Competition Corner by Alden Abbott - March Madness at the FTC & Some Previews of Coming Attractions

Issue #14

Welcome back to my little corner of the antitrust and consumer protection world. It’s busy as ever here!

Public Comment To The FTC

My Mercatus colleague Liya Palagashvili and I will soon release our public comment to the FTC, critiquing the Commission’s notice of proposed rulemaking on noncompete clauses, which seeks to ban them. In addition to raising federalism and economic policy concerns, we recommend that the FTC consider an alternative consumer protection rule that would require firms to make ex ante disclosures of their noncompete clauses to prospective employees.

March Madness

As the FTC bids a fond farewell to outgoing Commissioner Wilson, it is busy as ever following Captain Kirk’s advice to “boldly go where no Commission has gone before.” On March 10, the Commission jumped the gun on NCAA basketball’s March Madness, through a press release highlighting the FTC’s potential interest in regulating a new set of contractual relationships – franchising. I have summarized the legal and policy deficiencies of that press release in a March 14 Truth on the Market blog post.

The Commission’s version of March Madness is framed as a request for public comments “on franchise agreements and franchisor business practices, including how franchisors may exert control over franchisees and their workers.” Far from reflecting a neutral dispassionate FTC interest in assessing the economics of franchising, the FTC’s press release clearly evinces a desire to crack down on villainous franchisors who are framed as threats to workers and franchisees. This is unfortunate, because, as explained in my Truth on the Market post, the American franchising sector has been an economic success story. Moreover, from a law and economics perspective, franchising helps reduce transactions costs and solve agency problems. The FTC’s press release makes no reference to these substantial economic benefits.

Instead, the press release warns ominously of “growing concern around unfair and deceptive practices in the franchise industry”. It asserts that “the promise of franchise agreements as engines of economic mobility and gainful employment is not being fully realized”. It reveals an FTC interest to “unravel how the unequal bargaining power inherent in these [franchising] contracts is impacting franchisees, workers, and consumers.” The Commission cites no support for these critiques of the franchising sector.

Furthermore, the FTC fails to explain the legal basis of its authority to deal with mere “unequal bargaining power,” perhaps because no such authority exists. The press release’s suggested questions on which it desires public comment are replete with references to the details of franchising contract terms, labor costs, wages and working conditions, and the rationale (!) for the use of foreign languages in franchsisors’ marketing efforts. While these referenced issues may be of academic interest, they extend far beyond the Commission’s statutory enforcement powers to combat unfair methods of competition and unfair or deceptive acts or practices.

Finally, the press release closes by asking the public whether its proposed noncompete rule should apply to noncompete clauses between franchisors and franchisees. As I explain at Truth on the Market, barring noncompetes could severely undermine the incentive of franchisors to create new franchising opportunities in the first place, thereby reducing the use of franchising and denying new business opportunities to potential franchisees.

If the FTC is concerned about anticompetitive or unfair or deceptive franchising practices, it has ample authority to challenge them under its FTC Act authority, and under the FTC’s Franchising Rule. The Commission would be wise to leave March Madness to college basketball teams, by disavowing any interest in promulgating a far-reaching new regulatory enactment directed at franchising. One can only hope.

FTC Spring Enforcers’ Summit

On March 27, the FTC and DoJ will host an international antitrust-enforcement summit, featuring senior state and foreign antitrust officials. The agencies hope that it will “facilitate discussions on complex challenges in merger and unilateral conduct enforcement in digital and transitional markets”- code for expanding agency resources and cooperation in policing potentially pro-competitive and pro-consumer deals in innovative new industries. In my latest Truth on The Market piece, I argue that the agencies should instead lead an international dialogue on strengthening competition advocacy and curbing burdensome anti-competitive regulations that distort markets, impede competition, and hurt consumers. This would do more to promote competition and economic prosperity than just discussing inter-agency merger policing, something that’s already the subject of countless white papers and conversations among enforcement staff around the world. It would also be consistent with the Biden administration’s “whole of government approach” to competition policy.

Book Preview: Singham and Abbott, Trade, Competition and Domestic Regulatory Policy (Routledge, 2023)

On March 29, my new book (coauthored with trade and competition scholar Shanker Singham) will be released by Routledge Press (see here). The book explores issues that arise at the intersection of competition, international trade, intellectual property, and regulatory law. Private property rights protection and consumer welfare enhancement serve as overarching organizing principles in discussing these legal regimes. In that regard, the book explains how anticompetitive market distortions imposed by governments limit the ability of these laws to promote economic innovation and consumer welfare. It also calls for remedies to deal with these distortions (which generally cannot be blocked under existing antitrust and trade law provisions). Bilateral and plurilateral international trade agreements, for example, might establish sanctions against anticompetitive trade agreements. A publisher’s book summary follows:

Trade, Competition and Domestic Regulatory Policy presents a unique combination of analysis of both international trade and investment policies, and competition and regulatory policies. Increasingly, policymakers, businesses and the law and economics professions need to better understand how changes and policy developments in international trade and competition developed and how their interaction affects global business.

In addition to providing a comprehensive analysis of the attempts of international trade theory and practice to deal with tariffs, non-tariff barriers, market distortions and failures to protect various kinds of property rights, this book contains a detailed treatment of how property rights protection, including intangible property rights, is a critical element of ensuring open trade and competitive markets. It examines how these rights have developed over time, and how they have been integrated into trade and competition policy.

This book will be of significant interest to students of international business, professors of economics, law and business, and policymakers at the intersection of trade, investment, competition and property rights.

Commentary

I recently wrote an article on the trade practice of bundling goods and services for the Concurrences Global Dictionary of Competition Law, the first dictionary dedicated to global competition law worldwide.

Sneak Previews of Papers

My colleague Satya Marar and I will be releasing a Mercatus Policy Brief on the Robinson-Patman Act (RPA) in the near future. The FTC recently has shown an unfortunate interest in reviving enforcement of this benighted statute. We will explain why the RPA harms consumers and the competitive process, and will argue for repeal of this special interest law.