Ever since the Chicago School became prevalent, as it remains, to this day, the antitrust community claims to have reached a scientific status – because it is based on supposedly solid economic evidence. By economic evidence, the practitioners mean an efficiency driven assessment, with consumer welfare as its end game. Although everyone has kept paying lip service to quality and innovation, the only game in town has been to model price effects. Which is to say: if there is no evidence of price pressure, the market is faring well, no need to intervene. Free-marketeers paradise: let it be.
Of course, this is not the whole story. Post-Chicago & Harvard knights came to rescue economists – and thus the community – from their own prison. Mostly in Europe, non-price effects, bit by bit, come to be taken into account. And, suddenly, innovation appeared at the forefront.
The great battle was held around a series of high-profile mergers at the seeds and pesticide chemical global industry – Bayer-Monsanto, Dow-Dupont and Singenta-ChemChina – that were announced in a very short timespan. In its assessment of Bayer-Monsanto, the European Commission, with strong help from the Chief-Economist team – then led by Tomaso Valletti – required Bayer to include its seeds and traits research unit in a divestment package.
The consensus that up to then prevailed stated that the object of antitrust analysis ought to be a well-defined, well-established market, built around a concrete product. A product pipeline would still be concrete enough to be included in the assessment – but not a research unit. Almost everyone suggested that the Commission was exploring a speculative path, without a clear-cut theory of harm.
Nevertheless, the Commission upheld its pathbreaking novelty – thus bringing innovation matter-of-factly into the frontstage of antitrust assessment.
Despite its unwelcoming reception by a large part of the antitrust community, the strong link between competition and
innovation is anything but a novelty. Actually, one can say that, at last, Schumpeter’s eight decades old theorizing about that link is now vindicated at the antitrust stages. In one of the most famous economic theory statements, Schumpeter compares price competition to just forcing a door, while innovation as a competition threat would equate to a bombing (p.84, Capitalism, Socialism and Democracy, 1942).
Notice: Schumpeter stated that well before the digital age. So, there’s nothing new under the sun. It’s just antitrust catching up with dynamic efficiencies. Many still believe that, on the grounds of not being able to model or get a precise figure to quantify innovation, antitrust practice should better stick to price effects – but now, as digital is all over the place, theorizing non-price effects is booming.
So far, so good. But – and this is a big but – the new strand of theorists and practioneers, either one calls them hipsters, neo-brandeisians, or otherwise, mostly overshoots the mark. For innovation couples not only with competition – but also with oligopoly. If we follow Schumpeter a little more along next chapter, Monopolistic Practices, he concludes like this:
“It is hence a mistake to base the theory of government regulation of industry on the principle that big business should be made to work as the respective industry would work in perfect competition” (p. 106).
That is: innovation is the drive of competition, and big business – the oligopoly – is its vehicle. That used to hold true back in the 1940s – as Chandler, more than anyone, was able to present: Scale and Scope, his masterpiece, exhibits big business in its grandeur.
If one is at least a bit prone to take into account Schumpeter and Chandler as relevant to antitrust practice, it would be expected that big tech would be more than welcome as a coronation of the innovation drive of the economy – and not its nemesis, as it seems to be most of the time. And now, not only Europe, but the US is also expected to join forces with the enemy – and with China, of all countries – in that holy battle.
Let’s take a step back, into the oligopoly problem. Oligopoly is real-world industrial economics, real world microeconomics – perfect competition, and pure monopoly, for that matter, are just out-worldly, exoteric theory. And in the real world, enforcers have to face the crude reality of a case-by-case analysis. There is no such a thing as a free market nor a one fits all framework. Analysts should build prospective scenarios, based on every piece of information they are able to gather – and ask themselves how would the market under scrutiny behave in the near future, in its various dimensions. Of course, price is an important one – but so are also innovative forces, quality, and other non-price dimensions.
The good news is that this is what enforcers have been doing since long – despite paying lip service to price effects, in practice they have been struggling to apply exactly that strict case-by-case analysis to a handful of high-profile cases around the world. Even better news is that enforcers are now allowed, in the wake of that innovation glamour, to enlarge their toolkit in a more varied and mostly useful fashion.
The conclusion, so far, is twofold. First – big business is not a novelty brought about by information technology: it has always been the main focus of antitrust policy. Second – big business is not bad in itself; quite the opposite, oligopoly is the vehicle of innovation and real world competition.
It seems as if all that fuss about lax enforcement is just due to some misunderstanding. Much ado about nothing?
Of course, it’s of no use to deny that Lina Khan, Tim Wu, and their like do have a point, and a good one. Chicagoian analysis has since long been criticized and now everyone applauds its demise – but, thing is, the US has been lagging behind in updating its tools to tackle a stricter antitrust enforcement. That said, it should be acknowledged that there is no need for a revolution in antitrust practice proper.
Then what is going on after all? In my view, in order to grasp that one needs to take a broader look at global geoeconomics and competition – Europe, US, China. As I see it, we should use Michael Porter’s The Competitive Advantage of Nations as a guide. All over the world, but specially in the US, antitrust goes through waves and evolution. Its engine is not an internal and self-contained device – rather, its movement is driven by broader trends. Though it might scandalize the more conventional practioneers, antitrust should be considered as an industrial policy device.
The US, China, Europe – everyone is trying to put competitive pressure on their companies and foster innovation and productivity. Stricter antitrust enforcement is being used as an additional tool to expose companies to a more challenging internal market, so they might become better prepared for global competition. Of course, the path is not always straightforward – the Commission’s negative approach to the failed Siemens-Alstom merger is an example of the power of a dispassionate technocracy, that reigns at a supranational level over and above the joint claims of Germany and France, the Comission’s main sponsors.
As for antitrust proper, thus, one piece of advice would be not to take that wave too seriously. Let’s enforce in a stricter way – but let’s not throw away the efficiencies created by that same technological wave.
One final word about Brazil. Our antitrust policy is faring well, despite some hindrances here and there. We have been able to build a more skeptical model, so to say – one that relies on our own, fact based approach. Again, in Brazil, as in most jurisdictions, the competitive advantage of the nation should be promoted by other means – antitrust enforcement may not be the solution, but it is far from being the problem.