Antitrust Agencies Research Articles

What Does Expanding Horizontal Control Mean for Antitrust Enforcement? A Look at Mergers, Partial Ownership, and Joint Ventures

AAI issued a new white paper, “What Does Expanding Horizontal Control Mean for Antitrust Enforcement? A Look at Mergers, Partial Ownership, and Joint Ventures.” The paper is authored by AAI President and economist, Diana Moss. The paper explains that the many mechanisms for expanding horizontal ownership and control of economic resources pose ongoing challenges for merger enforcement. This is readily apparent in markets that have undergone profound structural change from horizontal consolidation and rising concentration over the last several decades, including wireless telecommunications, airlines, hospitals, health insurance, meat processing, and others. Horizontal control is a central concept in industrial organization and frequently encountered concern in antitrust enforcement. For example, the vast majority of all merger transactions challenged by the U.S. Department of Justice (DOJ) Antitrust Division and Federal Trade Commission (FTC) involve some form of horizontal control. Horizontal mergers that completely and permanently eliminate an independent competitor receive the most attention. But other forms of horizontal control that do not completely eliminate a rival—including acquisitions of partial ownership stakes and some joint venture agreements—have no less important implications for competition and consumers. For example, production, marketing, and R&D joint ventures (or “competitor collaborations”) can weaken incentives for parties to the agreement to compete independently. Such arrangements have become more common, as we have seen, for example, in the agricultural biotechnology and pharmaceutical sectors. Rivals’ partial ownership stakes in each other, and private equity and institutional investors that acquire stakes in multiple rivals competing in the same product markets, can also weaken competitive incentives. Private equity buyouts raise broader concerns about the damage left behind in the wake of rapid exits and in raising prices to consumers. Yet there remains little transparency around the role of private equity in the broader landscape of horizontal control. Moreover, research indicates that partial ownership can lessen incentives to compete more than under a monopoly. Meanwhile, there is ongoing debate over whether antitrust can reach to competitive issues raised by institutional investor ownership of stock in rivals in sectors such as airlines and banking. As antitrust enforcers try to keep pace with the many forms of horizontal control and their competitive implications, we see indications of weakening merger enforcement under Section 7 of the Clayton Act. For example, the scales have tipped sharply toward merging parties in merely predicting the pro-competitive effects of their deals, while the government bears a nearly insurmountable burden of proving that a merger will harm competition. Research shows that the benefits of mergers are often speculative and never materialize, leaving consumers with higher prices, lower quality, less innovation. Moreover, data on merger enforcement reveals that the antitrust agencies increasingly seek remedies for problematic mergers, rather than moving to block them or to force their abandonment. Yet we see a growing list of failed merger remedies, leaving consumers with higher prices, lower quality, and less innovation. Given its many faces, ubiquity, and indubitable link to market concentration, it is time to take a fresh look at horizontal control. Analysis in this White Paper reveals troubling issues for antitrust enforcement in light of rising concentration, weakening enforcement, evidence of failed mergers and merger remedies, and growth of the partial ownership model. These takeaways should inform potential antitrust reform proposals and approaches to invigorating merger enforcement and competition policy. The first part of the paper examines the competitive dynamics of different forms of horizontal control. The second part examines major enforcement and policy issues raised by expanding horizontal control and highlights areas of much needed analysis. This includes analyses of failed merger remedies, whether litigated mergers have produced claimed benefits, and how partial ownership acquisitions by private equity firms have affected market concentration. The paper also recommends that the agencies withdraw the “safe harbor” provision for some partial ownership acquisitions in their proposed revisions to the Hart Scott Rodino (HSR) Act filing requirements.

THE FAILING FIRM DEFENSE—AN EQUITY-BASED APPROACH

Abstract The failing firm defense is used to allow a seemingly anti-competitive merger, when one of the parties is a financially distressed firm. The basic argument is that harm to competition will ensue regardless of the merger, while allowing it provides a preferable alternative, maintaining commercial activity and protecting employment. The problem with the failing firm doctrine lies in antitrust enforcement agencies making highly uncertain predictions regarding future states of competition and broadening their discretion to encompass non-competition-related goals. As a result, enforcement agencies are pushed to extremes, succumbing to either type I errors (enjoining mergers that should have been approved) or type II errors (approving mergers that should have been blocked). Legal history suggests that regulators are excessively risk-averse, rarely accepting the failing firm defense. This paper offers a novel approach which minimizes the costs of both types of errors. We argue that rather than merely approve of, or forbid, the merger, antitrust agencies should also consider a third possibility: approval of the merger under the condition that the Government receive a passive equity stake in the merged entity in proportion to the actual post-merger decrease in market competition. The decrease in competition and the subsequent dilution of incumbent equity holders is to be decided ex post facto by comparing the change in an agreed-upon measure before and after the merger, preferably over several time intervals. This approach transforms the ex ante complex and uncertain regulatory decision to a rather simple ex post measurement problem. The proposed solution also deters firms from post-merger exploitation of market power, while allowing the public to be compensated for any harm to competition caused by the merger. All this, while reducing the costs of administrating the regulatory process. Finally, our approach also allows consideration of various stakeholders’ interests beyond direct consumers, that is, employees and creditors of the financially distressed firm, as well as economy-wide interests and the interest of the public at large.

Preventing the Curse of Bigness Through Conglomerate Merger Legislation

The antitrust laws, as they are presently interpreted, are incapable of blocking most of the very largest corporate mergers. They successfully blocked only three of the seventy-eight largest finalized mergers and acquisitions (defined as the acquired firm being valued at more than $10 billion) that occurred between 2015 and 2019. The antitrust laws also would permit the first trillion-dollar corporation, Apple, to merge with the previously third largest corporation, Exxon/Mobil. In fact, today every U.S. corporation could merge until just ten were left—so long as each owned only 10% of every relevant market. Even though the Congresses that enacted the anti-merger laws did so, among other aims, to limit the political power of corporations, today the federal antitrust agencies and courts interpret these laws only in terms of price and other economic effects within discrete markets. Under current merger practice, the enhanced political power of corporations is irrelevant. However, from Senators Elizabeth Warren and Bernie Sanders on the left, to President Trump and many others on the right, there is a renewed interest in using antitrust to control corporate size, structure, and practices. There is popular desire both to prevent large mergers and to break up existing companies, such as Facebook and Google, that achieved their dominant positions in part due to acquisitions. In light of recent developments within most of the political spectrum, this Article proposes model conglomerate merger legislation suitable for our era. This legislation would target every merger that exceeds clearly specified asset thresholds. We are proposing a law that would block every merger in which both firms have assets exceeding $10 billion, unless they spin-off assets so that their increase in size falls below this figure. This threshold would block at most approximately fifteen to twenty-five of the largest mergers each year. This Article undertakes a legal, economic, and political analysis of conglomerate merger legislation. This demonstrates that our proposed legislation would: (1) Produce no significant losses in corporate efficiency; (2) Be clearer and more predictable than the existing anti-merger laws and thus would enhance the rule of law; and (3) Help prevent significant increases in corporate political power and other forms of non-economic power caused by the largest mergers.

Assessing Merger Impacts on Consumer Welfare in a Converging Internet Marketplace

This article identifies substantial flaws in how U.S. government agencies and courts assess merger proposals by ventures operating in the information, communications and entertainment (“ICE”) marketplace. Using current market definitions, consumer impact assessments and economic doctrine, antitrust enforcement agencies may fail to identify the risk of harm to consumers and competition, a so-called false negative. In recent years, the Department of Justice, Federal Communications Commission and Federal Trade Commission, individually and collectively, have assessed the competitive consequences of numerous multi-billion dollar acquisitions and have conditionally approved almost all of them. These agencies appear predisposed to favor deals that involve vertical integration up and down market segments, based on an assumption that short terms consumer welfare gains would exceed any potential competitive harms. The article concludes that reviewing government agencies appear to overemphasize past and current marketplace conditions rather than assess future impacts on consumers and competition. By “fighting the last war,” these agencies fail to identify new risks to consumer welfare, particularly by ventures operating in multiple markets that do not readily fit into the conventional assessment of mutually exclusive vertical and horizontal “food chains.” In an ecosystem where both technologies and markets converge, ventures can appear to offer consumers an incredible value proposition akin to a “free lunch.” A better calibrated, multi-dimensional analysis would identify significant offsetting harms. The article suggests that the narrow fixation on near term impact on consumers and the prices they pay insufficiently assesses the potential for harm, particularly for Internet-based ventures that require no cash payment for service. Government antitrust enforcement agencies compound mistakes in market impact assessment by ignoring how firms finance “free services” through often obscured collection, analysis and sale of consumer data. In light of increasing concentration in the ICE marketplace, through mergers and the impact of converging technologies, surviving ventures can adversely impact both core and now more closely integrated, adjacent markets. The article will examine how and why the FTC approved the acquisition of DoubleClick by Google in 2007, having concluded insignificant competitive harm will occur even as Google quickly grew to dominate nearly all sectors of the ICE advertising marketplace. The article also evaluates whether in conditionally approving Comcast’s acquisition of NBC/Universal the FCC failed to safeguard consumers. Additionally, the article considers whether AT&T, as anticipated by reviewing courts, flowed through to consumers any of the anticipated efficiency gains and cost savings generated by its acquisition of Time Warner. The article concludes that recent and future ICE acquisitions have a much greater likelihood of generating legitimate concerns about competitive and consumer harms, particularly as ICE market becomes ever more concentrated and often dominated by a single firm. The article does not recommend a repudiation of Chicago School antitrust doctrine, but recommends that reviewing agencies and courts calibrate empirical measures of prospective costs and benefits of a proposed merger by identifying short term and longer-term impacts on core and adjacent markets.

Strict(er) Scrutiny: The Impact of Failed Divestitures on U.S. Merger Remedies

Antitrust review of mergers and merger remedies, in particular, have been the topic of much recent conversation both in the legal world and popular political discourse. A recent string of failed divestitures has driven the U.S. antitrust agencies to analyze proposed remedies and proposed divestiture buyers with increasing scrutiny as they seek to avoid similar outcomes. This article details the history of recent divestiture failures and explores how the agencies have adapted their remedy vetting process in response through longer investigations, enhanced focus on particular aspects of buyers’ qualifications, and an increased insistence on up-front buyers, as well as the agencies’ success in persuading courts that proposed divestitures and/or buyers were inadequate in a series of recent litigated merger challenges. Against this backdrop, this article offers practical guidance for merger parties and would-be buyers to navigate the approval process amid the agencies’ heightened sensitivities to the qualifications of divestiture buyers. Finally, it suggests that there is little empirical support for the notion that the most concrete, observable agency responses will reduce the risk of divestiture failures in the future.

The Record of Weak U.S. Merger Enforcement in Big Tech

The term “Big Tech” is often used to describe the five largest multinational online service or computer hardware and software companies: Amazon, Apple, Facebook, Google, and Microsoft. These companies hold five of the top six slots, by market value, for publicly traded firms. The growth of Big Tech over the past three decades is a function of numerous forces. These range from economic phenomena such as network effects and winner-take-all markets, organic growth resulting from innovative business models and technologies, to expansion through a series of acquisitions of smaller, potential, or nascent rivals. While Big Tech has undoubtedly produced benefits, significant concerns have coalesced around it. The growth of Big Tech has created controversy over the companies’ role in our society and raised a suite of competition issues that are attracting attention from Congress and enforcers. These include effects on innovation and market entry; incentives to compete on price and non-price dimensions of competition such as privacy; and the potential for artificial intelligence-driven algorithmic pricing to facilitate coordinated conduct. The debate over the size and alleged dominance of Big Tech companies has promoted wideranging proposals to use the antitrust laws to break them up. But few of these proposals are driven by a methodological, fact-based analysis. Such analysis would explore the strategic competitive abilities and incentives that are specific to different Big Tech business models, how the companies compete in a variety of individual markets and clusters of related markets, and how alleged conduct potentially runs afoul of the U.S. antitrust laws. Breakup proposals therefore “put the cart before the horse” and fail to provide needed support for more vigorous antitrust enforcement and beneficial reform proposals. This American Antitrust Institute (AAI) White Paper offers a fact-based analysis of one important component of a broader assessment of the competitive issues surrounding Big Tech. It focuses on Big Tech’s acquisition of over 720 smaller, potential, and nascent rivals over almost the last three decades. As is typical of M&A activity, only a portion of these transactions were reportable to the U.S. antitrust agencies under the Hart Scott Rodino Act (HSR) federal premerger reporting requirements.8 A closer look at enforcement data for one major Big Tech industry category reveals that while the U.S. Department of Justice (DOJ) and Federal Trade Commission (FTC) appear to have subjected a higher than average number of transactions to more extensive agency investigation, only one deal has been challenged in federal court. It does not come as a surprise therefore that the record of U.S. merger enforcement in an important Big Tech industry category is far lower than the record across all sectors, as defined by the rate of merger challenges in federal court. This statistic warrants further inquiry. This White Paper does not investigate whether serial acquisitions by Big Tech companies have created dominance in certain markets, or if they engage in conduct that violates the antitrust laws. Those questions should be the subject of appropriately framed merger retrospectives and antitrust agency inquiries, including the DOJ’s reported investigation into Google. Rather, the analysis herein explores the various reasons why enforcement might be weaker in Big Tech and the policy implications raised by those explanations. The AAI has provided independent, in-depth legal, economic, and policy analysis of antitrust and competition issues for over 20 years. The organization has been outspoken on the issue of competition in the tech sector through its research, education, and advocacy agenda and initiatives. This White Paper begins with an empirical review of the acquisition history of Big Tech and the U.S. antitrust agencies’ limited record of merger enforcement in a major industry area in which many Big Tech firms operate. It then unpacks the limited merger enforcement record and examines why it can and should be invigorated.

A Bargaining Model v. Reality in FTC v. Qualcomm: A Reply to Kattan & Muris

In a recent article Joe Kattan and Tim Muris (K&M) criticize our article on the predictive power of bargaining models in antitrust, in which we used two recent applications to explore implications for uses of bargaining models in courts and antitrust agencies moving forward. K&M focus exclusively upon one aspect of our prior article: We argued that, as in AT&T/Time Warner, the market realities at issue in FTC v. Qualcomm are inconsistent with the use of Dr. Carl Shapiro’s bargaining model to predict competitive effects in the relevant market. K&M criticize our analysis and invite us to delve more deeply into the record evidence presented at trial, which they argue support the FTC’s case and Dr. Shapiro’s economic analysis. We accept their invitation. We demonstrate K&M’s position that the evidence “supports Shapiro’s testimony overwhelmingly” ignores the sound empirical evidence employed by Dr. Aviv Nevo during trial and has not aged well in light of the internal Apple documents made public in Qualcomm’s Opening Statement following the companies’ decision to settle the case. The documents undermine Apple’s public complaints about Qualcomm, call into question the validity of the underlying theory of harm in the FTC’s case, and directly refute some of the arguments K&M put forth in their critique of our prior article. We also discuss the implications of the newly-public internal Apple documents for the FTC’s case.

Competition Law and Tech - A New Approach

In the past two years, the European Commission and national agencies have concluded investigations into a wide range of tech companies’ practices. Running alongside enforcement activity, there has been a series of public policy debates about the role of technology in society more generally, the architecture of digital platforms, and the rights and interests of users. My remarks here focus on how Google can work with antitrust agencies on issues to do with market power and contestability.

Taming Sherman's Wilderness

There is little doubt that Congress intended economic regulation under the Sherman Act to develop with flexibility — case-by-case, claim-by-claim. Yet, given the unusual level of interpretation the Act requires, the effort to supply the content of its sweeping prohibitions more closely resembles policy formulation than statutory interpretation. The vagueness of the Sherman Act’s text needs a remedy that a century’s worth of judicial gloss has failed to provide. The modernization of our economy demands a modernized antitrust regime, and reliance on the customary techniques of judicial reasoning may now make less sense. The judiciary is certainly apt to reason by way of analogy and precedent, but the regulatory task increasingly demands enlightened, data-driven analysis. The combination of widespread declines in competition, disagreements over fundamental antitrust philosophies, and fresh swells of public and political fervor demand that Congress do what it did in 1890: respond by updating antitrust’s policy making approach. An additional step toward taming the the economic wilds — toward optimizing clarity, predictability, and outcomes — might be to shift the task of interpreting the Sherman Act to an antitrust agency. Yet, even while an agency solution may be viable, there are some drawbacks. Namely, there are constitutional objections to which the Sherman Act may be vulnerable — under separation of powers principles, such as the nondelegation doctrine, as well as void for vagueness principles — especially if an agency delegation were not accompanied by some level of additional textual clarity.

The Perils of Institutional Investors’ Diversification: Defying the Myth

In recent years, the hallmark of institutional investors’ business strategy has been under attack. Theorists have forcefully argued that institutional investors’ diversification harms competition. The theory is that when portfolio firms are cross owned by institutional investors, the firms’ respective managements compete less vigorously than they would have but for cross ownership, to the detriment of product market consumers. Empirical findings bolstering this ostensibly straightforward theory of competitive harm were soon contested by numerous commentators on methodological grounds. But the theory of competitive harm it-self remains unchallenged, and is considered infallible. The federal anti-trust agencies and competition agencies across the Globe have begun to take action against instances of cross ownership based on this uncontested theory, in what has been described as an attack on the entire system of mutual fund holdings. This Article resolves the mismatch between theory and the most recent empirical findings. The Article develops a novel understanding of cross ownership and its effects on portfolio firms’ conduct. It challenges the theory of competitive harm, and shows that institutional investors’ common ownership cannot adversely affect portfolio firms’ competitive conduct. Moreover, the Article shows that cross ownership actually safeguards against competitive harm of the kind en-visioned by the recent literature. The novel theory developed in this Article is not only a solution to a perplexing academic puzzle. Its policy implications are far reaching. The theory reveals that recent enforcement measures against instances of cross ownership are socially harmful. They unduly deny investors the long-acknowledged benefits of diversification and disrupt the functioning of capital markets. These enforcement efforts should be abandoned as swiftly as they were initiated.

Google's Antitrust Woes and Google Shopping (Introduction)

On June 27, 2017, the European Commission, the European Union’s antitrust agency decided to fine Google USD 2.7bn for their abuse of dominance to do with their Google Shopping service. The strangest thing about this fine was not the fact that it happened, it was that the United States’ Federal Trade Commission (FTC), along with the Department of Justice (DOJ) and the Competition Bureau in Canada decided that Google’s conduct not be anticompetitive a few years earlier. Why would these antitrust agencies with similar legislation and goals both come to different conclusions with regards to this case?

Interagency Merger Review in Labor Markets

As empirical evidence of labor market concentration mounts, academics and policymakers have put forward a range of proposals to challenge or reverse its effects on workers’ wages and labor market options. Prominent among these is more aggressive review of the labor market effects of mergers as part of the Department of Justice (DOJ) and the Federal Trade Commission (FTC)’s broader merger review and approval process. This Essay argues for a novel intervention in the labor antitrust debates: because the consumer welfare focus of the antitrust agencies will prioritize consumers over workers when and if they conflict, and because the antitrust agencies lack expertise in labor markets, labor agencies should have concurrent jurisdiction to review and approve mergers that increase employer monopsony power under a “public interest” standard. The Essay makes three original contributions. First, it outlines the limitations of existing proposals for integrating labor market effects into the antitrust agencies’ merger review as a doctrinal and methodological matter. Second, it provides the first overview and evaluation of the range of interagency coordination and policy-sharing between the DOJ/FTC and outside agencies on merger review, including but not limited to the antitrust agencies’ concurrent jurisdiction with the Federal Communications Commission. This overview reveals a more complex picture of antitrust merger review that incorporates a range of standards—including a “public interest” standard—depending on the regulated industry, showing a broader administrative default of mandated expertise in industry-specific antitrust regulation. That default both contextualizes and supports the proposed extension of concurrent jurisdiction to labor agencies in merger reviews with labor market concentration effects. Finally, it provides detailed recommendations for how the labor agencies’ concurrent jurisdiction would operate to integrate their expertise into the evaluation of post-merger labor market effects.

Antitrust Overreach: Undoing Cooperative Standardization in the Digital Economy

Information technology markets in general and wireless communications markets, in particular, rely on standardization mechanisms to develop interoperable devices for data processing, storage, and transmission. From 2G through the emergent 5G standard, wireless communications markets have largely achieved standardization through cooperative multi-firm arrangements that likely outperform the historically dominant alternatives of government monopoly, which is subject to informational deficits and regulatory capture, and private monopoly, which suffers from pricing and other distortions inherent to protected market positions. This cooperative process has successfully relied on three key legal elements: reasonably secure patents, quasi-contractual licensing commitments supplemented by reputation effects, and targeted application of antitrust safeguards against collusion risk. Over approximately the past decade, antitrust agencies and courts in the U.S., Europe and Asia have taken actions that threaten this legal infrastructure by limiting patentees’ ability to seek injunctive relief, adopting rigid understandings of “fair, reasonable and non-discriminatory” licensing principles, and addressing collusion risk among licensors-innovators while overlooking (and even exacerbating) collusion risk among licensees-implementers. These judicial and regulatory interventions in IP licensing markets shift value from firms and economies that specialize in generating innovations to firms and economies that specialize in integrating innovations into end-user products. These entity-level and country-level redistributive effects are illustrated by lobbying activities in the wireless communications markets and antitrust actions against IP licensors in jurisdictions that have substantial net IP deficits and are principally populated by IP licensees. Current antitrust policy promotes producers’ narrow interests in lower input costs while ignoring the broader public interest in preserving the cooperative standardization structures that have supported innovation and commercialization in the digital economy.

Regional Competition Center for Latin America: Antitrust Guidelines for Exchanges of Information Among Competitors

There are a variety of legitimate reasons why competitors may need or simply wish to collaborate. Firms may collaborate in order to finance innovation and improve the quality or variety of their existing products, to develop new and superior products, to expand to new markets, or to improve efficiency and lower costs. The benefits to consumers from these collaborations can be significant, in particular if they are complementary across the parties. But such benefits notwithstanding, these agreements may also lead to competitive harm. The new proposed “Regional Competition Center for Latin America: Antitrust Guidelines for Horizontal Collaborations Among Competitors,” (“Guidelines”), provide general recommendations on how Antitrust Agencies (“Agencies”) in the respective countries may wish to analyze collaborations among competitors under their respective Antitrust Laws. The Guidelines follow best international practices particularly those by the U.S. Federal Trade Commission and the U.S. Department of Justice, as well as those by the European Commission. They advise on a possible analytical framework for businesses to assess the likelihood of an antitrust challenge to a particular collaboration among competitors. The proposed framework is primarily based on legal and economic criteria for analyzing an agreement and the context in which it is established, and it is in no way binding on any of the Agencies. By providing guidance on a general framework that the various jurisdictions may consider in their analyses of these collaborations, these Guidelines hope to contribute to higher transparency and predictability of antitrust assessment of collaborations among competitors. Hence, this report hopes to encourage procompetitive collaborations while deterring anticompetitive ones.

Promoting Competition in Healthcare Enforcement and Policy: Framing an Active Competition Agenda

Promoting Competition in Healthcare Enforcement and Policy: Framing an Active Competition Agenda

How Much Is No Longer A Simple Question – Pricing Algorithms and Antitrust Laws

With the backdrop of increased use of algorithms in doing business, the objective of this paper is examining in-depth the use of one such category of algorithms – pricing algorithms. The scope of this paper is confined to two potential issues associated with the use of pricing algorithms – algorithmic collusion and personalized pricing. Finally, this paper offers solutions that may be used by antitrust agencies in the United States, i.e., the Department of Justice and the Federal Trade Commission, to deal with these issues within the confines of the existing antitrust jurisprudence. Section I of this paper describes what pricing algorithms are, and how they assist with dynamic pricing. The section demonstrates that it is irrefutable that the use of pricing algorithms has improved the competitive landscape by increasing transparency, reducing information asymmetry and improving the allocative efficiency of the market, bringing it closer to the ideal of perfect competition. At the same time, agencies are wary that the use of big data analytics and pricing algorithms could lead to the anti competitive outcomes which both contribute to and are aggravated by concentration of market power. Section II examines the role pricing algorithms play in facilitating in explicit and tacit collusion. The section also concludes that the existing framework of antitrust law would be sufficient while dealing with algorithmic forms of explicit collusion, where an algorithm is used to execute an anti competitive agreement but may not suffice for tackling algorithmic tacit collusion. Further, trying to uncover evidence of anti-competitive agreement and intent may prove challenging as machine learning is an ongoing process and the design of an algorithm can be complicated to decipher. Section III explores the use of algorithms in personalizing pricing. This section notes that while from an economic perspective, personalized pricing fosters static efficiency, it also has the tendency to be used to exploit unsuspecting consumers. Policymakers and antitrust agencies are also concerned about issues of fairness and consumer welfare regarding the use of pricing algorithms. However, given that the unilateral use of a pricing algorithm to set high prices is not an offense under US antitrust laws, agencies are skeptical of prosecuting the use of exploitative personalized pricing. Section IV puts forward some possible solutions. The paper reasons that at this time, rather than making legislative changes, it is essential for the FTC to invest in research into such methods in order to both uncover evidence of anti-competitive agreements and audit algorithms that appear to collude even in the absence of an agreement. Further, this paper argues that FTC may have the locus to investigate exploitative personalized pricing under Section 5 of the FTC Act . Though, the most practical short-term solution seems to be to increase transparency and to put power back into the hands of the consumer.

Antitrust Analysis of Vertical Mergers: Recent Developments and Economic Teachings

The generally well-accepted belief motivating modern antitrust analysis of vertical mergers — i.e., acquisitions that combine companies in different levels of the same supply chain — is that they are generally procompetitive or neutral. That belief is based upon a significant body of empirical evidence. Indeed, as former U.S. Federal Trade Commission (FTC) Bureau of Economics head Francine Lafontaine and Margaret Slade concluded, “[c]onsistent with the large set of efficiency motives for vertical mergers . . . the [empirical] evidence on the consequences of vertical mergers suggests that consumers mostly benefit from mergers that firms undertake voluntarily.” That view of the empirical evidence is consistent with other meta-studies of the empirical evidence by leading industrial organization economists from academia and the U.S. antitrust agencies. Consistent with this evidence, the U.S. antitrust agencies typically have rarely challenged vertical mergers. When they have challenged vertical mergers, they have tended to resolve concerns with narrowly tailored behavioral remedies, such as firewalls to prevent the sharing of rivals’ competitively sensitive information, non-discrimination clauses to eliminate incentives to disfavor rivals, and requirements to supply and/or license competitors. This Article is organized as follows: Section I sets forth the empirical evidence supporting the widespread understanding that vertical integration is generally procompetitive or neutral, and responds to the major critiques of these studies. Section I also discusses typical justifications for vertical integration, namely avoiding the costly and risky processes of forming, administering, and enforcing contracts with independent suppliers and customers. Section II lays out the economic approach to antitrust analysis of vertical mergers, briefly addressing calls for the U.S. antitrust agencies to update their 1984 Non-Horizontal Merger Guidelines. Section III discusses remedies. The final section offers closing thoughts focusing on the relative expertise of agencies and courts as compared to merging parties in evaluating the costs and benefits of vertical integration.

Antitrust Overreach: Undoing Cooperative Standardization in the Digital Economy

Information technology markets in general, and wireless communications markets in particular, rely on standardization mechanisms to develop interoperable devices for rapid and secure data processing, storage and transmission. From 2G through the emergent 5G standard, wireless communications markets have largely achieved standardization through cooperative multi-firm arrangements that likely outperform the historically dominant alternatives of government monopoly, which is subject to informational deficits and regulatory capture, and private monopoly, which suffers from pricing and other distortions inherent to protected market positions. This cooperative process has successfully relied on a mix of reasonably secure patents, quasi-contractual licensing commitments supplemented by reputational discipline, and targeted application of antitrust safeguards against collusion risk. Over approximately the past decade, antitrust agencies and courts have taken actions that threaten this legal infrastructure by limiting patentees’ ability to seek injunctive relief, adopting rigid understandings of the “fair, reasonable and non-discriminatory” licensing commitment, and focusing on collusion risk among licensors-innovators while overlooking (and even exacerbating) collusion risk among licensees-implementers. This incremental erosion of IP and contractual security shifts value from firms and economies that specialize in generating technology inputs to firms and economies that specialize in integrating technology inputs into consumption goods. These entity-level and country-level redistributive effects are illustrated by the origins of the “FRAND” requirement at the onset of the European cellular telephone market and antitrust enforcement actions against IP licensors in jurisdictions that have substantial net IP deficits and are principally populated by firms that operate in the downstream stages of the technology supply chain. The current policy trajectory promotes producers’ and assemblers’ narrow interests in lower input costs while ignoring the broader public interest in preserving the cooperative standardization structures that have supported innovation and commercialization in wireless communications markets.

Taking it to the Limit: Shifting U.S. Antitrust Policy Toward Standards Development

In November 2017, U.S. Assistant Attorney General Makan Delrahim, chief of the Department of Justice (DOJ) Antitrust Division, gave a speech at University of Southern California provocatively entitled “Take it to the Limit: Respecting Innovation Incentives in the Application of Antitrust Law”. In this speech, Mr. Delrahim announced a new DOJ policy approach to the antitrust analysis of collaborative standard setting and standards-development organizations (SDOs) -- the trade associations and other groups in which industry participants cooperate to develop interoperability standards such as Wi-Fi, Bluetooth, 4G and 5G, USB and the like. He explained that the DOJ had “strayed too far” in its focus on single firm conduct concerning standards, particularly the assertion of patents essential to the implementation of standards in technology products (“standards-essential patents” or “SEPs”), and that antitrust authorities should be more concerned with potential collusion by competitors within SDOs (i.e., an apparent shift in doctrinal focus from unilateral conduct under Section 2 of the Sherman Act to concerted action under Section 1 of the Sherman Act). One commentator described the DOJ policy shift announced by Mr. Delrahim as “a 180 degree turn” on SEP issues. The new policy also seems to put the enforcement priorities of the Antitrust Division at odds with those of the other principal U.S. antitrust enforcement agency, the Federal Trade Commission (FTC) and jeopardizes reliance of a long line of DOJ Business Review Letters outlining acceptable approaches to conduct such as forming patent pools. This article analyzes the contours of the emerging divide among U.S. antitrust agencies, as well as reactions to the “Take it to the Limit Speech” by industry, academics and Mr. Delrahim’s subsequent public statements.

Potential Legal Issues in Terminating the ASCAP and BMI Decrees

This paper addresses some of the likely challenges that the DOJ would face should it seek to terminate the ASCAP and BMI consent decrees. In Part I, we provide some background on ASCAP and BMI, the consent decrees, and market structure. In Part II, we discuss how these two decrees have become an important part of the legal scaffolding for licensing music over the past 70 years. Given the important role the decrees have played in mitigating the antitrust risks from ASCAP and BMI while promoting the efficiencies from collective licensing, Part III examines the legal standard the federal court would likely apply in determining whether to terminate the decrees. One problem is that if the ASCAP and BMI consent decrees were terminated, the duopoly would remain, and licensees and consumers would bear the risk of unduly restrictive anticompetitive practices. A second problem is the difficulties the DOJ would likely face in convincing the court that terminating the decrees would benefit the public, given that it reached the opposite conclusion a couple of years ago. Moreover, the concerns the DOJ heard during its review process from licensees, such as Netflix, Pandora, and religious broadcasters, would undercut the argument that the public would somehow benefit from the decrees’ termination. Part IV examines the interplay between competition and regulation. One assumption is that an antitrust agency’s mission to promote competition is in tension with prescriptive government regulation. This is certainly true at times. But at other times, particularly in markets with high transaction costs and dominant players, regulation may be needed to promote competition. So this Part explores how behavioral regulatory decrees, like ones in ASCAP, BMI, and other notable antitrust cases, can actually promote, rather than undermine, competition. If terminating the decrees will harm, rather than help, competition and consumers, what are the alternatives? Part V offers three potential paths going forward.