The Biden administration’s aggressive approach to antitrust, especially against tech companies, has come into sharper relief with the forthcoming nomination of Columbia Law School Professor Lina Khan to serve on the Federal Trade Commission (FTC). Khan has become one of the leading proponents of reestablishing the glory days of antitrust enforcement power as envisioned by progressives more than a century ago, and her appointment at the FTC would place her in a position to help make some of those goals a reality.
As a reminder, the “consumer welfare” standard that has guided antitrust enforcement for nearly half a century rose out of a consensus among economists and legal scholars across the ideological spectrum that the prior, “rule of reason” standard was unworkably vague. Placing the focus of competition policy on demonstrating that a company’s behavior is causing real harm to consumers brought a much-needed dose of objectivity and predictability in the use of one of the government’s most powerful tools for economic intervention.
Khan’s ascent to prominence stems directly from her boldness in challenging these constraints on antitrust usage head on. In 2017, shortly before earning her law degree from Yale, she published a lengthy legal note entitled “Amazon’s Antitrust Paradox,” that quickly went viral in competition circles and was met with widespread acclaim by progressives. With an obvious swipe at Judge Robert Bork’s influential The Antitrust Paradox, Khan’s paper starts from the premise that the consumer welfare standard is “unequipped to capture the architecture of market power in the modern economy.”
Focusing on prices and economic benefits or harms to individual consumers, in Khan’s view, neglects the possibility that companies might use various techniques like “predatory pricing” (operating at a loss to undercut competitors and force them out of the market) that may allow a company like Amazon to pose a dangerous threat to long-term market competition. Therefore, Khan’s preferred approach “would examine the competitive process itself,” to stop companies from achieving a level of structural market dominance that would cause competitive harms down the line.
The proponents of reverting to this market-structure-focused approach to antitrust essentially assume that prices are not an adequate gauge of competitive harm because consumers cannot be trusted to decide what is best for themselves. Once consumers become accustomed to patronizing a giant company like Amazon, they reason, and their competitors can be marginalized or put out of business, the company can then charge monopoly prices. The conceit of this line of thought is that regulators can effectively predict future economic harms of what they deem to be anti-competitive behavior.
Such a theory ignores the fact that charging exorbitant prices inherently creates a new market opportunity for would-be competitors. It’s for this reason that, barring artificial barriers to competitors entering a marketplace, anti-consumer monopolistic behavior tends not to benefit a company for long. Penalizing companies based on predictions about the effects of their business practices in the future may just as easily stifle competitive innovations that would have benefited consumers as it could protect them from economic harms.
Similarly, Khan’s school of thought emphasizes the need to use antitrust to heavily police not only standard “horizontal” mergers between similar companies in a marketplace, but also “vertical” integration, in which a company acquires or develops replacements for pieces of its own supply chain. As supporters of the consumer welfare approach have pointed out repeatedly, the relatively laissez faire approach to vertical mergers that the FTC has adopted since the Reagan administration was supported by an abundance of evidence that they posed very little risk to consumers.
However, when the FTC altered these vertical merger guidelines to allow for somewhat more scrutiny just last year, both of the current Democrat-appointed commissioners, Rohit Chopra and Rebecca Slaughter dissented, on the basis that the revisions didn’t go far enough. Based on her writing, Khan would presumably agree. Khan would be replacing Chopra, a relatively even ideological trade, which makes the question of who will be appointed to the final, decisive, open position on the commission incredibly important.
The “big is bad” presumption that underlies the renewed progressive antitrust movement of which Khan is among the most prominent voices assumes that market concentration is ipso facto harmful because it grants companies political power. This ideology tends to focus exclusively on the potential negatives of this power, while downplaying the benefits that can accompany economies of scale.
Dispensing with the need to demonstrate objective consumer harm will also enable politicians and bureaucrats, mostly but no longer exclusively on the Left, to use antitrust to pursue their own social agendas. Khan has alluded to this less directly, talking about restoring the “original values of antitrust” which would “require refocusing antitrust analysis on a structural inquiry about process and power.” Her would-be colleague at the FTC, Rebecca Slaughter, has been open about her desire to use antitrust to address social ills such as economic “equity” and systemic racism.
Abandoning the bipartisan consensus that has governed rational competition policy for decades is not likely to end with the short-term goal of reining in largest and most successful companies in the tech sphere. Khan has been exceptionally clear about her desire to pursue an antitrust agenda that effectively erases the data-driven consumer welfare standard, and if confirmed to the FTC she may well have her chance.