Antitrust Brainstorming Board with Joshua Wright

Below, we have provided the full transcript of the interview with Joshua Wright, Professor of Law at George Mason University, recorded on September 24, 2021.

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

Thank you, Prof. Wright, 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?

Joshua WRIGHT:

I think the current antitrust framework largely does work for competition and consumers. The historical arc of antitrust is such that the current framework, usually we think about that as being encompassed by the consumer welfare standard. We took 70, 80 years of trial and error and getting a lot of things wrong to get here. While there are some tweaks in the system, no system is perfect. I think the U.S. system that we’ve adopted over that 70 or 80 years, until we adopted the Consumer Welfare Standard in the late seventies to current, largely works well by deterring anti-competitive behavior while still allowing consumers to benefit from competition that improves their lives.

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

WRIGHT:

Well, they’re largely gone now, right? Recently, with the vertical mergers being withdrawn at least by one agency, no doubt some changes are coming. But I’m happy to talk about what I think both about the guidelines that the FTC rescinded, and also what I think is coming next there. The Global Antitrust Institute, which I’m a part, submitted comments to help shape those guidelines in 2020.

Let me say a couple of things. One, I think it is important that there are vertical merger guidelines. I think that the existing set of guidelines, at least still for now in operation at the DOJ, did a pretty decent job, a good job. Again, not perfect. A good job at laying out, in large part, the way modern antitrust economics thinks about the effects of vertical mergers. I would make some tweaks we put in our comment, things we would’ve done a little differently. For example, I think the vertical merger guidelines could have done a better job laying out what the plaintiff’s burden is to show what the defendant’s burden is, to show sort of a clearer view of who owns what burdens of proof for a vertical merger. But I think in large part, they got the framework right.

I think now that the FTC, at least for the moment, is without guidelines. I was a little bit disappointed by the move. At least not waiting until there was a new set of guidelines to sort of immediately jump in. And the majority statement in the rescission of the guidelines, I think points to more problems, not fewer. One, it gets some of the description of the effects of vertical mergers wrong. It says things like elimination of double marginalization only happens under certain narrow conditions. This is wrong as a matter of sort of bipartisan kind of widespread understanding of how those economic models work.

There’s some sort of obvious errors that make me worry a little bit about the direction they’re going. But maybe the most important thing to worry about, I think in terms of what’s next at the FTC with guidelines, is the biggest objection that appears in that vertical merger majority statement by Chair Khan and her fellow majority commissioners was the statement that there’s no longer, at least in their view, statutorily not inefficiencies defense under Section 7 of the Clayton Act. That’s vertical mergers, horizontal mergers, any case you bring under Section 7. I think they’ll have a hard time convincing courts of that point, but it does suggest that whatever vertical merger guidelines we see next are going to be out of the FTC, and maybe the DOJ will be quite a different animal than we’re used to. I think we’ll be in greater tension with the economics and empirical evidence we have about vertical mergers. And that tension likely will play out in the courts.

Do you approve of the shift from competition towards regulation?

WRIGHT:

Well, it’s still an attempted shift, we’re not there yet. And I don’t think we should go in that direction. I think one of the real advantages of the modern antitrust framework as opposed to regulation is that it gives us a set of tools to figure out across a bright, wide variety of industries whether they’re tech or brick and mortar or manufacturing or what have you. That set of tools is broadly applicable across industries. I think that really is a feature and not a bug. Every once in a while, and with the tech firms now, it is the current sort of flavor of the day for this argument, but it used to be IP, and then it was anything with network effects, and then the software. You can go back to standard oil if you like.

I think there have always been calls to do sort of a one off, special rules for the industry of the day, and I think antitrust is proven over time and is quite capable of being flexible, adopting with new economic learning and empirical knowledge, and sort of up for the task. It must be true that most of the feds and states think that because there are large antitrust suits with 50 states joining and all of the feds joining against virtually every one of these tech companies. I think that they’re filing those suits because they think they can win them. We’ll see, they’ll win some and lose some, presumably. I think that’s the sign of a healthy system, not one that’s broken or needs to be replaced with regulation.

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

WRIGHT:

I’m going to take your question as referring at least to the recent past in light of criticism suggesting that the agencies have been asleep behind the wheel in some way or what have you. I just don’t think the evidence bears that out. I mean, the allegation or at least the argument is that the agencies are asleep behind the wheel and so we ought to see evidence of anti-competitive conduct everywhere. And believe me, economists are looking and trying to publish papers that sort of identify this. You see pockets. For example, I think the work that’s been done by this combination of labor and IO economists, looking at monopsony in labor market, is really, really interesting and suggests that maybe the agencies ought to be looking harder in labor market. I think they are and they’re taking that evidence quite seriously.

I don’t think there’s any doubt that they can get there under the existing law. The law is not a barrier. Priorities shift over time where market power is found in the economy. It sort of moves over time and agencies have to adapt and react. I think the benefit of the current legal system here in the Consumer Welfare Standard is that it lets you do that and it’s proven able to do that over time. So I don’t think the evidence is there to suggest there’s a big problem. I do think that there’s evidence and there’s always places where we can improve.

I would like to see the Criminal Antitrust Program reinvigorated. I think it dropped off a little bit in the last administration. I think there are tweaks that could be made to increase penalties or sort of make price fixing into a criminal activity. Another area where I would like to see sort of more movement is in state actions that are public and local restraints. I think there’s fairly large bipartisan agreement. That source of monopoly power is a really big deal and it affects a lot of people in a lot of different parts of the economy and I would very much like to see more attention paid there. So lots of small tweaks to be made. But if the question is, “Is the system as a whole working?”, I think the answer is absolutely yes.

What are your thoughts regarding start-up acquisitions?

WRIGHT:

We already do. We have Section 7 of the Clayton Act that prohibits anti-competitive acquisitions, and some of those are and some of them aren’t. I think this fault falls into the sort of plea for special rules for narrow bits of conduct and that I think is a little bit of a fool’s gold in terms of antitrust institutions.

We have a set of rules that’s broad and flexible. When new things come up, whether it’s activity in labor markets or whether its startup acquisitions, I think it is sometimes very tempting. Temptation that lots in the political world have succumbed to because we’ve got, I don’t know how many, bills now to deal with startup acquisitions or killer acquisitions or whatever else. The theory of harm and a killer acquisition is, A acquires B, B’s technology was going to compete with A later and they buy it and bury it. We can get to that and have gotten to that under Section 7 of the Clayton Act.

If we adjust the question slightly to say, “Should we pay attention more to them with our existing tools?”, I think the answer is probably yes. It’s a very tricky nuance trade-off, right, that the flip side of the killer acquisition sort of argument is there’s a lot of innovative activity that takes place in the hopes that the invention is acquired by a larger firm with the scale to commercialize and produce and take the thing to market and make some money in the real world and, importantly for antitrust, get the product in the hands of the consumers that will benefit from it. It doesn’t do anybody any good if it stays in the garage. I think this is the trade-off and it’s one I think people in the agency are aware of. You know you don’t want too middle or too little or too much there, and you want to be very careful about diminishing the incentives to innovate in either direction by allowing mergers that sort of quash that innovative activity, or making an impossible to exit if you engage in an activity and dampening incentives.

I think that’s a really important question over which I really do hope, and I think the agency to their credit, has been in the last administration and will continue to both the agencies, the FTC and the DOJ, and academics for that matter, are paying a great amount of attention to and I think that that’s a good thing. But in terms of the legal question, I’m not a fan of special rules for really any antitrust activity. I think the benefit of the broad standard allows us to separate out those good cases from the bad ones and that really ought to be the goal.

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

WRIGHT:

No, and they wouldn’t, is the short answer. The remedy always depends on the theory of harm, right? It depends on what you’re trying to fix. There’s a lot of shouting break-up in a crowded room to see what will happen or it gets a big reaction because it’s the biggest, baddest penalty on the block, right? It’s the capital punishment of the antitrust world and so obviously it gets a lot of attention, and it should. But, break-up is a very specific remedy for a very specific cause of action. For example, you’ve got the FTC’s case against Facebook, which has to do with the WhatsApp and Instagram transactions. The break-up presumably is on the table there. If the FTC can prove its case, you can get a divestiture of those assets to restore competition.

If we want to call that a break-up, that’s fine. I’m skeptical of that case, as well as the judge who granted the initial motion to dismiss. We’ll see what happens sort of down the road in that one. But at least that remedy, if your theory is it was combining those assets that did the competitive harm, well, let’s uncombined them, right? That’s one remedy to be discussed, presumably among others. The other way you could go is say, “Okay, it’s 10 years after the transaction, we probably should have stopped it. We didn’t.” Again, this is presuming the FTC can prove its case, about which I am skeptical. You could say, “Okay. New larger company, it’s too late to break you up, but we’re going to impose some behavioral conditions on you to behave as if you would be separate companies.”

On the other hand, you’ve got cases like the DOJ’s case against Google, right? I have my little phone next to me. That case is about the phone. That case is about paying to be the default search engine with a part. That’s not even an exclusive deal, right? There’s going to be a default, Google and Microsoft and whomever else can compete to be the default. The case has nothing to do with break-up. But if the DOJ wins that case, you get an injunction that says you can’t have that type of contract. I think we sort of shout about break-up a lot. The break-up would probably be harmful there, right? You’d be separating out the scale and combination of assets on Google side that give a bunch of benefits to consumer to fix a problem that has nothing to do with it.

I think the short answer is, I don’t see why. And oftentimes in the cases that plaintiffs have actually brought, whether it’s the Apple, the App Store case, or the Google Search Syndication case, break-up as a remedy really has nothing to do with it. Even the plaintiffs don’t have a story. Throw why the theory of liability would be fixed with a break-up. It’s mostly political figures who dangle break-up. Maybe you could do that congressionally. It’s not going to come out of the cases because I don’t think it’s a remedy for the concerns that people are actually litigating. Like most political fixes to economic problems, I’m doubtful that it would be done surgically and in a way that improves the lives of real people.

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

WRIGHT:

I think the statutory role laid out for both agencies lends itself to that now. I will say agencies face real problems in achieving that mission. I think there are political problems. I think you’ve got a lot of political interest in what the agencies are doing, and sometimes that’s good. The agencies may get a bigger budget, they might be able to challenge more transactions that they think should be challenged.

I can speak mostly about the FTC where I served as commissioner for a while. The budget’s tight. Some of that’s on the FTC. They spent 20% or something like that of their budget on expert witnesses in cases. You can spend your money better. But, it’s hard to cover the whole economy with a budget of $350, $300 million. If you run that across sort of other agencies with smaller missions, the FTC is fairly budget constrained. So some of this political interest might be good. It might get a bigger budget, might be able to hire some lawyers, bring some more cases, do some more studies. I think that is all to the good and would be an example of sort of helpful congressional intervention.

On the other hand, I think some of that political intervention is sort of distracting. It’s shouting about break-up or you know. I think that there are a lot of bills right now that would take antitrust more and put the FTC more in the role of regulator than a law enforcer. In my view, that would be detrimental to the agencies achieving their mission in a way that helps consumers. I think the FTC is in an interesting spot. I think it’s in a spot where it’s being pulled in a lot of directions, some from inside the building, some from outside, and keeping one’s eyes on satisfying consumers and not just political constituents. I think it’s a tough job, but it’s really important to be able to tell. Congress knows sometimes. Because the job at the agency requires it and I hope that the leadership of both agencies will do that.

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

WRIGHT:

That’s a really interesting question. You know, I think there are some places where we already do, indirectly, account for competitiveness in the global marketplace which often includes China just sort of by the normal operation of antitrust tools. If you’re thinking about market power and you’ve got a large firm here, but they’re competing with China every day and the market is global, truly global, our normal antitrust tools are going to capture that in some way. But in the deeper sense that China’s in the business of subsidizing large tech firms or other firms to compete in that global economy and we do less of that where our politicians are talking about breaking up ours, I think it puts us in an interesting place. My sort of overarching view here is that it is not the job of the Federal Trade Commission to take into account political considerations vis-a-vis China or the DOJ and law enforcement capacity.

It is a really important question. This sounds like there’s a lot of punts away from the FTC to other people to solve a hard problem, but I think part of this is about comparative advantage and specialization. The Biden Executive Order has China written all over it in one way or another. For example, there are a lot of things in the Biden Executive Order that are directed at going after, in a variety of ways, U.S. Intellectual Property Rights holders. Just to not paint with too broad a brush, but largely by weakening IP rights for firms here, making it more difficult to get an injunction and so forth. The biggest licensee of those IP Rights in the world is China, right? So whether directly or indirectly, I think decisions about competition and competitiveness with China are being made. I happened to think sort of weakening U.S. firms IP rights largely create a big wealth transfer to China probably is an economic and political mistake. And one that we ought to be thinking about through a competitive lens.

But I don’t think that the day-to-day of the FTC and the DOJ, when they’re making decisions about individual cases here, I think those sorts are largely political and sort of international economic considerations aren’t for us to do. What is for the FTC and DOJ to do is keep our markets as competitive as we can, and I think that it has inter- and national benefits. But turning our FTC commissioners and assistant attorney generals into politicians, I think is largely a mistake.