data. I mean, we were asked to do retrospectives on the PBM mergers, and we were saying, we don’t even know what the left hand side variable is, and what’s the control group. And so a lot of, and I think Maureen, said this, and I want to sort of point it out is that what you’re going to do is you’re going to take very scarce resources and just burn them. And you’re going to produce studies that don’t say anything and don’t contain credible evidence or inferences.

I’m just going to leave that. I’ll have to say that just in the context of, there’s an OIG report, but the problem really isn’t the front guy, the guy who is the CRA, or compass lexicon economist who’s testifying. The problem really is support. And that support that BE can’t do at current resource levels. So it’s another sort of tip of the hat to Bill. And in fact, BE has a lot of internal experts, and sometimes we support them with the consulting firms. And, I think that what people have to do is they have to realize the problem. If you’re going to do litigation, it’s expensive, it’s costly, and it’s resource consuming, and it’s resource intensive. And we don’t have the intensive resources to deal with that. And so as Bill said, if you want to go to the moon, you got to spend the money. Or else you’re going to have people … Or you’re going to have a lot of stuff floating around in space and not coming back. Didn’t say anything about Kobiashi and Rubinstein, but-

PICKER:

We’ll Google and read. Good okay. So here’s what I heard there. And again, very much … And it’s part of what Bill was saying earlier about the resources issue. So, and the way in which as you characterized it, Bruce, the mandatory jurisdiction over mergers just eats up the internal resources. And it’s sort of like a dark hole in which all these other things that could get done, get killed off and sucked into because the budget is restricted in the way that Bill was describing earlier. And you see that coming in a couple of different ways. And again, the point … A little bit again, echoing some of what Bill said earlier about how that changes your ability to keep and hire the people you want to get. Okay. That was one thing I heard.

Two was this balance between antitrust and regulation, which is clearly a big issue today. It’s what part of what Bill was discussion and Dennis and I need to talk about all of that again, in a particular context. The hospital program research, that’s the second time that’s come up in the four weeks. I avoid hospitals. You avoid Twitter, I avoid hospitals, not a good place to go. But I gathered that’s actually a really nice example of a very successful internal research program by the FTC. And again, echoing what Bill was saying, figuring out what the FTC is good at what the FTC is not so good at, is really important. So that’s really interesting. All right. I hadn’t fully appreciated this, but this is what’s going to happen. This is really FTC day. So exactly, we’re going to Pallavi next. Pallavi, go ahead.

Pallavi GUNIGANTI:

Hi. So I am an Attorney Advisor for Commissioner Christine Wilson at the FTC, but the standard disclaimer applies, the views I express today do not necessarily reflect the views of the FTC or of any commissioner. And since I actually enjoy arguments for the sake of argument, I think partly coming from having spent seven years as an antitrust journalist, and you don’t have story unless people disagree, what I say may not even be my views. So hopefully-

PICKER:

Someday, someone is going to come forward and say, “I speak for the FTC, it is just me.” But that is apparently not today. Okay, go ahead.

GUNIGANTI:

You should get the chairman for your next event. So obviously I found both Maureen’s and Bill’s submissions very interesting. One of the main points of course, in which they coincide is that the agencies need more resources. And when I was thinking about, well, this sort of tends to be how everyone in the antitrust community feels, what’s a potential counter-argument to it?

I think that someone might find the idea that you could do antitrust a little more cheaply if we had more presumptions in favor of the agencies, right? That’s one of the … Certainly one of the arguments that I’ve heard. That the amount of money, in particular, they get spent on economic experts and so on, could be a lot lesser if we just tilted the balance toward the agency. I think the problem I see with that beyond the sort of loss of full employment for antitrust economists is that you tend to end up with a lot more unintended consequences when you make such generalized rules and presumptions.

And, Bruce was talking about the hospital merger study, right? That it would have been really nice, probably in the short run for the FTC, if they could have persuaded Congress just to pass a law or change antitrust law in a way that just said, “Look, this is how product markets or geographic markets ought to be drawn,” and they could win more merger cases that way. But I think that in the long run, it was a lot better for antitrust law in general, and even for the particular area of hospital mergers, that they did the hard work of being able to prove to judges, “Look, this is what you’re getting wrong. We’re having prices go off, we’re not getting the quality increases that hospitals have been promising. This is what you’ve been doing wrong.” And then with that, I think you can say the FTC has turned what was a losing streak into a pretty good winning streak, especially in that particular area.

With regard to … I think that Bill had some really interesting suggestions. The one that struck me the most, as I think it was for some of the other panelists, was the idea of the FTC adopting something more like the CMA’s market study. And, I don’t think that anyone would have any issue with … If it were just at the level of a study, right? That’s a lot of what, frankly, the 6B power that the FTC already has, and that it’s using already. I mean, there’s a current 6B study for the four major tech companies that were testifying the other day, plus Microsoft. Microsoft, somehow, usually getting treated like a historical matter, but still a very important tech company. Having the FTC go back and review the mergers that weren’t notified at the time that they were made. And, that’s all happening through the 6B power.

And I think the fact that the FTC comes to those things in a purely study kind of way saying, “We just want to understand what happened here.” Under the American system also makes it more likely that companies will be willing to turn over information, and so that you can do these studies with as much information as possible. I mean, one of the things that was really interesting to me about how the house hearing went the other day is that they then put all of these documents online, and it’s been very interesting reading for a lot of people, and especially for journalists. But there is always that question of how much of a tug of war will you end up with the company about trying to obtain information if they don’t think there’s confidentiality, or if it’s in the form of, “We’re planning to use this against you, that’s our express purpose and asking for this information.”

I mean, it becomes public, it goes onto the FTC website, for example, when companies do try to challenge demands for information. And that does happen occasionally where they feel like it’s excessive. So I think that’s something that we have to think about even just at that level of the market study. And then at the point that we’re saying, “What we’re planning to do once we collect this information is to change how your sector works.” I am not even sure of the term remedies that Bill used for that is exactly right. As other people were saying, I think it is a lot closer to being sector regulation, which is quite different from remedies.

We usually think of remedies as a term that means we’re addressing a particular problem, or misconduct, or problem with the merger. At the point that we’re going to regulation, and I would certainly want people who have been spending more of the past several years practicing law than I have to go into this. But I would think at minimum we would probably run into potential Administrative Procedure Act issues. The FTC would have to, if we did it in the form of rule makings, I think that the FTC would be facing a lot of push back. I mean, you see that for other agencies any time that they’re going to be making significant changes to business models. Which does seem to be part of what people have in mind, if we were going to do this in that form.

For example, the ACCC, what they’ve ordered with regard to requiring large platforms such as Facebook and Google to engage in certain forms of negotiation with news media. If we had that requirement in the US, I’d certainly think that mandating how that’s going to happen would draw a lot of pushback from those companies, almost certainly it would draw court challenges. And I think that’s something that the agencies have to keep in mind to the point that they try to exercise, whether it’s existing powers, trying to look very expansively at its rule making power, or asking Congress to give new powers to do anything like the CMA or other foreign agencies do.

While I definitely think that the US mentality toward litigation is spreading around the world, I don’t think it’s quite achieved that yet. So I don’t think that the kind of level of acceptance that we’ve tended to see in other jurisdictions will necessarily happen in the US if the US tries to engage in a kind of regulation or rule making that we might be seeing from foreign competition authorities.

Some of the other ideas that Bill had in terms of, for example, changing how the FTC hires ALJs. I’m not going to get into that because we have our current ALJ, and we would like for them to keep liking us. In terms of the priorities of congressional oversight, I think those were all good ideas, but I think one of the things that was left out was something that Bruce touched upon, which is pushing the antitrust agencies in their expertise and advocacy roles to ensure that Congress itself, other federal agencies, state legislatures and agencies are fully aware of the anti-competitive effects laws and regulations can have.

For the average person, the barriers to entering a market from those kinds of laws and regulations. I live in DC, and one of my good friends works a lot with people who are returning citizens, people who had been incarcerated, trying to help them start new businesses, trying to help them get jobs. And there’s incredibly onerous paperwork and fees to open a business in DC. There are a lot of jurisdictions that disfavor even allowing people who have criminal records from opening certain kinds of businesses, or being able to hold certain kinds of jobs. There’s, of course, the broader issue of occupational licensing.

For most Americans, these are far more problematic issues with competition then the difficulties of competing with Google, trying to start a vertical search company and having to compete against Google for that. And I think that the agencies can do a lot to help with this. Obviously there are a lot of laws and regulations that are important and necessary for health and safety, and it’s certainly an important balancing. but I think that that should be one of the priorities that Congress should be budgeting for the agency to be able to ensure that that’s not one of the things that ever falls by the wayside, because it is so important to the average person for enabling them to enter the economy.

I think in the absence of that, the US risks falling into the kind of sclerosis that does afflict some European economies that have incredibly high youth unemployment in particular. And it makes it really hard to recover from the kind of economic setbacks that we’re seeing right now with the pandemic. If you don’t ensure that people who want to work and run businesses can readily do so, you have a very hard time restarting your economy. And I think that this kind of change is something that the agencies could be really helpful with.

PICKER:

Okay, good, good. So I heard a number of interesting things there. So one idea is the interrelationship between the structure of decision making and how costly it is to make those decisions, and that there would be ways to economize on the resources going into these cases, if you had a different set of rules for actually making decisions there. So I understood that idea.

The question of studies versus things which are going to lead to regulation, and you identified the 6B process as being purely a study process. And the virtue of that is the way you’re able to, as it were, elicit greater participation from the targets, would that continue in a different regime if they knew that was going to lead to regulation?

And then the closing on the barriers to entering markets for ordinary people, and whether that’s getting enough attention relative to some of what we saw on Wednesday. Okay. That’s great. So we’re going to go to Josh next. Josh is going to be our last set of new comments, and then we’ll circle back to Maureen and Bill to give them a chance to sort of take stock of what’s been said. And my guess is we’re going to be close to being done, but we’ll see Josh you’re up.

Joshua H. SOVEN:

Yeah. Thanks Randy, very much. And thanks to the CPI for inviting me to speak. I’m going to be pretty brief, because I’d certainly like to hear what Bill and Maureen, I’m pretty sure were my former bosses at some point, would like to say.

… sure were my former bosses at some point would like to say. So I work at Wilson Sonsini, I’m an antitrust partner there. My technology companies, including Google, Deutsche Telekom, Grubhub, and others. But once a prosecutor, always a prosecutor. So I spent 14 years at the antitrust agencies, both DOJ and the FTC, and six of those were spent in the group at DOJ that does work in the tech markets. That’s running a bunch of these investigations.

So I’d like to start with my view of the consumer welfare standard as prosecutor, not as a defense lawyer, as a prosecutor, I viewed it as a friend, not a problem. These days it’s sort of described as an impediment to potentially broader and more aggressive and faster antitrust enforcement. I never thought about it that way. From my perspective, my job was to get it right. And then after the decision was to challenge, the the job was to win, the consumer welfare standard helped in both respects.

First with regard to getting it right, I mean, Bruce and Bill and others can correct me, but my view was if the purpose of antitrust is to increase competition and prevent reductions in output, it was really hard to do that without harming consumers in an identifiable way. It is conceptually possible to somehow have the reduction in output isolated to other participants in the market and consumers are unaffected, but that’s a really big lift.

So if it took an electron microscope to try and find some consumer harm, then my perspective, and I think my perspective of my colleagues on both sides of the aisle was maybe there’s not a problem here in the first place. At least one that the antitrust laws are concerned about and we should do nothing. I never thought in any instance, well look here’s the deal, that’s a problem. But I just can’t prove the consumer harm so I’m stuck.

And then when I got to court again, I thought that while the consumer welfare standard was fantastic because it was a pretty narrow target to hit. What I needed to prove was essentially one variable in the regression, that there was going to be a negative output effect with respect to consumers in the form of higher prices, less innovation or decreased services.

And all the other things that the parties wanted to bring to the table as defendants, that was their problem, but nothing I needed to be concerned about nothing the court needed to be concerned about. So when, I guess the critics are the proponents of more aggressive or robust or faster antitrust enforcement say, “We really are missing so many variables.” I’d be careful what you wish for, because if you add a lot more variables, a lot more seats at the table, it actually gets a lot more complicated to investigate the transaction and a lot more complicated to win in court. If all of a sudden you have to deal with issues of inequality, income, distribution, labor, stability of employment and all of the like. Much less sort of balance out the competing interests and competitors who are hardly objective in the process.

So I think the antitrust, the consumer welfare standard is great for enforcement minded people. It’s good for the agencies. And if you take it away, you’re going to cause more problems than you solve both in terms of getting it right. And in terms of the ability of the agencies to win cases.

So second, the other I mean the other alternative sort of put forward by people who said, there’s not enough. Enforcement is basically to say scrap it all. That we don’t need more seats at the table. We don’t need to look at consumer welfare. We just need to look at the format of the conduct. Of the form of the conduct, of the style of the conduct. And we’re done.

In that case. I suppose you can do that, but then you don’t need it antitrust enforcement. Then all the work speaking to consumers and customers goes by the wayside, all that detailed work, trying to analyze what the third parties are doing with respect to entry that goes away. You don’t know those people, all you need to do is stare at the conduct. And I guess you’re done.

So I completely agree. And, or at least I appreciate very much the comments of Bruce and Bill for more resources. If you go that route, it’s not going to be a problem. You’re not going to need any more resources at all, because you just stare at the conduct, stamp the form and you’re finished. And you won’t even see the mergers in the first place because it’ll be a been declared per se illegal.

So again, I would think about, when you pull on the thread of the consumer welfare standard, you’re going to be causing in my view, a lot of unintended consequences that are likely to reduce the effectiveness of antitrust enforcement, not increase it.

So let me speak just a briefly about remedies proposals for reform and the like. I really credit Phillip for saying what he said. There should have been a fifth chair at the hearing yesterday and or I guess the other day, because it would have been really informative. All of these proposals, be it call them bands on self preferencing, limitation on lines of business, you can be in bands on mergers. Regulation is exactly what it is.

In the U S it is taboo to use that term. And so the most aggressive proponents of reform and change and modification, they say, “Oh, no, we’re not regulating. What we’re doing is we’re actually ramping up enforcement. We’re making it easier for the commission to do its job, easier for DOJ to do its job. And instead of four cases a year, you’re going to see 40.” Not a chance.

What you’re doing is you’re regulating the economy. The CMA is quite clear that, that’s what it wants to do. High level officials at DG COMP are quite clear that’s what they want to do. And if you want to have that debate fine, let’s have it in the U S as well. But it is not enforcement. Again, you will not need people at the antitrust agencies are more economists than the like, because their jobs are going to be downsized out of existence.

Instead, you’re going to have some agency that is administering codes of conduct and where the employment is going to come is on my side of the table these days, and the economic consulting side of the table. Because the rent seeking boom, you are going to generate on a global basis is going to produce the biggest demand for competition lawyers and economists, I don’t know, since the Marshall Plan and so on.

On the private side, employment is going to boom, but you’re not going to need much on the government side. Finally, I want to comment, again trying to think about this from all perspectives, I think it’s important to view it as regulatory proposals and not enforcement. I think their regulatory proposals are probably going to be a terrible idea. That there’s no data out there that suggests that’s the way to go. That if you look at economies that have tried that in various guises, the output effects are almost invariably negative.

Philip I hear you on the open banking. We’ll see what happens in the like. I am highly skeptical that that’s going to work. And if you look at the data in the US, in the tech sector, what you’ve seen are massive falling prices, massive increases in choice, massive disruption, massive change, all of which I think has benefited consumers substantially. So with that, Randy CPI, thanks so much really appreciate it. And I’ll stop and turn it back to you now.

PICKER:

Yeah. So good. So I heard a couple things there. It was interesting how they intersected with a number of things we’d already heard. So the consumer welfare standard is almost you say, organizing for cases. And in that sense provides a focus that’s useful, especially in a world in which if we’re concerned, pull out these point about how expensive these proceedings are, the more the capacious to standard, the more open ended, the standard, the more expensive they’re going to be. So I heard that idea.

I also heard that. And then you started to shift this idea that, if we maybe we’re going to solve our budget problem with the agencies, the antitrust agencies, because they’re going to go away, we’re going to have regulation. We’re going to know it when we see it. And a lot of resources will go into a different space. But at least our concerns about whether the antitrust budgets are adequate. Maybe we’ll solve those in an unexpected way yeah, exactly.

The point that this is regulation and people need to be honest about it, I don’t think Philip was not being honest, right? Philip said, “That’s what I’m here to do.” Yeah, exactly. Go ahead. Josh you’re going to say something?

SOVEN:

Yeah, just, no I was being completely sincere.

PICKER:

Yeah, I understood.

SOVEN:

I credit him for doing that. And I think the US debate would benefit from that directive.

PICKER:

Yeah, I completely hear that. Okay, good. So we’re going to go to Maureen and then Bill, and then we are definitely going to be out of time. So Maureen go ahead.

OHLHAUSEN:

Great. Thanks so much, Randy. And I think I neglected to say at the beginning, I’m a partner at Baker Botts.

PICKER:

That’s fine.

OHLHAUSEN:

So that’s what I’m doing now.

PICKER:

Understood.

OHLHAUSEN:

But anyway. So I really appreciate everyone’s discussion and I think it brought up so, so many interesting points. And particularly at the end here, the focus on the fact that these proposals at heart are regulatory proposals. And I think to what end? The thing that we need to ask is to what end? And one of the things that hasn’t been discussed, the dog that hasn’t barked yet, one is why wasn’t the hearing, why isn’t this talking about DOJ? Why is it only focused on FTC with two antitrust enforcement agencies in the US, what’s the reason for that?

And I think the reason is there’s conflict between the two agencies. And I also think it’s the type of deals that the FTC has reviewed. So when we look at that and look at what was the very first hearing that this committee had? Does anybody recall?

PICKER:

I don’t.

OHLHAUSEN:

It was on whether there should be an antitrust immunity for publishers to negotiate collectively with online platforms. And when you heard some of the discussion yesterday, chairman Adler talked about that and calling out specifically the impact, the disruption these entities have had on journalism.

And you look at what the ACCC is doing specifically for that. I think, we need to grapple with that more directly if that’s what we’re trying to do here. Also, when you look at that market for online advertising, the importance of it, like the FTC’s 1-800 Contacts case, talked about the real importance of that type of advertising as a channel. I think that the agency was updating its learning on that appropriately, we’ll see what the appeal does with that.

But when you look at a market where output’s been increasing, there are more players and costs going down. I think we need to say, is that a competition problem? Is that a regulation problem? And if it’s a regulation problem, let’s be honest about that. And I think that, that hasn’t really the debate danced around it. I think at the committee, some people talked about it more directly than others. A lot of it was cast in the, you’re biased in your purchase and things like that.

So ultimately, I mean, I think I really appreciate what everyone is saying in this space, but I think what regulation, but let’s be clear about what that regulation is supposed to be achieving rather than kind of saying antitrust has failed. Hasn’t done its job. We’ve given the FTC, this small budget, we brought a lot of cases. That was always the thing where you only brought easy cases. He would say, “Well, shouldn’t, we direct our efforts to where there’s the most consumer harm, if you have limited resources?”

I mean do studies and try to improve our tools. I’ve always been a proponent of we should always try to be looking to improve our tools to detect any competitive conduct. So I don’t mean to be an ostrich in that regard, but I think that the question is with the resources that have been given and the law and where we’ve been able to detect what is consumer competitive harm? Kind of the idea that only the FTC has been off base kind of bears some scrutiny behind, what are the other factors at play?

PICKER:

Okay, good, good, good. Bill, you’re up.

KOVACIC:

This conversation reminds me of why I wanted to be in this field in the first place 40 years ago.

PICKER:

Yeah, that’s good.

KOVACIC:

And I’m grateful to all of you. I’ve been spending a lot of time in the last few years trying to write about the markets investigation regime. And these are great comments. Thank you for making the current draft a lot better than it was a half hour ago. A couple of thoughts about the MIR regime. One of my motivations is the belief that the section two framework in the US is unduly cramped. And in particular, the concepts developed by the Supreme court to resist the over breadth of private rights of action, now encumber the government.

When you look for example, at the FTCs defeat and the second circuit in Rambus, all of the cases on which the DC circuit were lies, are cases in which the Supreme court expressly said, we are adopting demanding standards, because if we don’t, there’ll be trouble damages.

And the FTC had no luck in Rambus looking at the DC circuit. It was a good panel. I mean, exceptionally good. And it’s very humbling to have your arguments rejected by really good judges and they are, but we had no success saying that these cases you’re relying on were all devices to resist overreaching by the private rights of action, whom you seem to regard as a pirate ship.

We are the hospital ship where the federal trade commission asking for the government, acting for the government. So part of my motivation with assuming that Section 5 of the FTC Act is really not been effective. Isn’t going to grow. The MIR mechanism which uses an adverse effect on competition standard would be an expansion joint to reclaim some of that terrain. That’s my explicit assumption there.

And in a sense, the FTC can do some of that already. It can use 6(b) studies, which of course are subpoenas that’s compulsory process, to build the record. And then it does rulemaking to come up with the regulatory results. So there is another mechanism that the FTC could use to do this, if it chose to.

Another thought on this is that one of the uses of the market investigation regime, not simply studies, but the MIR regime in the UK is to make recommendations to government. So that the function that Pahlavi was referring to that is going to legislators and others regulators in saying, you ought to rethink what you’re doing, or at least look at the stated rationale, compare it to the actual technique taken. Look for over breadth and ask yourself, is it working out the way you wanted? And we have another way to think about it. That is a solution that the MIR mechanism contemplates as well.

I would say that in thinking about this expanded role for the FTC it will force the FTC to confront its structure, especially the concerns about confirmation bias. That the CMA in the UK, it’s very noteworthy, that there are safeguards built into that structure and using this and other powerful tools to eliminate confirmation bias.

And if the FTC is going to go down this path, I think it leads to a question about whether the board should be in the position, not only of launching matters, but of deciding them. And I think for the legitimacy of the agency, there would have to be a change that takes the FTC out of doing both of those functions. And that is if you’re going to borrow the idea from the CMA, I would acknowledge maybe you have to borrow the procedural safeguards too.

And the last spot on this is it… This is related to going back to, I think, an intended role for the FTC that involves a genuine joint venture collaboration with the department of justice, Thurman Arnold for the famous Teaneck hearings in the late thirties, early forties makes a very specific recommendation to the committee when he’s the head of the antitrust division and says, “Give the FTC more money, please. So they can do the research agenda that Bruce was referring to, that we can use to help build better cases. And to do a better job of making recommendations to us, the DOJ about remedies, to be the remedies agency and advisor. Please help them do that. And we will work with them to do this.”

That kind of collaboration doesn’t exist. That would be a, that would be a very useful form of cooperation. That’s something the agencies can do without statutory change. I fear there is such a deeply ingrained culture in history that makes that exceedingly difficult to do, even when new leadership has wanted to do it. But that would be integration by contract it’s accessible and readily available. But the US culture will not really permit it.

Final thought is the FTC does a lot of rulemaking and has done. I noticed that four of us here wearing these glasses, one of the best… Gee, where is everybody? One of the best FTC solutions from the 1970s was the eyeglasses rule. The first eyeglasses rule that changed norms and standards regarding whether or not your physician could give you a copy of your prescription so you can go shop. It set in motion, remarkable changes, not just in price, but innovation and the way the glasses frames are designed.

Ah, that was a trade regulation rule that the FTC carried out. The FTC does lots of regulation. I guess part of the realization is that when it does it, and even if you take the firm and proposal codes, arbitration, and trying to do this, that’s really rulemaking in the US setting. That’s rulemaking. All of the effected parties are going to are going to retain every capable, private advisor, economic consultant, law firm.

And my pitch on salaries and capability is if you’re not able to match them, punch for punch and capability, you lose. And you’re not going to succeed because you’re certain to have a trip to the DC circuit, maybe to the Supreme court and trying to do this.

I don’t want to fight. I don’t want to go to a gunfight with a squirt gun. I want to have the best people from the ground up to keep them. And I think the ostrich metaphor that Phillip referred to before. Our ostrich habit in the United States, when it comes to public administration is, we want the performance of a brand new Mercedes, but we’re not willing to spend more than a Hugo for it. And there’s no other area of our lives in which you can do that.

If you want to spend $5,000 on a Mercedes, you can get one, but it’s 35 years old and the engine been sold off. Yeah, that’s the machine you’re going to get. And my pitch again, if we’re thinking globally, if we’re going to go to the moon is let’s see what happens. If you give a significant public agency, real resources to do it. 10 billion, a billion a year for 10 years, see how it goes, but at least the CFPB 25% boost.

PICKER:

Okay, good. Thank you so much. That was a lively and engaging. I want to thank everyone for participating today. This is the fourth of these. We’ve done the last of these four Fridays in July. I want to thank CPI for jumping on this Sam and Elisa. This has been great. Gary, who’s been the producer and everyone for participating.

PICKER:

I hope everyone’s doing well in these difficult times. It’s so nice to see everyone on the screen and obviously like everyone else, I’m eager to see everyone in person before you know it. Let’s hope we get there. Thank you. See you. Bye. Bye.