History has presented us with an opportunity: corporate power is in the ascendency but so too is dissatisfaction with the settlement of corporate capitalism and the inequality of wealth and power that characterizes it. Antitrust is high on the agenda for the 2020 US presidential candidates, the European Commission is building up a strong track record of challenging the tech giants, and in 2018/2019 the Federal Trade Commission held a series of hearings on ‘Competition and Consumer Protection in the 21st Century’, emulating the hearings held by my former professor at Georgetown, the late Robert Pitofsky, when he was FTC Chairman in 1995. Around the world, competition agencies are confronting how to adapt to changing markets, including in the digital space.
But at this moment of reflection, and possible inflection, it is natural that some are resisting the change.1 Conservative scholars argue that the best way for antitrust to serve the public interest is to interfere with free markets as little as possible and to leave the markets to correct themselves. And just like that, we are back to the invisible hand: we should not try to protect workers and suppliers and small independent businesses by actually protecting them. We should trust that, somehow, their interests will be best served by competition, indirectly. Like the gorgon Medusa or a solar eclipse: whatever you do, do not look directly at it.
Antitrust currently does not significantly engage with the concepts of rent, power and externalities. We look at the potential direction in which prices might move – down is good, up is bad – but base this all on assumptions: small firms cooperating with other small firms are assumed to generate harm with no cost savings; big, vertically integrated firms are assumed to generate efficiencies that can be shared with consumers – whether or not they actually are. But focusing solely on the direction of the price avoids talking about the fairness of the price in the first place – whether it reflects any externalities (usually it does not), whether it is excessive, what it shows about the relative power of the parties involved in the transaction – and avoids completely a discussion of the redistribution of rents within transactions and across society.
But it is nonsensical that a framework centred around ‘welfare’ continues to ignore the harms to consumers, society and the planet. Antitrust has real world impacts – the reshaping of the industrial and financial world, with the regulatory stamp of approval, for one – and has the potential to impact a whole range of issues, including inequality, resource security, sustainability, climate change, productivity, wages, democracy, globalization, worker exploitation and the future of local economies. It is absurd to say that there is no room in the analytical framework to take account of these issues when the impacts of mergers, cooperation (or lack of cooperation) and monopoly materialize anyway, and the concomitant accumulation of power and money affects our ability to address them separately in ‘other regulation’.2 Any one of these issues could be incorporated into the definition of anti-competitive harms if we wanted them to be, it is a question of degree and implementation.3 Antitrust may not be the single most proximate factor in relation to these concerns but it is part of the problem, and therefore can be part of the solution. And if antitrust has nothing to say then it will fast recede into irrelevance, replaced by other policies, like industrial policy, which should rightly be its complements.
If we want to impose responsibility on the most powerful, to focus on the biggest companies with the biggest impacts, to start where it really matters, where large pots of money and swathes of resources are currently being diverted to promote the extraction of wealth for the already wealthy and the mass transmission of costs on to society, then power must sit at the heart of our inquiry. Corporate power need not be taken as a fact of life. We can consider afresh the morality, justice, influence, esteem, fitness, capability, competence and agreeability of corporate power in its essence.
Antitrust’s obsession with price means that everything that is not priced – including externalities – currently does not count; whether the positive externalities of sustainability, cooperation and economic democracy, or the negative externalities of pollution and the strain on the social fabric. Even under the consumer welfare standard it is bizarre that we take account of efficiencies that may accrue to consumers, but not externalities ‒ which may even affect the same consumers. As a first step, we can include these other factors – generally labelled diminishingly as ‘non-economic’ or ‘public interest’ concerns – into our analysis of how markets work. Really, why would we not?
And indeed, the law in Europe actually already requires ‒ not just allows but positively requires ‒ consideration of many issues beyond price, including sustainable development, protection and improvement of the environment, social exclusion, social justice, equality, social cohesion, rights of the child, cultural heritage, maintaining high levels of employment, education and human health, as well as technical or economic progress.4 It is a testament to the effectiveness of the Chicago Jedi mind trick that the European neoliberal import of the ‘more economic approach’ has thus far prevailed over the actual text of the EU Treaties.
Externalities can be used as an indicator of power, and vice versa. If a company has market power, there may be externalities that it is able to emit. If we see an industry with large externalities, we may look for sources of power that allow the companies in that industry to continue functioning without a reckoning. The production of externalities itself constitutes a method of unfair competition.5 Saving costs or generating ‘efficiencies’ by using ‘free’ natural resources is, in effect, a way of cheating the economic system. Just as prices can be excessive, so too can social costs. On this view, the preservation of the natural commons – our shared environmental and social resources ‒ should become a legal responsibility of all companies throughout corporate regulation. Within antitrust we currently look at the efficiency of resource exploitation when we could instead be looking at the efficiency of resource preservation.
The biggest change to competition analysis under stakeholder antitrust would be that efficiencies or cost savings, in theory beneficial to consumers, would not necessarily ‘compensate’ for harms to other stakeholders. And we might also accept that not all benefits and harms can be reduced to monetary measures. Prices would remain relevant, not primarily as an indicator of harm to consumers but instead as a gauge of power – the transfer of rents from consumers to producers would be part of the analysis of power.
The stakeholder antitrust that I am arguing for would maintain a healthy scepticism towards the efficiency of big business and an open-mindedness towards pro-social cooperation. Vertical restraints and actions by dominant companies would be scrutinized more closely for potential exclusion or exploitation of competitors and customers, and a broader range of factors would be considered in relation to both horizontal and vertical mergers.6 The entire basis for accepting efficiencies as a justification for corporate conduct would be taken in the context of shareholder value and the tendency of firms operating within that paradigm to funnel profits and cost savings towards shareholders, not consumers or society at large.
There is also a need to level the playing field between the regulator and the regulated. In part, this will be achieved through a reinvigoration of antitrust and any deconcentrating effect this has on industry. But in the meantime, the regulators should be given greater powers of investigation, in recognition of the stark information asymmetry that exists between companies and competition authorities. In the UK, Lord Tyrie, the Chairman of the Competition and Markets Authority, called for just such amendments to UK practice in 2019, including greater powers to impose fines, greater access to evidence, and the power to take action to halt potentially harmful conduct before the full resolution of the case.7
Concurrently with dispersing excess power through reinvigorated enforcement, competition regulators would have a central role in identifying corporate power and prescribing the appropriate response. Stakeholder antitrust would seek to identify power in the broadest sense: market, economic and political power, including the power to inflict social harm. Competition authorities would consider whether conduct by competitors, or frictions in the market, facilitate the accumulation of power or the production of externalities. Even if prevailing market prices are low, there may be grounds for intervention based on the power to extract rents through externalities or the power to avoid or distort regulation – we must remind ourselves that the prices may be low for an objectionable reason.
Under stakeholder antitrust, the competition authority’s infrared goggles would be switched back from ‘price’ mode to ‘power’. Identification of power involves interrogating whether a party has economic power over the conditions of the market – not just price but quality, the path of innovation, industry standards and the architecture of the market ‒ and/or political power to influence how the market is regulated, the regulation of other market actors, the direction of policymaking, the flows of information and the shaping of market truths.
We have ignored power for so long that we are somewhat ill equipped to identify it with precision within antitrust, although Zephyr Teachout and Lina Khan’s taxonomy of power is a useful start.8 The 2018 European Commission guidelines on Significant Market Power in regulated digital markets take an expansive view of the indicia of power – requiring national competition authorities to consider, amongst other things:
These guidelines could act as an initial blueprint for the analysis of market power, and could be applied, with some tweaking, to economic and political power.
Once power is detected, the policy responses will flow from the following questions.
To ensure that the public interest is served by this new, emboldened antitrust, and not merely folded into another technocratic exercise, we must make allowance not just for the inclusion of public interest factors in the technical analysis of power but for the democratization of the process of competition law enforcement as well. With the current focus on price, and an assumption that the welfare of consumers and society could be reduced to that metric, there has been little desire to make the process of investigations more inclusive. That is beginning to change. Nobel-winning economist Jean Tirole, who won the prize in 2014 for his work on market power and regulation, has proposed that we should be incorporating into competition law the principle of ‘participative antitrust’.10 Participation would allow industry to shape regulation, with the competition authorities issuing co-developed guidelines, amenable to real-world testing, iteration and amendment.
As with any such scheme, though, the key is in determining who gets to participate, and as currently outlined the system seems to be ripe for capture by industry participants eager to have a hand in shaping the regulatory regime they are to operate within. Instead, we should be consulting not just the company or companies involved, but also consumers, suppliers, workers, industry representatives, academia and civil society, such as consumer associations, trade unions and environmental NGOs, to increase the relevance and legitimacy of antitrust policy and enforcement action.11
As one scholar notes, the role of the public is not to bring down particular companies but to participate ‘both as complainant, litigant, critic, and catalyst for political change’.12 A democratized system would have greater public oversight and consultation over which cases to bring, and public discussion of negotiated penalties and settlement agreements. This process of consultation is more common in Europe but there is scope there also to improve the level of access and influence for impacted parties. It is much more likely that regulators will have a good understanding of the changing market and competitive dynamics, especially in fast-moving industries, if they can rely on the support and cooperation of a range of stakeholders with diverse stores of industry information and the motivation to assist.
Two of the most common objections to changing the consumer welfare standard are fears that going beyond the strictures of price and neoclassical economics opens antitrust up to politicization and also renders the system impossible to administer.
Before 2002, in the UK, the legal position was that mergers and monopolies were prohibited not if they reduced consumer welfare but if they operated against the ‘public interest’. It was for the competition authorities to recommend enforcement action but the ultimate decision rested with the Secretary of State. This system suffered from unpredictability and political interference, and many practitioners were glad to see the modernization of UK competition law in line with the Chicago approach.
Interestingly, the politicization concern now raised by conservative antitrust thinkers does not tread the usual path of declaring that deep-pocketed corporations will capture the regulatory process. Rather, they argue on behalf of the well-resourced saying that the doors will be opened to all manner of political influence by unions and consumer representatives. This amounts to an objection that the lobbying playing field will be levelled and myriad stakeholder groups will also be able to influence regulators, as big corporates already do now.13 It is also disingenuous: Chicago antitrust, with its preference for hands-off, light-touch regulation and its bias towards big business, is far from apolitical itself. The politics is already baked into the economics. To rebalance power in favour of those typically excluded from political action we must go at least a little out of our way to include them in the process ‒ and to incorporate their concerns into the substance ‒ of antitrust.
Concerns as to the administrability of stakeholder antitrust are also misplaced. The current ease of administering price-based analysis is achieved by systematically favouring big companies, and importing economic assumptions that really should be tested empirically ‒ case by case – into law, rendering the underlying law ineffective. If dealing with diverse public interest issues becomes unwieldy, authorities and legislators can develop bright-line rules to aid with enforcement and compliance with the law.14
This does not mean we should adopt a less ‘economic’ or less ‘scientific’ approach, but it does involve recognizing that antitrust is a tool of both economic and social policy, therefore neoclassical economics and its desocialization of markets and economic actors is bound to fall short. As Robert Pitofsky warned in the late 1970s, ‘it is bad history, bad policy, and bad law to exclude certain political values in interpreting the antitrust laws.’15 Politics, political theory, political economy, sociology, anthropology, economic history, as well as the economics of industrial organization, institutional economics, and a broad church of feminist, ecological, cooperative and other erstwhile ‘heterodox’ branches of economics, should all be relevant to the antitrust inquiry.
More robust enforcement will go some way towards dissipating power but, as we have seen, the shareholder value company by its very design seeks to accumulate power, so it is unlikely that antitrust will ever be able to keep up. There are also some industries which may naturally consolidate – where genuine economies of scale mean that the product is simply much better or cheaper when it is delivered at scale. In these cases, where vigorous antitrust enforcement alone cannot contain power, antitrust should step into the gap left by corporate law to impose responsibility on the most powerful companies to share any residual power that cannot be dispersed. The role of the competition authority would be to identify corporate power and thus to give power to those stakeholders subject to that corporate power.
Under stakeholder antitrust, the mere possession of power would be enough to trigger non-punitive ‘stakeholder remedies’, although the thresholds for triggering this remedy – how much power would have to be proven – will require careful thought and clear guidelines. Punitive fines breaking up companies and forcing companies to sell parts of their business would only be used when stakeholders are unable to exert sufficient influence over the company and where more competition might actually make the situation better.
Stakeholder remedies can be designed to achieve two separate but related aims:
It may, however, be the case that power to do harm sits not with the individual company but with an entire industry. Many authorities are already empowered to look at such problems using what is known as a ‘market study’. The UK is one of only a few countries to have taken this concept further – the UK Competition and Markets Authority is empowered not just to review a whole market or set of interrelated markets but also to enforce remedies.
Do competition authorities have the power to impose these sorts of stakeholder remedies already? Stakeholder remedies should be permissible under existing enforcement powers although, as with other remedies, care must be taken to ensure that they are not used as a way to sugar-coat or greenwash truly harmful conduct: stakeholder remedies would not be a substitute for blocking a merger posing an anti-competitive threat, for example, unless they adequately dealt with all competitive and stakeholder concerns. The authorities must adhere to basic principles of rule of law and proportionality to avoid overreaching their powers.16
The question of whether the courts would uphold remedies going beyond the traditional antitrust enforcement repertoire remains to be seen. But for those who predict a riot amongst companies and investors, it is interesting to note that, for example, Facebook has effectively asked for just this sort of policing itself, in terms of independent, stakeholder oversight, albeit without the regulatory force and accountability of stakeholder antitrust.17 And public companies in the UK are, as of recent reforms, already subject to requirements for employee representation at board level and the consideration of stakeholder interests.18
Stakeholder remedies, imposed as part of an antitrust case, will tend to be behavioural – requiring a change in the conduct of the company. There are a few precedents for stakeholder remedies along these lines. In the US, the Tesoro Corporation/BP PLC transaction in 2013 was approved subject to conditions limiting the ability of the company to lay off workers.19 In 2011, the Federal Communications Commission made its approval of Comcast’s NBCU acquisition conditional upon Comcast’s commitment to subsidize broadband for low-income buyers.20 In the UK, an investigation into the exchange of information between elite, fee-paying schools, begun as a result of whistleblowing by two schoolboys who had hacked into the school computers and uncovered a trail of emails enticingly marked ‘confidential’,21 concluded with a settlement agreement that included the establishment of a £3 million education trust for the benefit of students who may have been affected by the cartel.22 In South Africa, the 2012 acquisition by Walmart of the leading local retailer, Massmart, was approved subject to Walmart reinstating the jobs of 503 people who had been fired just prior to the deal, freezing labour force reductions for two years, and establishing a R200 million (about £15 million) development fund to assist local producers in providing products to Walmart over the course of five years, with semi-annual reporting to the Competition Commission.23
Whilst these examples can be used for inspiration, none go so far as to change the nature of responsibility for powerful companies, as envisaged by stakeholder antitrust.
Behavioural remedies require ongoing monitoring by the regulator, although the burden will be lightened somewhat if stakeholders are given formal rights of oversight and influence within the company. Attempts to regulate companies by national authorities are naturally limited by the restrictions on jurisdictional reach and national sovereignty. These restrictions do not apply to stakeholders or civil society in general. Therefore, empowering stakeholders to pursue accountability through rights, access to information, voice, representation and influence can fill the gaps that occur in the patchwork of national enforcement, in lieu of greater international enforcement.
How much of a difference would stakeholder antitrust make? Companies currently take antitrust seriously because the fining and investigatory powers are extensive, and the possibility of the regulatory agency torpedoing the best-laid commercial plans of ambitious CEOs is ever present. Put simply, antitrust can get in the way of some of the things that shareholder value companies are built to do best: grow, acquire or merge with other companies, and attempt to oust rivals from the market by any means necessary. Modern antitrust represents an appropriate regulatory touch-point through which power and responsibility can be reunited, just as it once was under corporate law.