“Carl Shapiro and Josh Wright Debate Antitrust and Competition Policy” (Two Think Minimum)

“Carl Shapiro and Josh Wright Debate Antitrust and Competition Policy” (Two Think Minimum)

Tom Lenard: Hello, and welcome back to TPI’s podcast Two Think Minimum. It’s Wednesday, June 3rd, 2020, and I’m Tom Lenard, President Emeritus and Senior Fellow at the Technology Policy Institute. I’m joined by Scott Wallsten, TPI’s President and Senior Fellow. And today we’re delighted to have as guests two the nation’s leading experts on antitrust and competition policy, Carl Shapiro and Josh Wright. Carl is Professor of the Graduate School at the Haas School of Business and the Department of Economics at UC Berkeley. And he’s also the Transamerica Professor of Business Strategy Emeritus at the Haas School of Business. Carl was a member of the president’s Council of Economic Advisors during 2011-12. And prior to that, he was Deputy Assistant Attorney General for Economics at the Antitrust Division of the Department of Justice, a position he also held during 1995-96. Josh Wright is a university professor at the Antonin Scalia Law School at George Mason university, where he’s also Executive Director of the Global Antitrust Institute and holds a courtesy appointment in the Department of Economics. He was a Commissioner at the Federal Trade Commission from 2013 to 2015. Welcome to you both. So we’re here to discuss antitrust and competition policy. And during the last few years, antitrust has become a very hot topic. Moving from the confines of technical conferences, ABA conferences, economic conferences, to the front pages. Why do you think that’s happened? Let’s start out with Carl.

Carl Shapiro: Thanks, Tom. Appreciate being here and being included and invited. I think the main reason is that there is generalized view that corporations, especially large corporations, in the United States have come to have excessive political power and their shareholders have grabbed too large a share of the pie, at the expense of workers and consumers. And that this is part of a system that is not working well for many Americans and that those political and social concerns have naturally led us, led many people to look at antitrust, which, going back to the Sherman Act and a hundred years ago, has been, meant to be, and looked to be, a way of reigning in corporate power. And the view in many quarters is that that has not been done adequately in recent decades.

Tom: Josh?

Josh Wright: Yeah, I think I’m largely in agreement on that. I mean, that’s certainly, I think, a popular perception and you’ve seen that perception manifest itself outside of antitrust, Occupy Wall Street and other sorts of movements from time to time. But I certainly think that that’s right. I think an interesting question is why antitrust in particular, and I think Carl incepts some of that, I mean, antitrust is a natural legal institution built for addressing the particular ills of corporate power where we see it, where we see those ills manifested in a way that sort of people grab on to and are politically salient. I think one of the interesting things that’s happened in terms of the antitrust debates is also that I think with public engagement, with respect to what are viewed as ills associated with corporate power a little bit different, right? So my day to day interaction with social media today, for an average consumer, is probably different than the day to day interaction a consumer had with standard oil a hundred or some years ago. And so I think you’ve got more engagement, more salience and politics than there used to be for the same set of issues. And so you get a scope of debate that now includes institutions far outside the normal kind of academia and ABA antitrust lawyers and the like, and in many ways, I think that’s a good thing.

Tom: Well as both of you know, the House Judiciary Committee is conducting an inquiry into the state of antitrust law with particular attention to digital markets, I think a report is, I’m not exactly sure when it’s going to come out. I think it’s expected to come out the summer, maybe as early as this month. And you both have joined with a group of other scholars, economists and lawyers, in submitted comments to the committee, but the tenor of the two sets of comments is quite different. Carl, the comments you joined assert that economic research establishes that market power is now a serious problem, at least partly the result of inadequate antitrust laws and enforcement, and that “any conclusion to the contrary reflects either an incomplete or incorrect understanding of economics and the economic literature from the last several decades.” And the comments that Josh joined disagree and reflect the view that the American economy, including the digital sector, is competitive, innovative, and serves consumers well. So let me start with Carl. Obviously the first question is, do we have a market power problem? And what is the evidence that supports that view?

Carl: Thank you. Yes. So I should say, I think it’s true for Josh as well, I don’t necessarily endorse every single thing that’s said in the statement, but I join the tenor of that statement, otherwise I wouldn’t have signed it. This was sent to the House Judiciary Committee about a month ago. And the key issue there that you’re raising is, that I think is absolutely supported by the evidence, is that market power has been increasing in the United States economy. Then that’s a broad statement. I didn’t mention, is it hospitals? Is it airlines? Is it brewing? Is it telecom? The statement here, it doesn’t get into particular sectors. There’s some emphasis on digital because that’s what the committee’s expressed interest in. But the statement that I endorse is that I think the evidence shows, I think quite clearly, that market power has generally been increasing, if you have the generalize, again, in the United States economy. I don’t think it’s true, particularly in the retail sector, for example. And there are other markets where it’s not true, but as a generalization. And I think there’s a lot of evidence for that. I go through it, in some detail, in a paper I published in the Journal of Economic Perspectives last year. So I cite some of that evidence. The main evidence is, well, first off, what do we mean by market power? Price-cost margins are a good thing to look at. Traditionally industrial organization economists have looked at those margins as one measure of market power. And I don’t mean, not necessarily in a legal antitrust sense, but in an economic sense of having power over price and margins have been increasing, we can argue about the magnitude of that and the variation across sectors. Also profit has been increasing. As a share of GDP profit has been going up and labor share has been going down. And larger firms have been gaining ground, generally, in comparison with smaller firms, and some of that’s due to efficiency, that’s competition in action, but it does imply there’s greater market power. That’s what the evidence shows. So that’s the building block for the view, then, that maybe we need to be more vigilant in antitrust, because market power has been increasing. And I take these statements that Josh signed as disputing that evidence, or at least not agreeing with the way we characterize it.

Scott Wallsten: Before we get Josh’s response, Carl, in 2017, you said similar things, similar evidence of increasing overall concentration in the economy, but at the time you didn’t think that there was an enormous problem. And also that antitrust wasn’t the right way to address political power of companies. You haven’t said anything about political power of companies now except that it’s one of the things motivating a popular interest, but has your thinking on the extent to which market power has increased, have you seen some new trends, even from the time that you looked at in 2017, or is it that you think the trends have gotten worse since you wrote in 2017?

Carl: I think these are a long standing trends and a lot of the evidence that I’m now citing is not from the last year or two, it’s over a longer period of time. So I think when I’m talking about the evidence on market power, it’s not just the last two years. If you’re detecting some difference in tone between what I wrote in 2019 and 17, if we want to go there, I was focusing more in 2017, well I continue to believe that there is a fundamental problem with corruption in Washington, DC, and with excessive political power of large corporations, particularly in the Trump administration. But it’s not just that, it’s Congress as well and broken campaign finance, but I continue to think antitrust should not be directly trying to solve those political problems. It’s the wrong tool. It may indirectly solve them or, solve is too strong, help with those problems. To the extent that we have a more competitive economy, firms have fewer rents to protect and less power or profits to use to protect them. But I’m consistently against using political power as a factor in an antitrust case.

Scott: So, but it’s fair to say that you think that the antitrust issues, market power issues have been systematically getting worse.

Carl: I think it’s a nuance answer actually, Scott, but market power has been increasing, but in some cases that reflects simply the success of large efficient firms. And that’s not a failure of competition. But in other cases, and now we have to get sector by sector, in other cases it is exclusionary conduct where the courts have greatly shrunk the role of the Sherman Act, or it’s mergers, horizontal mergers in particular, where I believe enforcement has been too lax.

Tom: Well, obviously let’s give Josh a chance, but let’s also try to focus a little bit on 

Carl: Let’s not give him a chance [Laughter]

Tom: to focus a little bit on digital sectors of the economy since that’s obviously an interest of ours, of TPI, and it’s also an interest of the House Judiciary Committees, let’s let Josh get a word in.

Josh: Sure, sure. So I think, at least for now, I think Carl and I are going to agree more, more than maybe Carl thinks we are. 

Tom: Well that’s really why we brought you together.

Josh: Right. Well, we’ll find something to fight about I’m sure. But I think in Carl’s answer, we sort of hit on something that I want to sort of air out as an important thing to distinguish, right? Because the letter they submitted said something like, and I don’t think Carl thinks this, but if he does, he can say it here, says, anybody who disagrees with this doesn’t understand economics or something like that.

Tom: That’s the quote I read, yeah.

Josh: I disagree. And so maybe I don’t understand economics. I think Carl does. And I think we disagree here, but I think one of the disagreements was tucked into Carl’s answer and I sort of want to pull it out, cause I think it’s important. So the way that economists think about market power in terms of increasing markups or something like that, and that can happen for a lot of different reasons and some have antitrust implications and some don’t. Economists are really, I think, a mixed bag in the nomenclature they use to talk about distinguishing these concepts of the way economists think about market power, price greater than marginal cost, and monopoly power, ability to sort of change market conditions. Right? So that’s a distinction. So I don’t have, I don’t dispute the evidence that are increasing markups over time, for example. Right. I think that’s a real thing. I don’t dispute that evidence at all. I do think that some of the really interesting stylized facts that are emerging out of the papers that are coming up now, and not all of them find this, but just to kind of pinpoint where I think some of the policy debate happens, is you get some that show increases in broad sector level concentration, but decreases in local product market concentration and increases a markups at the same time. Right? And that can be for different reasons, right? That can be large efficient firms winning. It can be antitrust problems too. But I think that is sort of where the rubber hits the road in terms of the policy debate. And that does read on digital markets too. And we see sort of big firms and big markups, but I think it’s important some of the policy responses to that evidence. And this is for sure not Carl’s, but some of the signatories to that letter, the policy responses have been let’s react to the concentration data, the sector level concentration data, and revive the 1968 merger guidelines and do bright line rules about size. This is not something I endorse. I don’t think it’s something Carl would endorse, but some of the policy areas in that space, big is bad in its own right. Let’s throw out the nuance between any discussion we want to have about what reasons markups may increase or reasons concentration may increase. And some of them are antitrust issues and some of are not. Throw them out, competition we’ll measure with the number of firms on our fingers and that’s it. Antitrust is built, when done right, on playing in that nuance. Well, there are multiple reasons why you might have concentration go up or markups go up or what have you, let’s try to distinguish them. I think a lot of the current push to change modern antitrust isn’t to add more nuance it’s to take nuance out and use proxies like firm size to get out of analyzing things on a case by case issue. And I think largely the tone of the letter that I signed on to was, a lot of these ideas about presumptions based on size, and there’s pending legislation to do sort of exactly that, are about reading out some of that nuance and economic analysis. And I don’t think that’s a good direction for antitrust institutions to head in, in digital markets or otherwise. That doesn’t mean that in some of these markets there aren’t real antitrust problems. There are and there can be. Our minds can hold more than one idea at once. So it can have large firms that are growing. You’re going to have increasing markups. They can be for efficiency reasons in general, but firms can also commit antitrust violations. Maybe that was five ideas at once. But all of that can be true. And I guess what my core belief is that the modern antitrust institutions, while imperfect in lots of ways, and some ways with not enough enforcement and in some ways with too much in my view, are capable of addressing those problems.

Carl: But there’s a fundamental difference, I think, that it’s worth people understanding here between our two positions Josh. I am calling for, and I’m not alone, stronger antitrust enforcement then we have had over the past 10, 20 years and you are not, you have stood for weaker antitrust enforcement. And my view is that the evidence, that I think you don’t dispute in any way, I think, in any event it’s clear, of large firms taking a larger share of the economy for whatever reason, entry barriers being high, scale economies, network effects becoming stronger. And the margins being higher, and the profits being higher imply we should have a stricter role in horizontal merger enforcement, particularly when one looks at the merger retrospective evidence that there’ve been problems associated with the number of mergers that were allowed to go through. I don’t think you take that view and certainly on the exclusionary conduct, you’ve been a voice for pulling back from enforcement, such as your decision in McWane.

Josh: I think that’s a fair characterization except a couple of things. So I sort of frame the discussion my way instead of letting you do it for me.

Scott: You have to say the same thing, but just with a more positive tone now. [Laughter]

Josh: So, stronger versus weaker as a framing, I won’t endorse because it adopts the presumption that more is always better and that’s not a view that I share. I have called for more criminal enforcement, vocally, for a long time. So it’s not always less,

Carl: But even that is just for individuals, not for corporations.

Josh: Excuse me?

Carl: I thought that you want the individuals to pay the price, but not the companies.

Josh: You should go back and read the paper.

Carl: Is that not true?

Josh: That’s not true. It says holding constant corporate penalties after they had been increased and also increasing individual liability, so adding individual liability to the current corporate fines.

Tom: So your letter, Carl, the one you signed on to, as you just said, points to overly lenient antitrust rules and I guess enforcement with respect to both mergers and monopolization as having contributed to the market power problem. So let’s take each of these in turn. Let’s start with mergers. First I’ll give you an easy question, hopefully you can all agree on. Do you support a moratorium on acquisitions in the tech sector as proposed by Chairman Cicilline?

Carl: I do not.

Tom: An absolute you do not. Josh, do I need ask that?

Josh: I also do not.

Tom: Okay. So the question is, are we allowing too many mergers and of horizontal and vertical? And the question is, so Carl, I take it, you think we are allowing too many mergers and the question is, how should the standard be changed, if you think it should be changed?

Carl: Just to put it in context, what I’m talking about in, the most recent Hart-Scott-Rodino report, from the agency’s fiscal 2018, there were 2,111 deals reported, 45 second requests and a few dozen challenges. Okay. So the vast majority of deals go through without a second request and so forth. And when I talk about stricter horizontal merger enforcement, I’m talking about moving in a direction towards blocking more deals or challenging more deals or fixing more deals, not a moratorium on all 2000, whatever the current number would be. It’s selectively moving in that direction. So yes, that’s what I think we should be doing now, including by reinvigorating the structural presumption, that deals that substantially increase concentration, then it would be harder to rebut that for defendants, for merging companies.

Josh: This has always been, maybe this will take us into the weeds of the structural presumption debate we don’t want to do here, but I will say the following. I obviously disagree with the premise, but if what we want to do is, let’s say Carl’s right…

Carl: What premise, I just didn’t know, which premise…

Josh: That there are a large number of anti-competitive deals that go through and we can talk about the Kwoka, the retrospective evidence, if you want. I mean, not much of it is post 2000. I think there are seven deals in the Kwoka thing that are post 2000 and I would recommend readers go check out Mike Vita’s response to it, which I think is fairly good in pointing out what that shows and doesn’t show. But the premise, Carl, that I meant was that there are lots of anti-competitive mergers going through, that are being allowed to pass. But even if we were to accept that, I’m not convinced on the evidence, I’m all for doing more retrospectives and doing them in a serious way, comparing agency predictions to the outcomes, which I think also will get us a better information about agency performance and where we’re drawing the line than some of what we’re currently doing, which is something a lot of people have called for. And I think the agencies have always been fairly reluctant to provide that information for some risk aversion, policy setting reasons within the agencies, but even accepting the premise as true, the structural presumption seems to me a weird way to go about it. So the PNB Supreme court precedent says, post-merger share over 30, you flip the burden, right? Most courts take that 30 to be an actual strict rule. Some take it to be a vague instruction, that when concentration gets high, you flip the burden. But I think two thirds, three quarters, take the 30% as literal. One court case, one federal court case, under the Clayton Act, in the history of Clayton Act jurisprudence, has a case successfully been defended, one horizontal section seven case, has successfully been defended on the grounds of an efficiency defense, whenever. Heinz was, but it was reversed on appeal. So one has successfully defended. I’m not sure how much stronger you want to make the thing. I mean, up until a year ago, no firm had ever won in a section seven case on an efficiency defense. And all of the plaintiffs needs to do to flip the burden to the defendant is show a post-merger share at 30%. My own view, whatever one thinks about the retrospective data, think about what that presumption is saying. Conditional on observing a post-merger share of 30, I believe that the probability a merger is anti-competitive is greater than 50%. That’s the legal proposition in PNB. I do not believe that to be true. I don’t believe the economic evidence supports it. I don’t know why we would want to emblazon a legal presumption that in economics we know isn’t right or consistent with the evidence. I think what ought to happen is agencies, when they think there are anti-competitive mergers, ought to go to court and litigate. They win a lot of merger cases, they lose some merger cases, that the win rate’s not a hundred percent shouldn’t give anybody heartburn. That’s what happens in the development of case law. And if we need to give the agencies more budget to go challenge more cases and go into section seven and do it the right way, and in my view, the right way is without a presumption, in this particular context, then expand their budgets. But it strikes me as a presumption where so far only one set of merging parties has ever prevailed in federal court. I don’t know how much stronger you want to make the thing.

Carl: I guess I would factually dispute what you just said, Josh. It seems to me, there are quite a few cases where an entry defense…

Josh: The proposition was an efficiency defense. And there is one.

Carl well, that wasn’t my proposition. I was talking about the structural presumption and there are different ways to rebut it, not just efficiencies.

Josh: Yeah, we agree people win, win on entry. For sure. For sure.

Carl: Yeah. So entry is a good example where defendants have often won, even when it was a highly concentrating merger. I just testified, what six months ago, in the T-Mobile/Sprint merger, which the New York and California, and about a dozen other states challenged and lost that challenge. The judge ruled in favor of the defense.

Josh: That’s the one.

Carl: That’s an excellent example of how the antitrust law is in a bad place, four to three merger. And in that case, I would say, Josh, the defense prevailed on a combination of factors, efficiency, entry/fix, which is Dish, and allegedly weakness or arguments about weakness of Sprint, the acquired company. So that’s another dimension. So, this was in my view, did not honor the structural presumption, what the judge did in that case. And it’s a good example of where I think we need to strengthen.

Josh: In what way did it not? I mean, the structural presumptions always been rebuttable, presumably a win rate of less than a hundred percent in litigated merger cases is still honoring the presumption. Like sometimes defendants have evidence too, and judges, I don’t want to debate the particular, I mean, judges get stuff right, they get it wrong sometimes. But the overall record is the agency goes to court in section seven cases and they win a lot more than they lose.

Carl: We were talking about overall win rates. And I’m talking about a case that I testified in, that I know in detail, that is an example of where I think the structural presumption did not carry much weight with Judge Marrero.

Josh: But you’re talking about changing the law for all cases, right? And not just one, right? We can look back and say, one’s an error or not an error, but the propositions that are in those letters wouldn’t apply to one case, right? So I think why I’m talking about win rates is the proposed changes would apply to the universe. And so I’m looking at the universe, that seems fair to me.

Carl: And I’m giving an example of how things are not in a good place, so we need to make changes. And you want, any given example, you don’t want to talk about it, so you want to reject it. So what I mean by not honoring the structural presumption, type of evidence that the judge accepted to rebut the presumption is in my view should not be sufficient. And it becomes a legal question. How do we change the law? Of course, Congress could do that. I’m not too hopeful that the courts are going to make changes. They move very, very slowly with the common law tradition, which is understandable and probably a good thing. That’s why it seems like now we need legislation, because the courts have been going in the wrong direction for decades.

Scott: Let me ask about the future where, by definition, nobody could be right or wrong.

Carl: Yet.

Scott: Probably the government is going to be bringing a big antitrust case against Google, and maybe more, this summer. Obviously, we don’t know the details, mostly, is that a case they should be pursuing? And I know it’s hard to answer without knowing exactly what case it is they are pursuing. But what are your thoughts on Google?

Josh: I think it’s impossible to answer without knowing. I mean, you gotta read the complaint to see what’s in it, right? It’s hard to tell until you see the complaints. That’s not just hard. It’s impossible. To evaluate the merits, anyway.

Tom: Let me ask you, before we go on to the monopolization issue, which I obviously want to do, let me just ask another merger related question because it’s something that comes up a lot in terms of potential policy changes, is the ability to challenge mergers, acquisitions of potential competitors, firms that are not in the same market, that are not actual competitors at the time, but some people think that they would be competitors, if they remained independent firms. What do you guys think of that? And that I think would be a fairly significant change from the current way things are done. What do you guys think of that?

Carl: Well, I favor being tougher in this area, for whether it’s the agencies or the courts, so let’s say antitrust being tougher in this area, but what am I saying in the same breath, it’s a tricky area and the reason it’s tricky is you have, to take the tech area. You could look at the acquisitions that the big tech companies have made over the last 10 or 15 years, people have, and you could say, oh, you know, should Google not have bought YouTube or doubleclick back when? Or you could do something with Facebook or Amazon. And maybe there are particular deals that we think were anticompetitive, okay. I don’t I want to get into the specifics, but there are a lot of deals that are complimentary, that these companies acquire and they put in resources and they grow things. And so I think it’s kind of an approach of saying, oh, a big tech company shouldn’t be able to buy anybody because they’ve got all this power already. I wouldn’t support that type of ban. And then in general, it’s so hard to tell sometimes whether the companies will end up competing in the future. The FTC just was looking at a merger in DNA sequencing equipment area. It’s a company called Illumina. It was buying a company called Pacific biosciences. I was the FTC’s expert in that case. And in the quest to keep facial questions, would they really be competing a lot in the future as they develop DNA sequencing machines. And so I think it’s very hard to predict where technology will go. When I say we should be tougher, I think if you have indications that companies are competing some or on a path they’re likely to converge, and if the acquiring company or either of the companies has substantial market power, or even a dominant position, I think we should be very skeptical of those mergers and really require the companies to show widely efficiencies and I think the law more now is more in the safe, well, the plaintiff, the government has to show they really are very likely to compete in the near future and there are no other firms who are also likely to challenge the dominant firm, and that’s a very demanding standard. I think the standards are too high, but I’m saying it’s also a tricky area because it’s so hard to predict where future technology will go. 

Josh: The FTC win that one Carl?

Carl: No, what happened actually was the Competition and Markets Authority in the UK challenged the merger. So the companies dropped it and we never went to court in the United States.

Tom: Which leads me to my next question, also leads to the second topic of monopolization cases, which the letter talks about. Firstly, should we be going more in the direction of Europe or European type of antitrust regime? 

Josh: Go ahead, Carl.

Tom: You’re the first to go Carl.

Carl: That’s an example, neither of us wants to go for that one, that’s interesting. Well, look, there’s different aspects. When you say Europe, one thing is the competition authority has a lot more power because they can, well, particularly now that they can potentially require changes in behavior, even before they go to court, interim measures, there’s a lot of power there.

Tom: Let me just start out by saying, I think the letter that you signed, I recall, says there were too few monopolization cases, I think there was a count of cases, I can’t remember exactly what it was, and we should have more of them. Is that something that you would agree with?

Carl: I don’t know. I don’t think about the number of actual cases as a good metric of anything. I think the question is, where do we draw the line? So look, I think I’m definitely less aggressive than some of the other people who signed that letter. When you get to the exclusionary conduct dimension, horizontal mergers are more my lead issue rather than exclusionary conduct. I’ll say that. But I think there are some areas where the courts have really cut back too much on enforcement here. And the American Express case is a leading case, I think it is a disastrous opinion and an extremely poorly reasoned opinion by Thomas, the dissent by Breyer eviscerates what Thomas said. So that’s one example. Another example would be the pay for delay area, the activist case, where the court moved in the right direction, but it’s been 20 years of struggle to stop a blatantly anticompetitive conduct, basically pharmaceutical companies paying generics to keep them off the market. So we need to rebalance things there as well, but we need to go, we’re not gonna do that now, dimension by dimension of exclusionary conduct. I think exclusive dealing has been treated too leniently and Josh would be part of that with his McWane dissent that I mentioned. So I’m generally in that direction, but I don’t want to move to Europe.

Josh: I will gently remind Carl that the McWane dissent means I lost and the FTC brought the case and won. So it can’t possibly be that I’m part of making it too lenient. I do think that that was a bad case…

Carl: Just trying, you actually can because you’ve made other things too lenient.

Josh: I sure did. I sure did. I mean, the economic evidence in that case was that zero evidence was put forth on price or output and that the allegedly excluded rival grew at a faster rate after the exclusive dealing was imposed than before, whatever one thinks about the evidence sufficient to make the prima facia case in an exclusive dealing case, I don’t think that was it, but your mileage might vary on the value of economic evidence in these cases.

Carl: The economic evidence very important, just you seem to require slightly more in any case than is actually available. 

Tom: Last one…

Josh: I dissented Carl, I voted with the FTC majority in 94% of the cases. So maybe that evidence isn’t consistent with your view either.

Tom: Last one, I think that the letter that Josh signed onto doesn’t have any proposals for reform. I’ll mention a couple of them and I’m wondering, well, several of them are quite interesting. One is on the structure of antitrust enforcement, eliminating the inefficiencies created by the dual agency enforcement, I mean obviously one could get into other things, we have more than two agencies, we have two plus fifty, but let’s just stick to the federal level. Do you think there should be, is competition a good thing in this realm or not?

Josh: Like Carl, there are some proposals in my letter that I believe in more than others. And so let me say this about the overlapping agency structure. I do think that there are issues there that, where antitrust institutions could be improved. Some signatories to my letter believe you ought to eliminate one agency and have all antitrust enforcement in one, some think that should be the FTC, some think it should be the DOJ. I do think nearly all believe that there are some fundamental issues with overlapping enforcement, one brought on by section five in one agency and not the other. And so for example, you get very disparate treatment. If you’re an SEP holder and you’re in the DOJ’s jurisdiction right now, rather than the FTC, you live a very different life. And I’ll hold aside which is right or wrong, whatever, it’s just very different rules applying. Or if you have a proposed acquisition involving IP rights and are in one versus the other. I tend to be a proponent of taking away administrative litigation from the FTC for merger enforcement. I think we ought to do, we being the FTC, sorry, whatever the DOJ does when they seek preliminary injunctions, that is largely but not exclusively the case now. And so I do think that there are important issues, in terms of kind of divergence between standards, as between the two institutions. I think that is a problem. I have long thought that FCC review of antitrust, of mergers, on top of that, is an additional, oftentimes, friction that does more harm than good. So my own view is reform along these lines would be useful. I am not quite in the camp where I believe it is necessary to completely divest one of the agencies of antitrust enforcement. But I can imagine a world in which you redivided, you put DOJ criminal, you move things around to reduce overlap and enhance repetition in industry and expertises between the agencies that could make things more efficient.

Carl: I think it’s really a shame how bad relations are now between the FTC and DOJ. DOJ going in to court to try to, on the side of Qualcomm, I testified for the FTC in Qualcomm, so I was involved in that case, to have the DOJ go into court and say, the FTC got it wrong in a major antitrust intellectual property case is breathtaking, partly because the two agencies, also because the DOJ’s arguments are nonsense here, as they are in a number of other, most of the areas, what Makan Delrahim’s been saying about antitrust and intellectual property is specious, and I’ve got a paper with Mark Lemley detailing that that’s just coming out. So that’s really unfortunate. I think the role of the FTC, there’s a historical role that I wish they would step into more, to do studies, to inform Congress and the public of problems, to engage in rulemaking where necessary. This is what Congress intended in 1914, and they really have not been pursuing it for decades. It’s a shame. So there’s a definite role for the commission there, but the overlapping enforcement is clearly a kluge. I don’t want to get rid of the FTC because they have some authorities, including this investigative authorities, that the DOJ doesn’t have. And they have a broad remit through section five, but it’s hard to get up and defend the klugey system we have at the same time.

Tom: Well, I assume we’re all in agreement with one of the other recommendations of the letter that Josh signed, which is to increase the role of economists that’s, that’s not controversial, right.

Carl: So long as they’re right thinking.

Josh: That’s spelled with a ‘W’, right? [Laughter]

Carl: Very good.

Tom: Let me get one final question, which is actually not a trivial question, but because it’s an idea that’s gained quite a bit of credence, in terms of the digital sectors, is that even enhanced antitrust is not enough. And we need some sort of a digital regulatory agency, either within an existing agency or a new agency. What is your guys’ view of that?

Carl: I’ll go first and [inaudible]. I think we do need a digital regulator for a bunch of topics that just doesn’t seem as well covered between the FCC or the FTC or anybody else. Some of the privacy issues, the information disorder issues that we need to address, cybersecurity issues, interconnection issues. So I think we really do need that. And the public, I think is generally, there’s calling for that. Other countries are moving in that direction. Doesn’t mean it’s right. But I think we do need that. And I’ve said as much in writing. Now, I didn’t say competition as such, so much. I mean, the trouble is a lot of the issues we need to address are suitable for a regulator, but I’m not saying they should do necessarily merger review or other competition issues we need, but there are dimensions where we need a regulator. And then the question will be how broad is the remit? 

Scott: I mean, what’s the organizing principle behind a digital regulator? I mean, saying a digital company, it’s the same as saying a company that works with pencils. I mean, is it something about platforms? Is it that it’s opened up a set of new issues that we just haven’t really had to deal with before? What’s the coherent theme besides these being digital companies?

Carl: So I think a starting point is who would be subject, what entities will be subject to regulation. So there’s that, there’ve been a number of reports that are trying to address this. I think the Competition and Markets Authority is very thoughtful on many of these issues. And then Jason Furman in his report for the UK, I think what’s helpful. I know you guys have a TPI have been very close to this and contributing to this a lot. I don’t have an exact definition, but it’s something like large digital platforms that would be subject to the regulation. I understand there’s always the boundaries of regulatory scope and that’s not easy, but that’s, in a general role, what I have in mind, not simply somebody who was a user of digital technologies or even a developer of them, but these large platforms that are used by a large number of consumers or marketplaces, where there are a large number of businesses, seem to be, that’s how I would tentatively define the scope.

Josh: Let me say Tom, I think we found an area to disagree strongly. I think this is an awful idea. And one of the reasons I think it’s an awful idea, three quarters of the areas of law that Carl mentioned that are, privacy, cyber security, those sorts of areas, are there’s vast authority in the FTC right now. In fact, on top of that authority, they also have virtually every large digital platform, or we can define it however one wants, but is either under order or under investigation by one or both competition authorities, the Consumer Protection Authority, the FCC too has people. We’ve got a lot of agencies with a lot of authority right now, and ability to do a lot of things. I am not of the view that adding another regulator to specialize in what I believe is not a different methodology, it’s just large firms that operate in digital space is not an organizing principle that sort of compels me to think that we get much beyond more of a mess in the regulatory space, contradictory approaches to problems. I mean the institutional development of the antitrust law, for whatever Carl and I disagree about fights on some important margins of the right direction. I think the structure of the FTC in combining economist and lawyers and increasingly technologists that do both competition and consumer protection, sort of a nice set of complimentary tools, it has a big mandate and lots of tools available to it, both in terms of monetary relief and equitable relief to address these problems, doesn’t mean they’ve got everything, but I think we’d be much better off if we think that there are problems escaping the FCC, the FTC and the DOJ, I think we’d be much better off sort of working at those problems inside the existing institutions, than getting a new regulator whose job it is to set rules for firms because they are large and on the internet.

Carl: Let me just be clear. I might be very happy if it was the FTC. I’m not saying we need a new regulator. I think we need stronger authorities and the Congress to tell the FTC, we really want you to work in this area. They have not been doing things, they’ve been not, just not, and people are clamoring for it. So it’s not that I want to create a new institution. The FTC would be a natural place to do it.

Tom: Okay. Well I think this is a subject that is not going away. It’s going to be with us for quite a while. We have the Judiciary Committee’s report, which will come out soon. But, and even that is certainly that is not going to be the end of it. It’s going to be discussed for a long time. And you guys are both going to be, I’m sure, participants in that discussion and we’re delighted you could be with us today. Thank you very much. 

Carl: Thank you.

Josh: Thanks.

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