Tyler Cowen has a new Bloomberg View column on a topic I’ve been thinking about lately. I’ll get into where I differ with Cowen in a minute, but I mostly agree with his conclusion, which is that antitrust law as we normally understand it isn’t going to fix the problems some see in our current markets.
I’ve been holding off on this topic for awhile in the hopes that I could do some more digging to provide a more detailed analysis, but as the iron is now hot, let’s just go with the quick and dirty blog post version.
As Cowen notes, there’s been some clamoring lately for “re-invigorated” antitrust enforcement (if that means anything), including some statements from Hillary Clinton’s campaign. On competition, to me what Clinton is saying sounds like mostly a continuation of what’s already happening, with the possible addition of greater post-merger monitoring of market outcomes. Nonetheless, some of the clamorers seem heartened.
The first word of caution I’d offer Cowen is that if he wants to understand modern antitrust enforcement he shouldn’t start by reading 19th and 20th century cases (although that may be what those seeking “re-invigoration” would recommend). Beginning in the 1980s, an economic revolution came to antitrust enforcement that’s only partially filtered into court decisions. The real action these days is at the agencies, so I’d suggest starting with the both of the last two revisions to the Horizontal Merger Guidelines and 2006 Commentary on them. (The other action is in cartel enforcement, but there’s less essential reading there).
Which is my fundamental disconnect with those seeking stronger antitrust enforcement. If you’ve been paying attention (which, admittedly, few normal people do), the agencies have actually been pretty darn active in recent years in suing to block mergers, negotiating merger remedies and criminally prosecuting cartel conduct. In other words, where the remedies available to antitrust regulators can be effective, the agencies have been active.
Which brings us to the rub. Practically speaking, the remedies available to the agencies are monetary damages (and/or restitution), injunctions against proposed mergers, and criminal fines and jail sentences for cartel conduct. Theoretically a court-ordered breakup of a monopolist is possible as well, but that hasn’t happened since the AT&T case in 1982, and even then with fairly limited success.
Let’s take a look at the sectors that seem to be the source of recent complaints and ask how well those remedies would apply.
Cowen mentions “a small number of hospital chains” in some areas as a problem. Well, one area where the FTC and various state attorneys general have been particularly active is in policing hospital combinations. There are active cases and investigations right now and there will continue to be.
But the issue in health care generally and with hospitals in particular isn’t just mergers. I think it’s a generally recognized fact that the price in the hospital for service X will be higher than the price in an off-hospital provider nearby, suggesting that the hospital by its nature may enjoy some market power (consider whether once you’re at the hospital you’re going to shop around for a cheaper service rather than be done with it). Moreover, the Affordable Care Act arguably encourages provider consolidation in the hopes of achieving cost savings. Should the agencies nonetheless seek to break up hospitals as monopolies? Should they sue hospitals for charging higher prices (which is generally accepted to be legal)?
Maybe the bottom line is that health care policy, especially in our hybrid public/private system, is incredibly complex and cannot be solved by even the most well-meaning of antitrust regulators.
Another area of common annoyance is cable and internet services. Cowen notes that these services are often government-created local monopolies and that deregulation should probably come before an antitrust suit. While I agree, deregulation was only a partial solution for landline phone service, which only saw robust competition when mobile phone services spread. Or maybe it’s like natural gas transmission and the high fixed costs in building infrastructure to connect to everyone’s home means that competition will always be incomplete and substantive regulation is required. Maybe, like phones, we’ll have to wait for satellite, mobile data, or whatever comes next to provide real competition.
Perhaps the biggest source of complaint, and probably the most difficult to deal with, are services on the internet — things like search and social media and payment systems. For each of these, the network effects are obvious and powerful. The more people using one particular provider, the more valuable that service is for each user, because the service gets objectively better. Which means there are powerful, customer-benefiting forces that make it hard for new entrants and, perhaps, hard for there to be more than a few successful players. Should the agencies be suing to break each player into parts? Would that even work? And how can it be done without destroying the value to consumers that results from the network effects?
There used to be a thing called computer reservations systems used in the travel industry. In the days before the internet, travel agents would use these systems to search for airfares and the like. Because these systems were originally developed and owned by the airlines, there were detailed regulations for how search result had to be displayed. Does that sounds like a good way to make the internet work better? It does not to me, but even if it does to you, you really can’t get there using antitrust law. You need a substantive regulator empowered by Congress. The idea should scare you.
I agree with Cowen that our policies on intellectual property need more scrutiny. Our patent system is a mess, granting patents that shouldn’t be granted and costing too much to challenge them. Our copyrights are probably too long too. But again, none of that calls for antitrust enforcement. It calls for Congress to actually function. And, of course, the FTC has actually lead on the issue of “pay for delay” patent settlements.
To sum up, in health care, there are competing policy goals. In cable and internet, there are high fixed costs that act as a barrier to robust competition. On the internet, there’s real consumer value in the network effects that the agencies are rightfully wary to destroy. Intellectual property is its own kettle of fish.
As Cowen says, antitrust isn’t going to fix what’s wrong with the American economy.