Yes, the Antitrust Laws Are About Protecting Competition
The Senate Antitrust Subcommittee’s first hearing of the new Congress on March 7 focused on the two tech platform antitrust bills that had been approved by the Judiciary Committee in the previous Congress, including S. 2992, the American Innovation and Competition Online Act (AICOA). During the hearing, there were references to a maxim that has become familiar in discourse concerning the antitrust laws, and that figures prominently in efforts to limit the reach of those laws: that the antitrust laws are concerned with protecting competition, not competitors.
The witnesses and the Senators were in general agreement on the problem the bills are addressing – that the antitrust laws as currently written, interpreted, and applied have lost vitality, and are not working effectively to protect competition – both generally, and in the online marketplace in particular. There were differing viewpoints expressed regarding whether AICOA is the right approach to addressing that problem. And the “competition, not competitors” maxim was a key part of the backdrop to that discussion.
In particular, the maxim arose in regard to the “materially harm competition” element of the prohibitions contained in AICOA. One witness proposed that the word “competition” should be defined to distinguish that harm from harm to competitors. Absent such a definition, it was posited, harm to competition might be interpreted to mean harm to consumer welfare, in keeping with antitrust principles, or alternatively, it might be interpreted to mean harm to competitors, which, it was asserted, would be antithetical to those principles.
The Rise of the “Competition, Not Competitors” Maxim
From its origins in the 1960s, the “competition, not competitors” maxim has in more recent decades repeatedly appeared, in more than 1000 court opinions, and a multitude of law review articles and legal commentary, to the point that it has become cliché, often regarded as speaking for itself without the need for further explanation. To many, it is the explanation. It is therefore instructive to explore its proper understanding, where it illuminates abiding antitrust values rather than obscuring and diminishing them.
The maxim first appeared in three Supreme Court merger enforcement decisions in the 1960s, each of which upheld the Justice Department’s challenge to the merger.
In Brown Shoe Co. v. United States, 370 U.S. 294, 344 (1962), the phrase made its debut, used in explaining why vertical integration, in and of itself, was not per se unlawful but rather depended on the impact. Notably, the Court did not say that harm to competitors is irrelevant; in fact, quite the opposite.
Of course, some of the results of large integrated or chain operations are beneficial to consumers. Their expansion is not rendered unlawful by the mere fact that small independent stores may be adversely affected. It is competition, not competitors, which the Act protects. But we cannot fail to recognize Congress’ desire to promote competition through the protection of viable, small, locally owned businesses.
In United States v. Philadelphia National Bank, 374 U.S. 321, 367 n. 43 (1963), the Court cited the Brown Shoe phrase in a footnote, in observing that:
The fact that some of the bank officers who testified represented small banks in competition with appellees does not substantially enhance the probative value of their testimony. The test of a competitive market is not only whether small competitors flourish but also whether consumers are well served.
Again, not dismissing the effect on competitors, but rather, including the effect on consumers.
In United States v. Von’s Grocery Co., 384 U.S. 270, 282 (1966), the phrase appeared in the dissenting opinion. The majority had noted the decline in the number of small grocers as one indicator of a trend toward rising market concentration. The dissent acknowledged that Congress’s motivation in enacting the Clayton Act’s merger enforcement provision was the “fear … of large corporations buying out small companies … and to protect small businessmen and to stem the rising tide of concentration in the economy.” What the dissent took issue with was what it characterized – or mischaracterized – as the majority’s conclusion that “competition is necessarily reduced when the bare number of competitors has declined,” even in the absence of any appreciable increase in overall market concentration in the case at hand. The question of protecting competitors from harm played no part in the dissent’s analysis.
The fourth Supreme Court appearance of the phrase, a decade later, in Brunswick Corp. v. Pueblo Bowl-O-Mat, 429 U.S. 477, 488 (1977), was another merger case. There, the question was not whether the merger harmed competition, but whether some affected bowling alleys had a right to sue for damages, when their only damages were a loss of anticipated profits due to other bowling alleys staying in business. The Court correctly noted that this harm to the complaining group of competitors was a product of the preservation of competition from another group of competitors.
The Right Way to Understand the Maxim
Distilling the lessons of these seminal Supreme Court opinions, a more accurate rendering of the maxim would be:
The antitrust laws are concerned with protecting competition and are not concerned with protecting competitors from competition.
Many who recite the maxim do so with this more complete understanding. Indeed, having recently read a couple hundred of the court decisions reciting the maxim, I have not encountered a single one that does so in any way inconsistent. Still, it helps to state the maxim in a way that illuminates this more complete understanding.
A narrower, more constricted view, that the effect on competitors should never enter into the analysis, ignores what should be obvious: you cannot have competition without competitors. And particularly in regard to the conduct on which AICOA is centered – self-preferencing – harm to competitors is an essential ingredient. The self-preferencing conduct harms competitors by disadvantaging them. Anticompetitive self-preferencing is a form of monopolizing, in which a company with market power solidifies or aggrandizes that power by sabotaging the competitive efforts of its rivals and its potential rivals. If the goal is the power to dictate what choices will be made available to consumers, the target is competitors who are standing in the way of that goal and must be harmed in order to achieve it.
That’s why the other concept cited during the hearing in relation to the “competition, not competitors” maxim – consumer welfare – also needs to be properly understood. It is often misconceived in two important respects. First, when it’s given a narrow, constricted focus on just the effects on consumers, without the broader context that feeds into those effects. And second, when it is further constricted to focus only on immediately measurable effects on prices charged, without considering the broader range of benefits competition brings to consumers.
As the Supreme Court affirmed in National Society of Professional Engineers v. United States, 435 U.S. 679, 695 (1978), “all elements of a bargain – quality, service, safety, and durability – and not just the immediate cost, are favorably affected by the free opportunity to select among alternative offers.”
Describing competition in more concrete terms of consumer choice, rather than in more abstract terms of consumer welfare, helps keep this broader range of benefits at the forefront of sound antitrust analysis.
Equally important, as the quote above from National Society of Professional Engineers makes clear, consumers have meaningful choices only to the extent that businesses that seek to reach consumers with alternative offers have meaningful choices for avenues to reach them. You can’t have one without the other. That is, you can’t have competition without competitors.
That doesn’t mean you ignore the impacts on consumers. An increase in competition to the benefit of consumers can also result in harm to a competitor. Indeed, gains by one company will almost always coincide with a detriment to the fortunes of another company.
But the adverse impacts on consumers as a result of harm to competition may be difficult to measure. And all the more so because the easiest kind of impact for economists to quantify is an impact on price, which may not be immediate, or even immediately predictable. And more so still with online platforms, when the people regarded as consumers are ostensibly engaging with the platform for free or at nominal cost, and their engagement is being monetized through other means, of which the consumers may not even be fully aware.
An adverse impact on competitors’ access to the marketplace where consumers can be reached and offered choices may be more readily ascertainable, and the corresponding adverse impact on consumer choice sufficiently clear, even if it eludes quantification.
AICOA’s Approach Is in Keeping with the Right Understanding of the Maxim
Seen in this light, the competition policy approach taken in AICOA is, as we have noted, fundamentally sound, and grounded squarely in antitrust principles and values. The kinds of harms addressed in the bill’s prohibitions against self-preferencing are precisely the same kinds of harms addressed in the Sherman Act’s prohibition against monopolization.
Importantly, for self-preferencing to be prohibited under the bill, it must materially harm competition, a limitation with which courts are very familiar. The term “competition” appears in numerous places in the antitrust statutes, and it has been used and applied by the courts in thousands of antitrust cases over more than a century. We can be confident that the term will not be overlooked, or untethered from established bedrock concepts of competition as illuminated in that caselaw.
Indeed, attempting to more precisely define the meaning of “competition” in this bill would deprive it of the richness it has acquired, thereby weakening it.
In contrast, “consumer welfare,” and another formulation that has become popular with antitrust commentators, “competitive process,” appear nowhere in the antitrust statutes. Adding one or the other of them now, in place of or in addition to “competition,” would be as likely to create uncertainty and litigation as to reduce them.
The anti-competitive self-preferencing violations in the bill are entirely consistent with the traditional antitrust understanding of competition. In essential respects, these more concretely described practices are equivalent to practices condemned as monopolization under section 2 of the Sherman Act.
The key definition of “critical trading partner” – along with the substantial thresholds specified for a covered platform’s users and sales and assets – provides a concrete equivalent for Sherman section 2’s person with significant market power that provides an essential facility in the relevant market.
For the self-preferencing prohibitions in section 3(a) of the bill, the harm to a business that is dependent on the platform is precisely the kind of harm long recognized under established theories of monopolization or attempt to monopolize under section 2 of the Sherman Act. The differences from section 2 jurisprudence are at the margin, to enable the harms to be recognized and addressed without the need to prove that creating or maintaining an actual monopoly was the ultimate goal.
The bill is otherwise not a departure from fundamental section 2 principles. In making the prohibitions more concrete, easier, and less costly and uncertain to apply, it thereby better captures the kinds of anticompetitive self-preferencing practices that should be captured by antitrust law. These practices are not adequately captured today, due to hurdles that have arisen in recent decades, in Chicago School-inspired court decisions that have tended to respond to section 2 monopolization claims with an overly skeptical overlay of rarified theory and proof requirements, too often beyond what is warranted. This has created needless impediments to addressing what are manifestly significant harms to marketplace competition.
For these more concrete versions of section 2 claims, it makes sense to require that a competitor be identified as having been disfavored or otherwise harmed, as part of showing a concrete harm to competition. As noted above, harm to one or more competitors is a hallmark of a section 2 claim.
But that’s by no means the end of the analysis. If harm to a competitor were enough by itself to constitute a violation under the bill, there would be no reason to also specify a required harm to competition. The fact that harm to competition is included as an additional requirement means, as a straightforward matter of established tenets of statutory construction, that harm to competitors is not itself sufficient.
The “competition, not competitors” maxim contains an important element of wisdom, properly understood. But it should not be stretched and distorted, elevating form over substance to obscure what’s essential about competition, and dismissing meritorious claims without considering their actual effects.
Aside from its importance for evaluating AICOA, a more complete understanding of the maxim is also important for evaluating business practices under current antitrust law. The impact of a practice on competitors can be a valuable window into how it is impacting the marketplace and – yes, consumers.