Thursday, November 06, 2008

President Obama and Antitrust

This posting was written by John W. Arden.

Amid the speeches and celebrations of Barack Obama’s electoral college landslide, business and legal observers were already trying to predict how the new administration’s antitrust policy will impact particular industry sectors.

Positions on Technology, Media

Yesterday morning, posted two articles, examining the president elect’s positions on technology and media and projecting how his antitrust stances will affect some of the major players in those businesses.

The first article (“AT&T, Comcast Face New Web, Antitrust Enforcement Under Obama”) states that AT&T and Comcast “will probably face in Internet rules backed by Google Inc. under Barack Obama’s administration, and will find it more difficult to persuade the government to approve acquisitions.”

“Telecommunications industry consolidation will likely slow under an Obama administration, [analyst Paul] Glenchur said. Obama pledges to ‘reinvigorate’ antitrust enforcement, according to his technology policy statement,” reporters Molly Peterson and Ian King wrote.

The second article (“Obama May Fight Media Concentration, Expand Access to Internet”) speculates about the Illinois Democrat’s policies on media concentration, network neutrality, and cable rules.

“President-elect Barack Obama will try to use his office to hinder media concentration and to increase local TV news coverage, objectives that have stirred resistance from industry groups,” wrote Todd Shields. Obama will make broader Internet access a goal and strongly support the principle of network neutrality, according to Shields.

In his technology proposal, “Obama promises to ‘reinvigorate’ antitrust enforcement,” the article continues. “In contrast to the Bush administration, an Obama presidency would view media mergers ‘very skeptically,’ Gigi Sohn, president of Public Knowledge, a Washington-based public interest group, said in an interview.”

“Paper Trail” on Antitrust

Unlike the current President, who expressed only a vague conception of antitrust law during his first campaign, Obama has a “paper trail” of positions on which to base forecasts of future policy.

In a statement to the American Antitrust Institute, released September 27, 2007, candidate Obama promised that his administration would step up review of merger activity, take aggressive action to curb the growth of international cartels, monitor key industries to ensure that consumers realize the benefits of competition, and strengthen competition advocacy domestically and in the international community.

Making Capitalism “Work for Consumers”

“Antitrust is the American way to make capitalism work for consumers,” according to the statement. “America has been a longtime leader in antitrust, and our antitrust rules and institutions have often served as models for other countries wanting to make capitalism work for consumers.”

Obama cited more than a century of “broad bipartisan support for vigorous antitrust enforcement, to protect competition and foster innovation and economic growth. Regrettably, the current administration has what may be the weakest record of antitrust enforcement of any administration in the last half century.”

As an illustration, Obama noted that between 1996 and 2000, the FTC and Department of Justice challenged an average of 70 mergers per year on antitrust grounds. Between 2001 and 2006, the agencies challenged an average of only 33 mergers per year. “And in seven years, the Bush Justice Department has not brought a single monopolization case.”

This “lax enforcement” has resulted in higher concentration and higher prices in industries such as health care and insurance, he indicated.

“My administration will also ensure that insurance and drug companies are not abusing their monopoly power through unjustified price increases—whether on premiums for the insured or on malpractice insurance rates for physicians.”

Senator Obama’s two-page statement appears on the AAI web site.

Justice Department’s Monopoly Report

The Obama campaign also got involved in the controversy surrounding the Department of Justice’s recent report on Sherman Act Section 2 enforcement.

On September 8, the Department of Justice Antitrust Division released a report (“Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act”), discussing whether—and when—specific types of single-firm conduct may violate Section 2 by harming competition and consumer welfare.

Among other things, the report observed that

(1) Vague or overly inclusive prohibitions against single-firm conduct are likely to undermine economic growth and to harm consumers.

(2) The “historic hostility” of the law to the practice of tying is unjustified and the qualified rule of per se illegality should be abandoned.

(3) Antitrust liability for mere unilateral, unconditional refusals to deal should not play a meaningful role in Section 2 enforcement because compelling access is likely to harm long-term competition and courts “are ill suited to be market regulators.

(4) Exclusive dealing arrangements foreclosing less than 30 percent of existing customers or effective distribution should not be illegal.

(5) Remedies for Section 2 violations should “re-establish the opportunity for competition without unnecessarily chilling competitive practices of undermining incentives to invest and innovate.
Only hours after the report was issued, the FTC issued a statement that it did not “join or endorse” the report. FTC Commissioners Pamela Jones Harbour, Jon Leibowitz, and J. Thomas Rosch released a joint statement that was highly critical of the DOJ’s findings.

The Commissioners expressed concern that the report was “chiefly concerned with firms that enjoy monopoly or near monopoly power, and prescribes a legal regime that places these firms' interests ahead of those of consumers.” They further criticized the report for "seriously overstating the level of legal, economic, and academic consensus regarding Section 2.”

The Obama campaign said that the Justice Department’s stance in the report reflected the need for a more aggressive approach to antitrust enforcement in the next administration, according to an article in the September 8 issue of the New York Times.

“Four more years of the Bush-McCain approach to antitrust will only lead to higher prices for American consumers and a less competitive environment for smaller businesses to thrive,” said Jason Furman, economic policy director for Senator Obama’s campaign.

Media Consolidation

Another notable statement by Obama was an article—co-written with Senator John Kerry--decrying media consolidation. The article (“Media consolidation silences diverse voices”) was published on November 7, 2007 by

According to the two Senators, the U.S. has witnessed “unprecedented consolidation in our traditional media outlets. Large mergers and corporate deals have reduced the number of voices and viewpoints in the media marketplace.”

However, the FCC, which is charged with governing the media, “may soon consider changes in the media ownership rules that only help big media get bigger, but do nothing to make media more responsive to minority viewpoints and local communities.”

The article called on Congress to stop allowing greater corporate consolidation and start promoting media diversity.

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