Antitrust Chapter in the Economic Report of the President

This year’s Council of Economic Advisers (CEA) Economic Report of the President (EROP) contains a very heartening chapter on antitrust policy and competition issues. It’s clear the CEA doesn’t buy into the idea that the U.S. has a pervasive “monopoly problem” and is very aware of the danger of simplistic thinking around large digital platforms.

The President’s economic advisers echo much of my recent critique on the use of crude national industry concentration measures as proxies for the health of competition. They bring lots of theoretical arguments and empirical evidence to bear that these are not reflective of relevant product markets pertaining to antitrust enforcement, not least because markets are often incredibly local.

For example, six‐​digit NAICS codes are often used to assess sector‐​level concentration in many studies – and these go as granular as industries such as “book publishers,” “beauty salons,” and “car washes.” But, as a moment’s reflection of these examples suggests, these are clearly not relevant markets for antitrust. A beauty salon in Kenosha, Wisconsin doesn’t compete with one in Dupont Circle, Washington DC. In fact, the EROP highlights evidence I hadn’t seen before:

Werden and Froeb (2018) calculate the volume of commerce of the relevant markets alleged in DOJ merger complaints between 2013 and 2015 as a share of industry shipments in the six‐​digit NAICS sector. They find that in most cases, the antitrust markets accounted for less than 0.5 percent of the six‐​digit NAICS sector. In many cases, this is because the antitrust markets where the DOJ identified a competition problem involved single localities such as a city, State, or region, whereas the NAICS sectors are national.

Still though, many seem to be conducting the public debate over whether the U.S. has a monopoly problem knowingly using data that is easy to collect but which doesn’t represent actual markets. It’s very pleasing the CEA demurs from this growing trend.

Even better, the CEA report is clearly extremely skeptical of “Hipster Antitrust” calls to broaden the scope of antitrust law and the most interventionist policy proposals on “Big Tech,” including proposals for sector‐​specific remedies such as enforced data portability and interoperability, tougher restrictions on acquisitions, and bringing in a specific digital sector regulator.

Perhaps most pleasing of all though is that the EROP doesn’t fall for the “this time is different” narratives we hear about digital platforms. It’s common to read that because of economies of scale, network effects, data, or firms competing on platforms they operate, that there’s something just unique about today’s tech companies that requires a more “forward‐​looking” antitrust. The CEA cites lots of evidence showing that none of these economic features of these markets ensure sustained dominance, in line with my own work showing how Schumpeterian competition from new products put pay to historical examples of firms said to have just these types of advantages.

The overall chapter concludes:

confusion surrounding the effects of rising concentration appears to be driven by questionable evidence and an overly simple narrative that “Big Is Bad.” When companies achieve scale and large market share by innovating and providing their customers with value, this is a welcome result of healthy competition.

Do read the whole thing. More from me on this issue can be found here, here, and here