The perils of excessive discretion: the elusive meaning of unfairness in Section 5 of the FTC Act

Abstract

Section 5 of the Federal Trade Commission (FTC) Act gives the FTC an undefined mandate to prosecute ‘unfair methods of competition’. For nearly 100 years, the FTC has searched tirelessly for the meaning of this amorphous concept. Since 1992, the FTC has continued to define Section 5 through a series of consent decrees. Absent any external constraint, the FTC appears to have broad discretion to define the reach of Section 5 beyond the Sherman Act. This discretion causes uncertainty, which is likely to deter beneficial conduct. It also creates incentives to divert resources from productive to redistributional purposes. The recent FTC investigation of Google illustrates the FTC’s discretion to define the reach of Section 5. This article suggests several reforms, including making Section 5 coterminous with the Sherman Act, or having the FTC issue guidelines that limit Section 5 to conduct that clearly harms consumers through adverse effects on competition, and that would not otherwise fall under the antitrust laws.