Perspectives On the Role of Antitrust Law In Social Justice

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PERSPECTIVES ON THE ROLE OF ANTITRUST LAW IN SOCIAL JUSTICE

By Mandy Chan1

The proper role of antitrust law within the context of social and economic justice reform has been debated since the inception of the Sherman Act and related laws. In this discussion, two leading experts, Professor Douglas Melamed and Sandeep Vaheesan, debate the proper role of antitrust in wealth distribution, discuss antitrust’s historical and political context, and comment on its future role as part of the modern social justice movement.

PANELISTS

Professor A. Douglas Melamed teaches at Stanford Law School. He was the Herman Phleger Visiting Professor in 2014, and appointed as a Professor of the Practice of Law in 2015. From 2009 to 2014, Professor Melamed served as Senior Vice President and General Counsel for Intel Corporation. Prior to joining Intel, he was a partner at WilmerHale’s Washington, D.C. office and chaired the Antitrust and Competition Practice Group. From 1996 to 2001, Professor Melamed served in the U.S. Department of Justice as Acting Assistant Attorney General in charge of the Antitrust Division and, before that, as Principal Deputy Assistant Attorney General. Professor Melamed has received numerous professional awards and honors. He has been the Distinguished Visitor from Practice and an adjunct professor at the Georgetown University Law Center, and he has authored numerous articles on antitrust, and on law and economics. He is a member of the boards of directors of the Nasdaq exchanges and the American Law Institute and a Contributing Editor of the Antitrust Law Journal.

Sandeep Vaheesan is legal director at the Open Markets Institute. He previously served as regulations counsel at the Consumer Financial Protection Bureau, where he helped develop and draft the first comprehensive federal rule on payday, vehicle title, and high-cost installment loans. He has published articles and essays on a variety of topics in antitrust law, including the relationship between antitrust and workers, and the political content of antitrust. His writing has appeared in the Berkeley Business Law Journal, Harvard Law & Policy Review, Nebraska Law Review, University of Pennsylvania Journal of Business Law, and Yale Law Journal Forum. He received a B.A. from the University of Maryland, and a J.D. and M.A. from Duke University.

MS. MANDY CHAN:

Hi, everyone, and welcome. Thank you for joining us for this antitrust and social justice session. Today, we’re going to discuss an incredibly important topic of whether the current antitrust laws have contributed to wealth inequality and whether they should be changed to encompass social welfare concerns.

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To kick off our discussion, I’d like to invite Sandeep to state the case for antitrust reform. What public interest issues do we see that arise from or are attributable to current antitrust law and policy?

MR. SANDEEP VAHEESAN:

So at present, antitrust law contributes to economic and political inequality, as well as racial injustice. So to set the table, it’s worth remembering that the law constructs and shapes markets through things like property, contract, rules on nuisance, consumer protection, or securities. These are all essential and, indeed, prerequisites for a well-functioning market. There’s no such thing as a free market or unregulated markets; really the debates that we have over law and policy are over different configurations of rules, not some mythical free market versus a regulated market.

Given that the law constructs the marketplace, it unavoidably decides who is powerful and powerless in the economy: Executives and shareholders or workers, small firms, and consumers? To offer a concrete example, I’ll briefly discuss patents in pharmaceuticals. At present, patenting and pharmaceuticals has a relatively loose set of criteria and patents granted by the PTO are strictly enforced. The present patent regime favors the interests of branded pharmaceuticals at the expense of generic rivals, patients, and payers.

In light of all this, antitrust, like all law, decides who has power in the economy. So, for instance, if an antitrust enforcer vigorously prosecutes wage fixing and no poach agreements among employers, they shift power in labor markets toward workers and away from employers because workers have more effective exit opportunities and can enjoy more competition for their services. If, however, they tolerate wage fixing and other horizontal collusion among employers, they are giving the bargaining advantage in labor markets to employers. So antitrust law unavoidably distributes power one way or the other.

So what does this have to do with inequality and racial injustice specifically? Of course, there’s nothing facially discriminatory about the antitrust laws; they’re facially neutral. But like so many laws and practices in American society, antitrust law is racially discriminatory in impact. At present, antitrust law gives broad freedom to corporate executives and financiers, a group that is overwhelmingly white, to control and plan economic activity through mergers and contracts and deprives independent workers and small firms of the right to challenge the domination through concerted action.

So I’ll quickly offer four case studies to support this point I made and they all involve workers and independent business people who are disproportionately or mostly people of color. So first, the NCAA. The NCAA, to put it simply, is a large wage suppression cartel. Division One colleges and universities come together to cap the compensation pay to college basketball, football players, at tuition, room and board, and a modest stipend. So despite generating billions of dollars for the NCAA, players only get to enjoy a small share of these rewards. Coaches and administrators, in contrast, make millions of dollars a year while players barely subsist. The courts have, in large measure, upheld the system either on amateurism grounds or on the grounds that this system caters to viewers tastes.

My second case study concerns a more obscure example, Peruvian guestworkers who work as shepherds in the Rocky Mountains. They’re some of the most exploited workers in the economy, until recently making subminimum wages and working in some of the harshest conditions on earth. In a class action lawsuit, they alleged that the ranchers, operating through rancher associations, collusively suppressed their wages and agreed not to pay shepherds more than the relevant minimum wage. Despite the strong facts in the complaint and the allegation of a per se violation of the Sherman Act, the district court, as well as the Tenth Circuit, tossed this complaint on rather specious grounds and tortured readings of the facts.

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The third example involves fast food franchising. At present, franchisers tightly control franchisees through contract, dictating what they sell at what price, their hours of operation, the layout of their store, just to name some examples. Franchisees, however, bear the risk of loss if their franchise doesn’t succeed. So in many ways, franchisees at present, who are akin to middle managers, don’t have the stability of salary and benefits that we have traditionally associated with that position. And this control through contract is thanks to a series of antitrust decisions like GTE Sylvania and State Oil vs. Khan. And Commissioner Rohit Chopra of the FTC has talked at length about the exploitative control through contract that defines the franchising world.

And last but not least, I’ll talk about gig workers; these are Uber drivers, delivery workers for Instacart and other modern platforms. So while the antitrust agencies have not targeted the predatory pricing and many acquisitions of Uber and Lyft, they have targeted the attempts to organize among Uber and Lyft drivers. So because they’re misclassified as independent contractors, they do not have the right to organize and engage in union activity, unlike workers who are in the traditional employment relationships. And the DOJ and FTC have gone on the record to say that organizing by Uber and Lyft drivers would be a per se violation of the Sherman Act and made clear that their organizing is illegal under present antitrust law.

But I want to end on an optimistic note. I think the system can be changed to advance equality—economic, political, and racial. So I’ll quickly sketch out what a different system might look like. As a preliminary matter, we should abandon the rule of reason and instead opt for a series of per se rules and presumptions. The rule of reason invites subjectiveness, decision-making, and is hopelessly discretionary as the Trump administration has illustrated in a number of investigations and enforcement actions.

So we can have a rules-based system that actually transfers power downward. For instance, a strict prohibition on wage fixing that’s actually enforced and not merely existing on paper. Number two, restrictions are complete prohibitions on control through contract that allows independent business people to actually exercise autonomy and discretion. And third, protecting the right of all workers, irrespective of employment classification to organize and build power. And same with small firms when they’re confronting more powerful counterparties. Think of franchisees collectively bargaining against McDonald’s or Burger King.

So in dispersing power, this alternative rules-based system would distribute power away from mostly white, economic royalists to the multi-racial majority of workers and other producers in American society. I don’t want to argue that antitrust is some sort of cure all for inequality and racial injustice, but I believe it can play an important role in addressing all these social, economic, and political issues.

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MS. MANDY CHAN:

Thanks, Sandeep. Professor Melamed, any thoughts on what Sandeep has said about making the case for antitrust reform?

MR. DOUG MELAMED:

Well, I think those were interesting perspectives, certainly. Reflecting on a lot of Sandeep’s work over the years and a much broader, sort of populist—I mean, I think just as a descriptive term, sort of sentiment that we see, of course, in many dimensions in our political and public life. But I disagree with the particular suggestion, at least conceptually, that antitrust law ought to be changed in order to address issues of social justice, as Sandeep defined.

Let me state at the outset though, I agree with the notion that we’re living in something of a gilded age and that there is excessive inequality of wealth and income and economic and political power and I think that the political system ought to address that issue. The question, of course, is whether antitrust is a suitable or desirable solution.

Lots of laws, all laws, I think as Sandeep probably implied, affect markets and equality. And even laws that are facially very neutral, given other aspects of society—the legacy of racial discrimination, income and wealth disparities and so forth—have in any particular application implications that might be in effect upward redistribution or regressive. Property law, certainly, is of that type. Patent law, as Sandeep mentioned. Both of those, I think, it’s clear, provide enormous benefits to society. And yet, they have that effect because some laws provide opportunities for those with resources to flourish and less so those without resources.

Now, we have a lot of laws that are intended to address problems of inequality and social justice quite directly. Labor laws, there’s a specific exemption from the antitrust laws for certain kinds of union organizations, collective activity by employees, civil rights laws, tax laws, restrictions on lobbying, campaign contributions, the list can go on and on. Antitrust is not one and it never has been. The statutory language in antitrust is concerned with conduct, it speaks in very neutral language; it does not speak of the identity of the actor or of the victim. It’s not hostile to the have-nots in society; it’s neutral. It protects labor and racial minorities from bad conduct that creates market power and justice. It protects any other group from bad conduct that creates market power.

Antitrust law is about economic welfare; that’s a somewhat different objective from a redistributional goal. It’s a very simple conception: It proscribes welfare reducing conduct, called anticompetitive conduct, that reduces competition and increases market power; conduct that, to be more precise, reduces the ability of rivals or potential rivals to discipline one another in the marketplace through competition. Applied correctly, it can enhance economic welfare, protect anyone who would be harmed by anticompetitive conduct resulting in market power.

Now, there is clearly room for improvement in antitrust law and we’re going to talk about that for much of this hour as we want to talk about. But prudent improvements to antitrust law would retain, it seems to me, a singular focus on economic welfare—sometimes called the Consumer Welfare Standard—and would not modify or adjust that focus in order to take into account the kind of distribution or social justice concerns that Sandeep has in mind, however laudatory those objections might be and however prudently they might be addressed by other bodies of law.

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Here’s why: Any new objectives to antitrust law would matter only if it would result in a different outcome in an individual case. Only if, in other words, a decision that would enhance economic welfare were to be abandoned in favor of a different decision to achieve some other objective. Now, we can argue about whether antitrust is optimally designed to achieve economic welfare, as I said, I think it can be improved. But when one says, well, we have to change it for social justice reasons, he’s saying even if that entails a loss of economic welfare, so that’s a big cost.

And how would you implement that change? It could have categorical rules, for example; workers can get together and enter into what would otherwise be regarded as a cartel, a price-fixing cartel, in order to strengthen their hand in bargaining with others, but that kind of a rule would result in arbitrary lines. We’d have to decide what is a worker? Is an owner of an individual shop, a sole proprietor, a worker? Or is it only someone who works at the direction of another person? And if we’re talking about working at the direction, where do we draw the line between independent contractors and employees? So there’d be a lot of arbitrary line drawing.

Then you have the question of transacting around and a lot of lawyers would figure out ways to get around these kinds of arbitrary lines, we have litigation regarding the formalities. And then the question is what do we achieve? Creating bargaining power for workers will reduce economic welfare except when the employer has equal market power. So what would you do? Would you put an element into the test that would say we have to litigate whether the employer has market power, as well as the workers do? This could be incredibly complex and incredibly costly from a welfare point of view.

Moreover, if we have complex goals that are stated more aspirationally, antitrust law should be focused to protect the little guy, then we have, inevitably, arbitrary law because there’s no algorithm; there’s no way to decide. How do you decide an antitrust case when economic welfare points at one direction and equality of well-being points in another direction? There is no algorithm. What does that mean? It means we have arbitrary decisions, a loss to legitimacy for antitrust law, and more than that, an opportunity for capture because if decisions are not made in accordance with clear principles, it is much easier for the decisionmaker to say, "Oh, I made a judgment about who should win this case." And when you have discretionary judgments, you have the opportunity for capture. And who wins in a world in which law is subject to capture? It’s the powerful, not the powerless.

So while we can talk about various suggestions, changing the rule of reason, I agree there should be some changes. I don’t happen to agree with the particular changes that Sandeep mentioned; we can talk about. But conceptually, it seems to me antitrust is about economic welfare. Let’s use it for that purpose to maximize economic welfare and let’s have other laws carefully designed in order to achieve social justice goals. That’s it.

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MR. SANDEEP VAHEESAN:

So I’ll offer a couple of responses to Doug’s rebuttal. So he mentions that consumer welfare is the objective of antitrust and that’s certainly what the Supreme Court has said, that’s what the agencies have said since the early 1980’s. But that’s really based on some false history by Robert Bork. Robert Bork claimed that he reviewed the legislative history of the Sherman Act and found that consumer welfare is what Congress sought to promote. But historians have actually reviewed the legislative histories of not only the Sherman Act, but also the Clayton and FTC Acts, and said that Robert Bork’s legislative history’s made up out of whole cloth. Congress had much more different and ambitious goals in enacting the antitrust laws. It sought, among other things, to disperse power in American society and ensure that the trusts and monopolists that ruled American life in the late 19th century couldn’t turn a nominally democratic society into a truly oligarchic one. So I dispute the idea that antitrust is about consumer welfare. If we seriously believe that congress is our national legislature and national policymaker, its judgments and intentions should prevail over the views of a conservative legal scholar, so that’s one point.

Second point, is antitrust law disperses or concentrates power one way or the other; it’s not possible for it to be neutral. Since the early 1980’s, we’ve lived in a system where the agencies and the courts have said we’ll generally be tolerant of mergers, we’ll generally be tolerant of vertical restraints, but on the other hand, we’ll be categorically hostile to horizontal coordination; not just by large firms but also by independent contractors and small firms. So antitrust has really served to concentrate power at the very top. It hasn’t stood apart from economic and political trends over the last 40 to 45 years.

Third, even if you accept consumer welfare as the only objective of antitrust law, the present system is not working particularly well. You know, take the example of mergers. There’s been a wealth of research over the past five, 10 years – John Croke, an economist, but many others—that have found that mergers frequently lead to higher prices, higher price cost margins, and I can even offer you a line from Herbert Hovenkamp and Carl Shapiro; people who typically don’t agree with my perspective. They said the empirical evidence shows a positive relationship between seller concentration and prices or price cost margins.

And on the flip side, research has shown that mergers rarely create productive efficiencies. A NYU business scholar by the name of Melissa Shilling actually reviewed the merger literature, conducted case studies of her own, and concluded that the only consistent winner in M&A activity appeared to be the investment bankers who arranged these deals. So even if we care about consumer welfare and nothing else, the current system is not working and I point you to a number of sectors—hospitals, telecommunications—where merger policy has contributed to higher prices, higher price cost margins.

Third—I should say, fourth, the present system is actually not very transparent; it’s actually quite opaque and subjective. There are a couple of good articles in ProPublica in 2016 and 2017, that document the intense lobbying that goes on to get mergers and acquisitions through, in which economists present often farfetched theories on how a merger will lead to productive efficiencies and benefit consumers and the public is really not clued in on what’s happening. A relatively narrow clique of lawyers and economists make the relevant decisions. So if we’re talking about transparency and rule of law, the current system is not satisfying those requirements.

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And last but not least, I think Doug was responding to a little bit of a strawman when he said that my alternative system requires hopeless subjectivity and the comparison of apples to oranges. I actually think the current system’s deficient for that reason because it requires antitrust enforcers and courts to weigh short-term price increases against dynamic benefits over time, against changes to equality. The current system requires these complicated cost-benefit judgments. The system I’m calling for would actually be much simpler, much more transparent, much more objective, and easier not just for businesses to understand and follow, but for the public to understand. And since we’re talking about public law, I think the public understanding aspect of it cannot be downplayed or ignored.

MR. DOUG MELAMED:

Let me just respond, if I can, to a couple of the points. First, about legislative history. I have not studied it in great detail but do think it’s probably correct that Robert Bork’s interpretation and some very influential articles in the 1960’s is incorrect and that Congress did not have a specific focus on what he called consumer welfare, but actually I think meant to be total welfare.

On the other hand, I think the contrary view that was summarized briefly by Sandeep that Congress had intentions to serve these various distribution and social justice objectives, confuses means and ends. It is true that there are, in the legislative history of the Sherman Act and the Clayton Act, as there are in many laws, statements by congressmen who point to the desirable byproducts, the desirable consequences of this body of law, and with respect to the Sherman Act, they talk about a guarding against big corporations and protecting small corporations and all that.

But that’s not what the law said. That may have been a byproduct of the law that they intended but the law that they intended was quite specific. If you look at the Sherman Act and the Clayton Act, they’re very general and they’re very narrow in the following sense: They talk about anticompetitive conduct, not about being too big or too powerful. They talk about unreasonable restraints, about monopolizing, and about merging in a way that may tend to injure competition. So the focus has always been on desirable conduct, not on redistribution, although it is thought that enforcing laws prohibiting that kind of conduct would have some redistributional benefits.

My understanding of legislative history is, it really says that Congress intended to codify the preexisting common law of unfair competition. And courts have been clear for decades that antitrust is ultimately a common law kind of subject, that takes its meaning in an evolving common law way through adjudication. And I think that’s the proper way to figure antitrust, not to find some snippets from congressional hearings and congressional testimony about the consequences of a sound antitrust law that some of us supported and envisioned, so that’s one thing.

The second point is going to be more brief. It is not true, as I think Sandeep’s phrasing may have suggested, though I’m not sure he meant this, that antitrust has helped the powerful at the expense of the powerless. It is probably true that antitrust has been underenforced with respect to certain kinds of anticompetitive conduct and with respect to certain kinds of mergers. But it hasn’t affirmatively aided large companies; it simply hasn’t been quite as aggressive as Sandeep and I, at least, think it ought to have been. Similarly, it hasn’t singled out workers for harsh condemnation of collusion; it went after Apple, which made a similar argument that it was orchestrating a cartel of book publishers in order to erode Amazon’s monopoly and the court correctly said we don’t allow antitrust vigilantism here. You’ve entered into an anticompetitive cartel.

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So I think the conversation should really focus, as Sandeep ended up, on the question of how can antitrust be improved better to serve the objective that has evolved through this common law process in the courts, the objective of promoting economic welfare?

MR. SANDEEP VAHEESAN:

So, I’ll start with the issue of statutory texts. So all the principle antitrust statutes are quite open-ended, so the Sherman Act speaks in terms of restraints of trade, the Clayton Act speaks in terms of mergers that may tend to substantially lessen competition. The FTC Act, section five, at least, speaks in terms of unfair methods of competition. So interpretation is unavoidable; the text is not nearly specific enough for agencies and courts to say, you know, X merger is illegal or Y monopoly is illegal. Interpretation is inescapable here and that means we have to rely on interpretative aids and I think legislative history is traditionally one of those important interpretative aids and it’s certainly a more defensible interpretative aid then, let’s say, Robert Borks’ legislative history.

Second, on the issue that the Congress delegated decision—making power to the Supreme Court and the courts, I think that’s actually incorrect. So one quick response is the law professor, Sanjukta Paul, has written a great article called "Reconsidering Judicial Supremacy in Antitrust" that really goes into the detail of the legislative debates and concludes that Congress did not intend to delegate broad policymaking power to the courts.

And secondly, and in some ways an even more powerful fact, is in the Standard Oil Decision in 1911, the Supreme Court announced the rule of reason and said, we nine justices will have the power to interpret the Sherman Act going forward. And what did Congress do in response to that? Congress did not acquiesce. In fact, it enacted two new antitrust laws to reign in the power of the courts and ensure that its vision of dispersing power in the economy would be advanced. First, the Clayton Act prohibited very specific practices, mergers, as well as exclusive dealing, tying in interlocking directorates, and second, Congress set up the Federal Trade Commission to serve as the national competition policymaker, identifying new and emerging competition issues and developing policies and rules in response to that.

So I think the idea of the common law thesis has certainly been adopted by the Supreme Court, you know, you probably have a majority, if not a unanimous court agreeing with that assessment, but I think as a historical and legal matter, it’s incorrect, even if it is correct, as a descriptive matter of where the courts stand right now.

And two other quick points. So, Doug said that antitrust has not affirmatively hurt the powerless but I think it has. You know, millions of workers in today’s economy are classified or misclassified as independent contractors. Uber drivers are probably among the best-known examples right now; these are workers often making less than minimum wage. And thanks to antitrust law and official policy statements of the DOJ and FTC, they cannot organize against Uber and Lyft, you know, two entities that have unlimited amounts of venture capital that have been allowed to burn through billions of dollars in an effort to dominate local cab markets around the world, been allowed to buy out rivals, been allowed to break municipal cab regulations, as well as federal labor law. So against these behemoths, antitrust has come in and said Uber and Lyft, we will leave you alone, but drivers, you better not organize. If you do, you can expect an investigation and possibly enforcement actions even though you’re powerless actors by any definition. This isn’t really Apple going up against Amazon; this is a group of precarious workers often making poverty level wages who cannot avail themselves of the labor exemption of antitrust law.

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MR. DOUG MELAMED:

A couple—just a couple of brief thoughts. On the legislative history, I’m glad you reminded me that the Supreme Court, the contemporaneous Supreme Court of the 1890’s and early 1900’s, didn’t understand the antitrust laws the way you’re saying they should have been understood. Now, maybe that was a rogue court but I have a suspicion it’s a little presumptuous for us to think we have a better understanding of the legislative history 130 years ago than the contemporaneous courts did.

But more substantively, let’s look at the Uber, Lyft story that you mentioned. First of all, they haven’t had any difficulty attracting workers so you have to wonder whether they are really reducing or rather enhancing the options and alternatives available to the people who want to be drivers for Uber and Lyft. But even leaving that aside, it is not the antitrust laws that determine whether they are employees or independent contractors; that’s a matter of labor law and state law. So the antitrust laws can’t be blamed if there was a mistake in interpretation and I have no idea whether there was or there was not. I’m going to take as a given the fact that they’re independent contractors, not employees. And if they’re independent contractors, then the question becomes should the antitrust laws have an exception that it doesn’t presently have for cartel behavior by people deemed to be independent contractors?

Well, where do you draw the line? What about doctors that get together and form, in effect, price fixing cartels to raise prices, charge to patients and to insurers all around, you know, their service areas; they do this all the time, although they’re being increasingly—antitrust laws are being enforced against them with increasing seriousness. And some of these doctors are making six and seven figure incomes and trying to make even more. Should they be entitled to the exception for workers to bargain collectively? Or do we have to say only poor workers or black workers or unskilled workers? And how are we going to write a law that is fair, that treats people equally, that is a sound policy and that is an antitrust law based on economic welfare, rather than a redistribution law? And I’m not opposing redistribution laws; it’s just that I think they should be passed by an appropriate legal body and with a careful consideration of the interests they are intending to serve rather than asking the question of, how do you compromise interests that ought to be shared by the antitrust laws?

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MR. SANDEEP VAHEESAN:

Yeah, so on the first point about the early judicial interpretation of the antitrust laws, so this was in 1890’s—the 1890’s, the early 1900’s, so this was the time of the Lochner court; a court that was pretty infamous for adopting anti-worker positions and issuing anti-worker rulings, using the antitrust laws at the time to restrict organizing firms and industries and advancing the prerogatives and privileges of big businesses. So yeah, I don’t trust their judgments on the legislative histories. It’s not really a question of whether they were engaging in good faith analysis or not; they had a particular ideology that was, you know, quite different from a progressive one as defined today and even the progressive one that animated the passage of the antitrust laws.

It’s worth remembering that the antitrust laws were passed at the behest of farmers, workers, and other small producers in the economy. This law didn’t come out of anywhere; it was the product of the Knights of Labor, the Grange, the Farmer’s Alliance; so this was a product of small pea populism, you know, embodied by people like William Jennings Bryan. Congress was responding to that pressure; it wasn’t trying to promote, quote end quote, "competition indiscriminately," it was trying to promote a fair, balanced and small "d" democratic economy. So I don’t really defer to the Lochner court’s judgment here; I don’t think it’s entitled to any special deference.

On the issue of workers for Uber and Lyft, it’s not really surprising that these platforms attract millions of workers. I mean, we’ve been living in a period of chronic persistent unemployment and underemployment where millions of people can’t get a steady, rewarding paycheck so when given the choice of not paying their bills or working for Uber, most people understandably work for Uber, so I don’t think we should really take it as an assessment of Uber and Lyft’s overall attractiveness as employers, rather an assessment of the rather bleak macroeconomic picture here; you know, issues that transcend antitrust law.

So on the issue of line drawing, you know, Doug brought up the example of doctors who collectively bargain, you know, they’re not very sympathetic professionals. As Doug mentioned, they’re often making six or even seven figures. But in many cases, they are actually collectively bargaining against Aetna and Cigna and not necessarily against the public, so I think it’s a little bit more complicated than Doug suggested; they’re not collectively bargaining against you and I as patients but against insurers. And insurance markets in the United States are generally quite concentrated.

But you know, putting that aside, where do you draw the line? I think that’s a legislative judgment; that’s a judgment that Congress should make. It should not be made on a case-by-case decision. You know, of course, DOJ and FTC will exercise prosecutorial discretion and, you know, I think it’s more important for them to use their resources to protect the vulnerable, rather than the powerful.

But in terms of black letter law, that’s a judgment that should be made by Congress and Congress really did make these judgments in the past. The Clayton Act speaks very broadly in terms of protecting workers; it has the language of laborers not being a commodity or article of commerce. Similarly, the Norris—LaGuardia Act and National Labor Relations Act has announced broad rights to organized. So Congress has made these judgments in the past; it’s just the courts have often ignored those judgments or rewritten those judgments over time. So I’m not calling for case—by-case decision-making by the DOJ and FTC; I think that’s simply unworkable. I’m calling for Congress to reassert its authority and say that this is a matter of national importance. Congress responds to the people; the Supreme Court does not. Congress should be deciding these important questions and I think the recent House antitrust subcommittee report on the big tech companies is an encouraging sign that Congress is ready to take up the mantle again and reclaim authority from the Supreme Court that has largely operated unchecked since the mid-1970’s and hold that, you know, we, the national legislature, are going to make competition rules.

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Last but not least, this goes back to an earlier point that Doug mentioned about competition and he said antitrust protects competition. But competition is not a self—defining term. And when we’re talking about competition antitrust debates, we’re really trying to figure out what are the types of competition we should encourage and what are the types of competition we should discourage? I happen to think companies should succeed and be rewarded for succeeding for making better products, offering fair prices, treating their workers well. I, however, don’t think companies should compete and succeed by exclusionary contracts, predatory pricing, deceptive advertising. So when we talk about competition, we really need to scrutinize what we mean by competition; what are the forms of competition we want the law to encourage and what are the forms of competition we want the law to restrict or prohibit?

MR. DOUG MELAMED:

So, yes, Congress has spoken; Congress passed law—a law creating an exemption from the antitrust laws for employees when they organized into unions. It didn’t create a broader exemption than that. The courts did; the courts created an implied exemption; implied exemption in some circumstances that go beyond what Congress did. But Congress, when it thought specifically about whether to exempt workers from the antitrust laws past the narrow exemption based on union activity. Now we may want to revisit that but the question is, do we revisit in the antitrust context or in the labor law context or in some new proworker context?

Here’s the problem from the antitrust context: If you imagine a bunch of workers getting together to bargain collectively—let’s say all the gig drivers, Lyft and Uber in California are forming a collective bargaining organization—they’re going to have market power. If they have market power, they’re going to exercise that power to raise price and restrict output; that’s what monopolies do. That’s going to reduce economic welfare except maybe, in a very specific circumstance with a counterparty, Lyft and Uber and Grubhub and who knows who else, themselves exercise an equal amount of market power, but chances are they don’t because you can see already, I’ve already listed three and there are probably many, many more who were competing for these gig workers. So you wound up having—wind up having disproportionate power on the worker side and that reduces economic welfare for everybody. Not the workers; everybody else.

Now I’m not saying there’s no legitimate role for workers to be able to bargain collectively but it’s a very complicated question and it requires understanding of who these workers are, why are doctors to be treated differently—by the way, my daughter’s a doctor; I have some conflicting interest here, or one of my daughters is—and how do you take into account the power of the counterparty because if the counterparty doesn’t have market power, all we’re talking about is old fashioned cartel behavior in which the people get together to create market power at the expense of everybody else. This is a very complicated problem and it’s not one, I think, that can be dealt with by simply talking about let’s pass a law that gives workers an exemption without taking into account a much broader set of economic considerations that are necessary in order for antitrust to continue to promote and protect economic welfare for all of us.

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MR. SANDEEP VAHEESAN:

Yes, on the issue of independent contractors versus employees, the Clayton Act makes no such distinction; it simply talks in terms of the labor of a human being. The independent employee distinction is a subsequent judicial loss that emerged in the 1940’s and the ’50s, so Congress actually spoke extremely broadly in the law; it’s the courts that read that language narrowly. So I think that’s one issue here. You know, judicial reinterpretation and disregard for congressional—not only congressional intent but in some cases, the plain text of the law—has been a chronic problem in antitrust jurisprudence.

Second, on the issue of economic welfare, so even assuming that this, you know, neoclassical concept is the only appropriate goal of antitrust, I see some deep tensions here because we live in an economy dominated by monopolies and oligopolies – like most markets have three, four, or five players—and there seems to be very little concern about the loss of economic welfare in these concentrated markets. Instead, a frequent response you see is, well, welfare is not actually being sacrificed by these concentrated market structures; these firms are just being rewarded for their superior productivity. They’re just more productive as enterprises than their rivals. And you know, that’s often presented as an assertion; it’s not actually documented through facts that, you know, Uber and Lyft are more productive than traditional cab companies. And I think it might be a useful example to elaborate on because there’s been a lot of analysis about Uber and Lyft. You know, the general perception and one that’s been advanced by the companies themselves, as well as the antitrust community, is these are disruptive new entrants, they are simply better at providing cab service than, you know, Yellow Cab or your traditional independent cab operator.

But a transportation scholar by the name of Hubert Horan has actually dug into Uber and Lyft’s books and evaluated their business operations and he concluded that these companies aren’t actually more efficient at offering ride hailing service; that’s not where their advantage is. He said, actually, on those grounds, traditional cab companies are more efficient at maintaining cab fleets and employing drivers. He said their advantages are really two-fold.

First, as a matter of corporate policy, they’ve chosen to ignore municipal cab regulations that traditional cab operators have to comply with, so there’s a competitive advantage. If I don’t have to—if I’m in competition with Doug and I choose to ignore certain laws, I’m going to have a cost advantage over Doug and probably beat him in the marketplace. Second, they also have unlimited, seemingly unlimited, financial support from venture capital, which often takes the form of people like Jeff Bezos, Blackrock, Softbank, and the Kingdom of Saudi Arabia, so they have the privilege of losing billions of dollars every year that, you know, your small independent cab operator doesn’t have.

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So when we talk about economic welfare and superior productive efficiency, I think it’s really worth digging into the details instead of assuming that just because Uber or Walmart offers lower prices than their rivals that they are somehow more productively efficient, you know, productively efficient meaning, they take the same number of inputs and produce more outputs than their rivals do.

So in light of that, I think we really have to think about, you know, fixating on the loss of economic welfare from small players like Uber and Lyft drivers coordinating, and step back and ask, are we actually promoting and protecting consumer welfare by giving Uber and Lyft and a number of other venture capital backed firms carte blanche to dominate entire markets?

MR. DOUG MELAMED:

Well, just two quick comments. The notion that most markets are dominated by four or five firms is ridiculous; it’s ridiculous. I mean, there are some markets—there is some over, there is some—apparent increase in concentration using large aggregates and, yes, I see [inaudible] commerce department they did and so forth, but the idea that most markets are dominated—I mean, just walk down the street. How many gas stations, how many restaurants, how many hair salons, how many gymnasiums, on and on and on? Okay, so we’re talking about a much narrower problem, I think, than the one that Sandeep has in mind.

And second, look, I’m not going to sit here and defend Uber and Lyft but the idea that the taxi companies were efficient when they didn’t have the kinds of apps and ordering service and other things that the consumers have flocked to I think is a little bit ridiculous. Clearly, innovators shake up markets and they create enormous amounts of wealth and we need to have an economic system that creates incentives for them to do that, while at the same time, guarding against anticompetitive conduct that reduces welfare.

MR. SANDEEP VAHEESAN:

Yes, to quickly respond, you know, the Uber and Lyft issue, you know, the innovation wasn’t the app; the app is fairly trivial. The innovation was large-scale lawbreaking, whether it is municipal cab regulations or federal labor and employment laws. I think it’s worth keeping those things in mind instead of focusing narrowly on the app and saying that the app is what led to the rise of Uber and Lyft. Traditional cab companies have offered apps, too, but so long as they choose to comply with the relevant law, they cannot compete with Uber and Lyft on a cost basis.

On the issue of concentration, yes, I agree, restaurants are sort of an exception. There are still small, family-owned restaurants that do quite well in the economy; we’ll see whether that’s true after Covid. But in a number of other markets, concentration really is the norm, so I’ll just focus on one: Healthcare. Healthcare accounts for about one out of six dollars of GDP in the United States and local hospital markets across the country are highly concentrated. Insurance markets are highly concentrated. Pharmaceutical markets are highly concentrated. So even if you ignore the rest of the economy and say that concentration is not really a problem, it is a huge problem in what is the most important and largest sector of the economy. And part of the reason it’s so concentrated is because federal antitrust enforcers and the courts have failed to preserve unconcentrated, competitive markets and have allowed rollups in hospital market after hospital market, same story in insurance and pharmaceuticals.

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MR. DOUG MELAMED:

Hospital mergers have been clearly an area of failure in antitrust enforcement; I don’t dispute that.

MS. MANDY CHAN:

So, you know, I have a question for both Professor Melamed and Sandeep. What are your thoughts on the composition of the antitrust community and do you think that that composition has had any impact on policymaking or the application of the antitrust laws?

MR. DOUG MELAMED:

I’m not sure that—

MR. SANDEEP VAHEESAN:

I think so. I mean, if you look at antitrust debates, they are—let’s, you know, on racial, occupational, and educational grounds, not very diverse. You’re talking about a relatively small group of lawyers and economists who are disproportionately white and male, who often spend time representing large corporations, so there is a composition problem in the antitrust community. These are laws that affect all of us. It shouldn’t be left to a relatively small elite that brings a, you know, corporate-oriented perspective to these issues to be deciding all of the relevant policy questions.

You know, if we moved over to labor law, we’d find it deeply concerning if labor law was interpreted and applied entirely by management side lawyers. You know, that’s one complaint against the Trump administration and Secretary of Labor, it’s that NLRB have been people who spent their careers representing management against unions. But unfortunately, when you move over to antitrust, there’s no similar concern, whether in democratic or republican administrations, have just accepted that most of the relevant staffers in leadership will come from corporate defense bar and industry and that really has to change and I think there are other models, encouragingly.

So I worked at the CFPB for about three years and policy debates there were very, very different. You know, lawyers and economists played an important role; we had our place but we also engaged with the public, we engaged with faith leaders, we engaged with champions of racial justice, we engaged with consumer advocates. We just talked with a much broader range of stakeholders than the DOJ and FTC typically do. And I think that model should be ported over to antitrust. There’s no reason that issues of public import should be decided exclusively by this relatively narrow, nondiverse clique of lawyers and economists.

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MR. DOUG MELAMED:

Well, the agencies, in my experience, certainly consider the input from a variety of sources—plaintiffs and customers and public interest organizations, as well as the kinds of lawyers that Sandeep had in mind.

I do think there are two things that are related though. One, antitrust, the way it’s taught and the way it’s practiced in the agencies—not so much in private litigation but in the agencies—is very heavily influenced by economics. And economics, unfortunately, has tended to skew very male. The economics profession is taking account now of the problem of male skew among economists and some of the consequences of that. I think that may explain a little bit of the gender disparity, but I think it’s declining over time as I perceive it, including a very talented associate on this panel. But I think there clearly is some issue there, whether that affects outcomes in the way that we’re talking about today, is not clear, but I think there really is an unfortunate demographic skew in the antitrust community, generally—plaintiff side, as well as defense side.

That relates to a larger problem, which is that antitrust has become increasingly technocratic and increasingly complicated, so much so that I’ve come to think when I look at some recent Supreme Court—not just the Supreme Court—recent decisions like American Express, Qualcomm and others, that judges just don’t have a clue; it’s just becoming too complex for them. So I do think there’s a serious question of whether antitrust doctrine, antitrust law, needs to be revised a bit, perhaps in ways that make it a little bit less technocratic, a little more accessible to generalist courts. And to the extent that a byproduct of that might be some amelioration of the demographic attributes that are implicit in the last exchange.

MR. SANDEEP VAHEESAN:

So, I’ll offer a quick thought on the economics of antitrust; I’m glad Doug brought it up. So it is true, antitrust has become increasingly dominated by economic concepts and sort of economistic discourse. You know, putting aside whether that’s actually consistent with, you know, legislative intent and plain text of the law, economics in antitrust has been very theoretical, very deductive, not particularly empirical, so if you read Supreme Court decisions, you know a lot of agency policy documents, they tend to work from, quote end quote, "simplifying assumptions to understand the world." So if you read the 2010 Horizonal Merger Guidelines, it has a piece in there saying that mergers generally produce more efficient firms and can benefit consumers. And you know, that’s an assertion that actually doesn’t have much empirical basis behind it; it’s taken on almost a quasi-religious status and people just repeat it and don’t really ask—don’t often ask, like, is this actually true; what’s the basis for it? There’s actually a lot of evidence showing the opposite; that mergers often make firms less efficient, not more efficient.

So to the extent that we need economics in the field, the economics should be much more empirical; it should be about economists and statisticians and accountants actually going out there and studying firms and studying markets. And you know, I’m obviously biased when I say this but I think the CFPB presented a good model. We had a team of economists that would actually go out and study consumer financial products and understand how were consumers using them, how did they understand the terms when they took out a loan, did they actually have any understanding of, you know, arbitration clauses in their credit card agreement? So we need a much more empirical antitrust economics and one less dependent on simple and often simplistic theory.

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MR. DOUG MELAMED:

Antitrust law as applied, in my experience, in court and in the agencies, is very empirical and that’s one of the problems, in a way, a lot of arcane econometric work is done and so forth. You can’t do it on a general level because it’s not regulation; it’s case—by-case enforced by 51 government agencies and every private party that’s been injured by a violation and by generalist courts around the country. You do it on a case-by-case basis. The problem is that a lot of judges don’t really understand that and so they default to the simpleminded notions that they had picked up when they were in law school or went to a sort of a law and economics bootcamp for judges or whatever, so there is a problem, I think, with the way the judges, many judges, deal with antitrust issues, but it’s not that the practitioners of antitrust are insufficiently empirical.

MR. SANDEEP VAHEESAN:

Yeah, I guess what Doug said lends support to my earlier point about Congress reasserting its authority in this area. If the judges are just hopelessly indoctrinated by these law and economics seminars, and there’s a lot of evidence that they are, we can’t count on them to get things right so we need someone else to step up and I think that is, in part, Congress. I think the FTC could be doing a lot more here; the FTC has the authority to propose and finalize competition rules; it’s not a power it has used much in the past 40 or 50 years but there are tools that the FTC has to sort of reclaim power and put its real expertise to use and prevent judges with, let’s say, imperfect learning from making all the relevant decisions.

MR. DOUG MELAMED:

You have more confidence in Congress’ ability to fine tune economic policy than I do.

MR. SANDEEP VAHEESAN:

I have more faith in Congress than I do in the judges who appear to lack both expertise and democratic accountability so it’s really a relative question here.

MS. MANDY CHAN:

Well, thank you so much, Professor Melamed and Sandeep. With our sort of last couple of minutes here, do you have any parting thoughts or suggestions for where our audience can look up further about these issues and learn further about these issues?

MR. SANDEEP VAHEESAN:

I’ll offer a couple of thoughts. I think the recent House antitrust subcommittee report is definitely worth reading. It really looked under the hood of the big four tech companies and showed the methods and acquisitions that they’ve used to acquire dominance in a number of markets; I think that’s a highly worthwhile document to read.

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And maybe a little bit unexpectedly, I think the complaint of the DOJ and 11 states filed against Google last week is a fine piece of legal and analytical work and should be read by all antitrust lawyers and practitioners.

MR. DOUG MELAMED:

I think the Google complaint is a good legal document but I disagree with Sandeep about the House report and I think that illustrates my concern about Congress. Yes, they gather a lot of good and interesting information; that was a valuable service. But it was not—it was a political document; it was not an economic analysis, legal analysis, or policy analysis. It didn’t look for other possible explanations of ambiguous information. It was very tendentious, used manipulative language, and didn’t consider contrary policy arguments when it proposed recommendations. So it was just a political document that had really very little analytical value, I think.

MR. SANDEEP VAHEESAN:

I would just say these are all political documents; it’s just whether we’re honest about the political content and status or not. There is no apolitical intent in antitrust.

MR. DOUG MELAMED:

And you could also be serious about the analysis that’s required to do good lawmaking.

MR. SANDEEP VAHEESAN:

Absolutely. And I think the report embodied that. And I certainly believe that analysis should be careful and rigorous and it’s often been missing in antitrust so I don’t dismiss or discount the value of careful thinking, careful fact gathering, at all; I think it’s vitally important.

MS. MANDY CHAN:

Well again, thank you so much for your time and your thoughts today; incredibly interesting.

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Notes:

1. Mandy Chan is an associate at DLA Piper focusing on antitrust and competition law. She serves as the Co-Chair of the US Chapter of Iris, DLA Piper’s LGBTQ Resource Group; Vice Chair of the San Francisco Chapter of the Leadership Alliance for Women (LAW), DLA Piper’s Women’s Resource Group; and Co-Chair of the San Francisco Diversity and Inclusion Committee. Mandy is the Antitrust and Unfair Competition Law Section’s Liaison with the California Young Lawyers Association.