Who Gets to Participate in “Participative Antitrust”?
I have been asking myself recently why competition law is so fascinating and why I keep coming back to it.
Part of what makes competition law almost addictive I think is that if you are smart and have an innate need for others to know it then there are endless opportunities to prove your wits when working in antitrust. Market competition is antagonistic by design and competition experts set themselves the (almost) impossible task of distinguishing between pro-competitive, beneficial, attempts to beat rival firms, and anticompetitive, harmful conduct designed to push competitors from the market. So we must construct counterfactuals, understand market dynamics, and predict the future. Otherwise a price-cut to underbid a rival could look like a predatory price; the combination of two products sold together could be a convenient package for the customer or an anticompetitive tie; and a merger between two competitors could be an attempt to cut back-office costs or a way to gain market power to raise prices. To some this would be a maddening task. To competition practitioners it is an exquisite puzzle which just begs to be solved.
The enigma can be so mesmerising that we become hypnotised, forgetting the ultimate goal of competition law, which must be to protect some kind of “good”. This may be the “common good” or “public interest”, or something narrower like “consumer welfare” (although presumably we would only organise the infrastructure of market capitalism around something like “consumer welfare” if we believed that doing so ultimately served the common good?).
As a discipline we have turned gratefully to economics to help us parse the good cases from the bad. Competition law cannot help but pass through economics, like two parallel universes with a thin, porous membrane separating the two. And yet perhaps because we have borrowed quite selectively from the pantheon of economic thinkers, we have not yet settled on the “good” we are seeking to protect, because we cannot resolve the tension between leaving markets free to generate efficiencies and intervening to stimulate efficiencies through regulation, and because such intervention leaves a lot of people with the feeling that somehow we are missing the point.
In that context, I was intrigued when I came across a proposal by Nobel-winning economist, Jean Tirole, who won the prize in 2014 for his work on market power and regulation, that we should be incorporating into competition law the principle of “participative antitrust”. Even more curious, I had heard support for “participative antitrust” from people like Philip Marsden (see here at 48 minutes at the December CRA conference), who have so clearly rejected the thrust of what they somewhat snarkily call “populist” or “hipster” antitrust.
Personally, I believe that the role of antitrust is to make sure markets work for everyone, which means thinking beyond the straight-jacketed labels of “consumer” and “producer” and creating a competition regime that is more flexible, responsive, future-proofed and integrated into broader economic regulation. Perhaps Tirole’s idea was along these lines, in a form that traditionalist antitrust (what’s the opposite of a “hipster”?) can embrace?
Well, maybe. According to this interview with Quartz (and I haven’t found much else on this, other than a couple of paragraphs here and an enticing mention at the beginning of this CRA panel but with no further discussion. If you know of any fuller accounts please add a comment) Tirole calls for the development of “participative antitrust” in which “the industry or other parties propose possible regulations and the antitrust authorities issue some opinion, creating some legal certainty without casting the rules in stone”. This is to address what he sees as the flaws with the usual model of competition regulation: “self-regulation tends to be self-serving; competition policy is often too slow; public utility regulation … is mostly infeasible (and it is sometimes captured)”.
Reading between the few lines we are given, it seems that Tirole is proposing that competition policy should be co-designed with market participants so that it can become more adaptive. This is precisely my position, and it is always useful to find support for your ideas in the musings of an esteemed economist. The key questions though are: who gets to participate in participative antitrust? And how?
Tirole mentions “industry or other parties”. Elsewhere in the interview he makes clear that, in his view, the key to keeping competitive markets working is to maintain “the ease of entry by an entrant who creates value for the consumer”. He talks primarily about “contestability” which is certainly a key aspect of competition, so we might imagine that the parties that get to participate in participative antitrust would be those who can shed light on the competitive structure of the market — presumably competitors, suppliers, customers and potential entrants.
Alarm bells will be ringing and red flags rising for anyone concerned about parties capturing the regulatory process or using it to seek nationalistic or nepotistic favour. Tirole doesn’t offer a solution to this but I would suggest that accountability and complete transparency would be essential features of such a system.
I would also think that workers, affected communities and other stakeholders could all add something to the rigour of “participative antitrust” as each can bring a perspective on how the market is performing for those impacted by it. If we focus only on “contestability” we rely solely on the ability of the market to deliver low prices to consumers when market power happens to be constrained. But more competition is not always easy to create, on a permanent basis anyway, so consumers cannot always rely on competitors and potential competitors to stimulate good outcomes.
And what about the harms? It is time for us to think about market power more broadly. A monopolist is able to act independently of the market, and without fear that it will lose customers, not just on price but in all of its conduct. It can extract further monopoly rents by lowering its costs not through beneficial efficiencies of scale but by pushing negative externalities onto society. For example, a monopolist may degrade product quality in terms of safety or reduce standards for health and safety for its workers or avoid liabilities for environmental cleanup. Companies can become “too big to regulate”.
But even if they had a choice, would customers go elsewhere? Do they care about these issues? Perhaps not with their “customer” hat on, but they do with their “citizen” or “worker” or “parent” or “human being” hats on. Which is why those other reflections of our market society should be represented in the antitrust process. This may or may not involve changing the consumer welfare standard, but as a matter of process allowing for the participation of representatives of citizen, worker, environmentalist or other groups would address the kinds of problems Tirole identified.
Competition authorities often already engage with these groups through public consultation but they have not been given formal standing within the analytical framework to raise concerns that go beyond efficiencies, price and output. I think we can also go further and think about how stakeholders may be given pseudo-regulatory oversight of any agreed-upon remedies so that they are in a position to maintain regulatory pressure on companies even once the competition authority has moved-on to another case.
And for those who think that the kinds of issues I am talking about should be dealt with not by competition law but through “other regulation”, it would be ideal for other regulators to be involved as participants in shaping competition policy too. Perhaps competition authorities should have a formal duty to bring in other regulators. As an example, the European Data Protection Supervisor has already provided an opinion on the interaction between data protection and antitrust, and such opinions could be sought on a regular basis. The point is to invite the regulator to step in at the point of identification of an abuse or review of a merger so that adequate protections can be put in place at that time.
Tirole accepts that the adoption of participative antitrust may not be smooth and the authorities will have to learn by doing and slowly incorporate those learnings into guidelines. This is a very sensible approach and the system of issuing guidelines is much more capable of responding to changing market conditions without requiring a change of law. But there needs to be an established and formalised process around this. Currently stakeholder groups approach competition authorities for opinions to bless or exempt conduct that may for public benefit, for example, but this takes place on an ad hoc basis and the protection offered by such guidance, especially for other parties, is limited.
There is a need to bring antitrust up to date with the political and economic reality of an industrialised, globalised, twenty-first century economy, undergoing huge technological change and facing enormous climate risk. Any proposal to increase the participation of groups actually affected by market conduct is a good way to ensure that the complex web of economic regulation, from sectoral regulation, taxation, environmental regulation and worker protections, is working in concert to produce the kind of economic and public life that people actually want.
