How US antitrust policy will change with Lina Khan
The appointment of Lina Khan to the presidency of the FTC could mark a turning point in US competition policy. The analysis by Fausto Panunzi, professor of Political Economy at Bocconi, taken from Lavoce.info
The Biden administration's appointment of Lina Khan as chairman of the Federal Trade Commission, the agency that deals with competition and consumer protection, has had significant media coverage. The appointment is in fact interpreted as a turning point in competition policy, unfavorable to Big Tech.
Lina Khan is best known for her essay published in 2017, when she was still a student at Yale Law School, Amazon's Antitrust Paradox , whose main argument is that the current American competition policy is based on principles that do not allow to correctly evaluate the dangers that Amazon dominance creates and remedies. According to Khan, Amazon has managed to become a monopolist in formal compliance with antitrust rules, precisely because these rules are not suitable for regulating an economy based on digital platforms. A competition policy approach based on consumer welfare, measured by the short-term effects on prices and quantities, is structurally unsuitable, according to Khan, to grasp the complexity of digital economies and blinds us to the dangers posed by Big Tech.
THE PARADOX OF ANTITRUST
To better understand the problem and possible solutions, it is necessary to take a step back. Until the 1980s, the discipline of industrial economics, that is, the study of markets, was based on the structure-conduct-performance paradigm. According to this approach, the structure of the market, i.e. variables such as the number of firms operating in the market or the significance of the barriers to entry, determines the conduct (for example the price or quantity produced) which, in turn, determines the performance. (corporate profits, consumer welfare). In highly concentrated markets, companies operating in them can easily collude, block the entry of new companies and keep prices high and quality low, to the detriment of consumers. For example, this makes business mergers suspicious, as they lead to greater concentration.
In the 1980s, the conjunction of two factors, theoretical developments in industrial economics and the pro-market attitude of the Reagan administration, led to a radical revision of competition policies. From a theoretical point of view, the structure-conduct-performance approach presents a serious problem. The market structure cannot be taken as exogenous: if one firm becomes much more efficient than the others, it can lower prices, gaining market share. This leads to greater concentration, but only thanks to greater firm efficiency and is accompanied by lower prices for consumers. In his book The Antitrust Paradox (the title of which obviously refers to the article by Lina Khan) Judge Robert Bork states that consumer welfare must be at the heart of competition policy. The 1982 merger guidelines reflect this very principle: to prohibit a merger, it must be shown that it is to the disadvantage of consumers, for example by leading to higher prices or limitations on the quantity sold. The same principle is applied to predatory policies, that is, price cuts aimed at getting a rival out of the market, or to vertical mergers.
According to Khan, this approach has several problems and is particularly inadequate today. What are the problems? The first is that protecting consumers requires looking not only at prices, but also at the quality and variety of the products offered and at innovation. Amazon is at the same time a marketing platform, a logistics and delivery network, a payment service provider, an auction platform, a publisher, a producer of films and TV series, and so on. Amazon's rivals are often its customers at the same time. Amazon also makes money when it competes and can always favor its products over those of competitors. It can make competitors experiment with new products and enter the market only if there is sufficient demand. According to Khan, these problems cannot be addressed with the traditional view of antitrust policy.
The second problem is more radical: the concentration of markets can cause systemic problems, such as the instability of economies (just think of the problem of “too big to fail” banks) or a reduction in media diversity. In other words, there are also social variables that are negatively affected by the presence of digital giants. For these reasons, Khan wants to re-evaluate the structuralist approach: concentration matters in itself. Antitrust policy cannot only look at prices, but must also consider factors such as barriers to entry, conflicts of interest, the presence of bottlenecks, data control.
As we can see, the appointment of Lina Khan to the FTC could really lead to a different attitude towards the markets and towards competition policy.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/mondo/nomina-lina-khan-antitrust-usa-come-cambia/ on Sun, 20 Jun 2021 06:00:10 +0000.