Is there an economist in the house?
Under the leadership of new Chair Lina Khan, the Federal Trade Commission (FTC) has been making waves, from the public spats among commissioners at Khan’s first open meeting, and later in testimony before Congress where the FTC pleaded its case for more power and resources. Khan has made clear her ambitions to overhaul the agency’s approach to antitrust, abandoning the consumer welfare standard in favor of what one commissioner called “unchecked regulatory authority on businesses.” The aggressive push for change continued with this week’s open meeting that offered all but five days—including a weekend—for public comment, despite covering such important topics such as changes to the FTC’s rulemaking process and a repeal of the 2020 guidelines for vertical mergers.
The open meeting highlights the agency’s push for greater control over industry, especially Big Tech. In addition to a party line vote to repeal the 2020 vertical merger guidelines, the FTC unveiled a study on mergers by Big Tech that are too small to report. While informative, the study says little about their impact on competition or the benefits or costs to consumers. Nonetheless, Khan suggests stricter oversight of these transactions is important: “I think of serial acquisitions as a Pac-Man strategy. Each individual merger, viewed independently, may not seem to have significant impact. But the collective impact of hundreds of smaller acquisitions can lead to a monopolistic behemoth.”
The confirmation of Lina Khan and her swift ascension to chair was a clear signal that the Biden administration is getting tough on antitrust, a sentiment reaffirmed by the pick of Jonathan Kanter as the Department of Justice’s top antitrust enforcer. Like Khan, he has been an advocate of more aggressive antitrust policies, particularly when it comes to Big Tech. The current administration, it appears, has embraced the neo-Brandeisian approach to antitrust (a.k.a. hipster antitrust), a populist take on antitrust with an aversion to bigness.
Indeed, the FTC chair’s previous academic work and critique of Amazon are considered foundational by the hipster antitrust movement. The new chair also has criticized the economic mindset of the agency, claiming “Antitrust over the last few decades has become dependent on a particular type of economic theory.”
This is a clear reference to the use of the consumer welfare standard to assess questions of competition, which has been the dominant mindset at the FTC dating back to the 1980s. Put simply, economists at the FTC evaluate questions of unfair competition or anticompetitive behavior in terms of harm to consumers. If prices are falling, output is expanding and quality is improving, economists would be hard-pressed to assert that a market requires corrective action.
Hipster antitrust marks a retreat from the consumer welfare standard, reverting to an earlier version of antitrust with an emphasis on protecting competitors rather than competition. Yet those applauding the FTC’s efforts to refashion itself should remember that the earlier, more interventionist agency was not without problems. Over half of its cases were overturned on appeal and it was difficult to find consistency in the agency’s rulings. Concerns over the FTC led Congress to let the agency’s funding lapse—twice. It took President Jimmy Carter’s veto threat to protect the agency from congressional cuts. Even the Washington Post chided the agency, calling it the “national nanny” for its regulatory incursions. Yet it was difficult to identify benefits that justified the agency’s aggressive posture. As economists Robert Crandall and Clifford Winston noted: “Challenging large firms in court is often politically popular, but neither policymakers nor economists have yet to offer compelling evidence of marked consumer gains from antitrust policy toward monopolization.”
Policy shortfalls led both academic economists and economists at the FTC to reconsider their approach to monopoly enforcement. Rather than the politically charged attacks on large corporations that guided agency actions, economists proposed the consumer welfare standard as a more consistent and practical approach to antitrust enforcement. This required rigorous analysis of firms and the markets in which they operated. And while economists may hotly debate issues such as market definition and the nature of competition, the consumer welfare standard provided a framework for such discussions to take place and an empirical metric for making policy decisions.
Thorough analysis of both the economic efficiencies and consumer impact of antitrust policies is required. Economists who study industrial organization understand the importance of empirical analysis. Markets are complex and messy, making it important to assess regulatory interventions carefully. To that end, the FTC should appreciate the role of its staff economists. Rather than abandoning economic analysis, the agency should encourage the robust and rigorous analysis required to understand how particular markets work. Otherwise, the agency is at risk of becoming the “passel of ideologues” that David Stockman once accused them of being.
