Conversation between Alden Abbott and Gregory Werden

Recorded on November 30, 2023, at the Mercatus Center

Transcript

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to bbrophy@mercatus.gmu.edu

Alden Abbott: Welcome to the Mercatus Competition Corner Podcast conversation. I am Alden Abbott, Senior Research Fellow at the Mercatus Center at George Mason University and Former General Counsel of the Federal Trade Commission.

I’m joined today by Dr. Gregory Werden, Mercatus Center Visiting Scholar and former Senior Economic Counsel in the Justice Department’s Antitrust Division. Dr. Werden had a highly distinguished four-decade career at the Justice Department. He helped prepare numerous sets of enforcement guidelines and over a hundred briefs filed in the appellate courts or the Supreme Court. He is the only antitrust division employee ever to receive the Department’s Mary C. Lawton Lifetime service award. Throughout his government service, he actively contributed to scholarship in antitrust. After retiring from government service in 2019, he wrote a book entitled The Foundations of Antitrust: Events, Ideas, and Doctrines, published in 2020 by the Carolina Academic Press.

Dr. Werden has, in his research, addressed an issue of fundamental importance to the Federal antitrust enterprise: What principle should guide enforcement of the antitrust laws? Doctor Werden has supported a “harm to the competitive process” standard that condemns practices and transactions that interfere with competition as a process.

He finds support for this approach in the history of the Sherman Antitrust Act.

Now, other scholars and many former US. Antitrust agency heads have viewed promotion of consumer welfare as the goal of the American antitrust laws. There are some differences of opinion, however, as to what this consumer welfare standard means. For example, Professor Herbert Hovenkamp, author of the most cited US. Antitrust law treatise, has advocated for a consumer welfare standard that, generally speaking, condemns reductions in output.

Now today we’ll explore the justifications for the consumer welfare and competitive process approaches and the extent to which they yield similar results. Time permitting, we will then briefly discuss two recent enforcement policy guidance documents released by the Justice Department and the Federal Trade Commission. Some scholars have contended that those documents are at odds with longstanding, economically oriented approaches to antitrust and in tension with the rule of law. Before proceeding, let’s start by looking at consumer welfare in the antitrust context.

In 1979, in Reiter v. Sonotone, the Supreme Court stated that Federal antitrust law, and in particular the Sherman Act, is quote “a consumer welfare prescription.” Close quote.

Since that time, until the Biden Administration, federal antitrust enforcers consistently have highlighted consumer welfare enhancement as the goal of antitrust. Now, how have the Federal courts clarified, or have they clarified what is meant by consumer welfare?

Dr. Werden, your thoughts, please.

Gregory Werden: Well, in short, they haven’t. But I read the cases to use the term “consumer welfare” in one of two ways. When courts are making broad generalizations, as in Reiter v. Sonotone, they’re referring to the economy as a whole, and when they do that, I’m pretty sure “consumer welfare” means the welfare of all of the consumers in the economy.

In a lot of decisions, the term is used in a more narrow focus, and I gather from the way courts usually talk about these things in antitrust cases that courts are referring to the relevant market. When courts are referring to the relevant market, and they use the term “consumer welfare,” I assume that they mean the welfare of the consumers in that market.

There are broader uses of the term, and many antitrust professionals use the term consumer welfare to mean the welfare of anyone harmed by a violation of antitrust law. I can remember lots of conversations, although not with specificity, over the years when we talked about “consumer welfare” at the Department of Justice, and the market  didn’t have any consumers in the usual narrow sense. And I can remember it in some cases when the victims of antitrust violations would not be buyers, but sellers. And in most cases, people were flexible enough to say, “yeah, yeah, yeah, that’s what we mean by consumers in this case.”

Alden Abbott: So that’s interesting. I guess you’re leading up to suggesting that since—I have a feeling we’re going towards your process idea by touching on these different understandings of what “consumer” means so given the lack of precision surrounding the term consumer welfare, is it still safe to say that Federal enforcers, prior to the Biden Administration, maintained a fairly consistent standard in deciding what sort of conduct merits a challenge?

Gregory Werden: Well, I worked in the Justice Department from 1977 to 2019, and I can speak with some authority on that. I can’t speak with any authority on the Federal Trade Commission. During my time in the Department of Justice there was a great deal of consistency on what was challenged, much more consistency than there was on the rhetoric from the agencies. But I do recall one point of inconsistency, and it stemmed from varying interpretations, from administration to administration, of the meaning of “consumer welfare.” There were a few times when the Department of Justice was reviewing mergers, which arguably created a lessening of competition on the buying side of the market and the people in the front office thought that’s not what the antitrust laws were about, because that’s not consumer welfare.

I’ll add that this thought never occurred to anybody in a cartel case. The department has prosecuted hundreds of buyer cartel cases during my 42 years, and nobody ever had any pause about bringing a case where the victims of the cartel were sellers rather than buyers.

Alden Abbott: Interesting.

So, what are your views on centering the consumer welfare standard on output reduction as advocated by Professor Hovenkamp and some other scholars?

Gregory Werden: I think this presents some serious difficulties, and I don’t think it’s a great idea. Output reduction is a reliable indicator of welfare reduction, and that’s the main idea behind all this. That idea goes way back, it’s very sound. But there are several “buts.” The first “but” is that welfare reduction does not imply harm to competition. Of course, lots of things can harm welfare, and some of these things become the subject of antitrust cases, which are not really about competition. One thing that Professor Hovenkamp and I clearly diverge on is two FTC Cases—Qualcomm and Rambus. They’re both cases the FTC lost and in both cases the courts of appeals, in ruling on the cases, said what the FTC failed to do was show harm to the competitive process.

I think the courts were exactly right in these cases. Whether there was harm to the competitive process I’m less clear on. Whether the FTC failed to show it, I thought was very clear. What Professor Hovenkamp points to is the line of causation from the conduct the case was about to some bad outcome in the marketplace. And for many people under the consumer welfare standard, that’s all you need. There is a link from conduct to consumer harm, and so we bring that within the scope of the antitrust laws. Well, I think that expands the antitrust laws in directions it’s not meant to go in.

In addition, harm to competition need not produce any output effect at all, and when there is an output reduction it can be exceptionally difficult to prove. I’m going to start out with some fairly basic but not completely basic economics. And I won’t go into a lot of detail because it gets too complicated.

But when price is set through a bargaining process or an auction, the output reduction that we normally associate with the exercise of monopoly power—what we see in that simple textbook monopoly diagram—doesn’t have to exist and probably won’t exist. Consequently, the loss of competition doesn’t have to produce any output reduction, at least not in the short term, maybe over generations that would happen. But antitrust law isn’t about what happens over generations.

Now, you also have to realize that when there is an output reduction from harm to competition, proving it can be exceptionally difficult, and the usual reason—and this comes up all the time—is there is an upward trend in output, which is not completely reversed, but maybe pushed down a little bit by the conduct at issue.

There was a great episode in a recent trial, on this very point I attended about eight days of the Google trial just occurring in the courthouse here in DC. And among the many things Google experts said in Google’s defense was, “look at this chart on output. Output continuously went up over the relevant period, so there can’t be an antitrust violation here.” In rebuttal one of the Government’s experts put up a chart that showed along with the Google expert’s chart, a chart showing the output over time for the Standard Oil case, the AT&T case, and the Microsoft case, and there were very similar upward trends. I pointed out to him that they could have done that for the American Tobacco case as well, and that in Standard Oil it would have been even more spectacular had they gone back a couple more decades, which they should have, but because that was the more relevant period in the case. This is true all the time, and it’s more true now than ever, but the economy is expanding, and whole lots of industries that are at issue in antitrust cases are the rapidly growing industries.

Another case in point, which is close to me because I worked on the case, is American Express. It’s a case decided by the Supreme Court in 2016. It involves a practice I won’t describe in detail, but it involved the contracts between American Express and the merchants that take American Express cards. And what these contracts did is they prevented merchants from engaging in any sort of steering to different cards.

And I mean any sort of steering. If the consumer took out a Visa card that had a high fee that the merchant would have to pay, the American Express contract said that the merchant could not try to steer that customer to a low fee Discover card. Really, American Express had a contract that said what the merchant could do when he got a Visa card presented to him. The finding of the district cCourt was that this crushed price competition, and there was very strong evidence that Discover, which had been trying to attract merchants based on low fees simply gave it up and said, “okay, you know, we can’t get business that way. We will raise our merchant fees like everybody else.” Now I think this was a very clear case of harm to the competitive process. But proving an output effect—that would have been hard, and I say “would have been" because it wasn’t attempted in the case. The subject simply never came up until the case got to the Supreme Court.

And in the Supreme Court, there was an amicus brief filed by antitrust scholars that said antitrust cares about output and nothing else and the Supreme Court got it into its head that, “oh yes, this is a way to rule against the government. Let’s use that.” And they did. They said, there’s no evidence of an output reduction, and of course there wasn’t. Because there was no attempt to put it together. [paragraph] I recently looked at all the relevant data I could find online, and I found one thing that was suggestive. Over the relevant period of time, the average compound growth rate for debit cards was 10 percent per year. [no paragraph]

The average compound growth rate for credit cards, measured only for transactions at the point of sale where steering could take place, was a scant one percent.

So, output went up, but it’s very plausible it would have gone up more had things been different. We don’t know, but we know competition was suppressed, and I think that is what matters, and I think the American Express case and a few others indicate that the focus on output is, in some of these cases, diverting attention from what really matters, which is how the conduct affects incentives and opportunities to compete.

Alden Abbott: Well, okay, well, you’ve brought up now opportunities and incentives to compete. So that’s a good lead-in Dr. Werden to get deeper into this competitive process standard, as you would articulate it. So, tell us some more about that.

Gregory Werden: Sure.

First, let me explain that the consumer welfare standard and the competitive process standard as I view them, which may not be the way other people view them, are two alternative ways to focus an antitrust inquiry. They’re part of what I call an antitrust philosophy, which includes several other components besides focus. It includes a component on scope and includes a component on intensity. And these standards control just the focus—but focus matters. When you focus the cases in different directions, that can have effects. [paragraph] Now, to understand what I mean by this, I will remind people, and for some of our audience of, introduce people to, the structure, conduct, performance paradigm (SCP) in industrial organization economics. This is a basic pedagogic tool that economists came up with long ago to explain competition and to name the bits and pieces of the competitive process, and at the highest level, this paradigm describes market structure, causing conduct, which in turn causes performance.

Well, a lot of the reason for putting this paradigm together was to explain the causal links in this chain. Put all that aside, my point is not about causation. My point is about the boxes, and how they relate to each other, and what they’re called. So, we’ve got this box at the top we call “market structure.”

That’s the size distribution of firms, and all these background facts in which competition takes place. Then we’ve got “conduct,” you know that’s pricing policies, research, and development, all the things that firms do to strive for advantage in the marketplace.

And then at the bottom we’ve got the results of all the process. What we call in economics “performance.” Consumer welfare is a performance metric. It’s, in fact, it’s not a performance metric, because different people define it differently. So, it’s multiple different performance metrics. And you can have other ones. There’s a lot of debate on the right performance metric.

My point is only that the consumer welfare process is focused on performance, whereas the competitive process standard is focused on market structure and conduct. As I see it, the competitive process standard has a different attitude toward competition. It maintains faith in the market to deliver good performance and doesn’t worry about the performance, it’s not a results player.

Actual or likely performance is relevant to an antitrust case only when it helps us understand how the conduct at issue affects competition, and sometimes it does. Sometimes you can work backwards very effectively to understand how competition works.

The competitive process standard categorically condemns any conduct that serves no purpose other than to corrupt the competitive process. That just follows, as the night from the day. The leading examples of such conduct are price fixing, bid rigging, customer and market allocations, the things that have long been condemned as per se unlawful.

The obvious rationale for that per se rule is the competitive process standard. It’s not the only way to get there, of course, but it’s the shortest route. For other conduct, the competitive process standard asks whether the principal tendency of that conduct is to suppress competition. In litigation under the competitive process standard, it is the plaintiff’s burden to establish that the challenged conduct somehow dampens competitive initiative. It doesn’t have to show that that tangible effect has been accomplished. It has to show that that is the nature of the conduct.

The dampening can result from reducing the number of competitors; it can result from imposing costs on, or denying benefits from, the pursuit of initiative; or it can result from foreclosing opportunities for initiative.

The consumer welfare standard uses economics—sometimes very simple economics, sometimes very complicated economics—to predict outcomes, whereas the competitive process standard uses basically the same tools to understand mechanisms. The economics typically is just the same, but the competitive process standard asks less of it. Understanding mechanisms typically requires fewer assumptions, which is a tricky business, and less data than actually predicting output, or price, or any of the other things we try to predict in antitrust cases. Very strong assumptions frequently have to be made, and they’re very difficult to justify. And frequently you don’t need all that to understand how competition is affected by the practice, and that’s what the competitive process standard is trying to get at. It’s trying to get at the more proximate impact in the marketplace of the conduct at issue rather than this ultimate impact of the conduct that may be very hard to trace.

Alden Abbott: Well, that raises sort of an interesting question. I was brought to mind single firm conduct, and you said, conduct, for example, that reduces the number of competitors. Well assume you have a firm with the largest market share in the industry that very aggressively carries out innovative R&D work. And maybe some contracts with third parties that it uses to enhance the quality of its intellectual capital, knowledge, whatever, and because of that, because those aggressive actions, its market share grows, and some of the weaker competitors may even drop out of the market because they cannot compete effectively.

So how, in looking at something like that, how do you decide. Is there a big efficiency there? Should we justify it, or is the conduct mainly just going to drive out competitors? Because isn’t the risk, that you say a reduction in the number of competitors, some people will say, “Aha! Yes, look! This is reducing the number of competitors, so we must condemn it.”

Gregory Werden: Well, then, they miss the whole point because of the competitive process standard doesn’t look at outcomes.

So, you don’t pay any attention to the fact that a competitor was forced out of the market. You look at the process. And in particular with single-firm conduct, what is, in my view, closely connected to the competitive process standard, although not everybody might make this connection, is what I call the “no economic sense test.”

A more generalized version of that is the idea, that’s been around almost from the beginning (and I literally mean this, from the nineteenth century), in antitrust is that competition on the merits is not prohibited, full stop. We don’t care what the effect is in the marketplace. If you are competing by making a better product, by reducing your cost, by cutting your price but not below cost, by making your customers happy, great! That’s what antitrust law wants you to do. You don’t have to answer for it, period.

Alden Abbott: Well, that’s helpful, because I think there was a 2008 Justice Department report issued near the end of the Bush administration that sort of made that sort of point about single firm conduct, and that report was later withdrawn during the Obama administration, and was some talk that well, even if conduct is very efficient, you need to weigh those efficiency gains against harms. And your point is, you don’t have to worry about that in such a situation.

Gregory Werden: Exactly.

You’re right on both of those points you made. It is true that there were people in the government and outside the government, who thought that you should somehow trade these things off, and you know, if competition on the merits produces a bad enough effect, then we will condemn it—and even though it is competition on the merits.

And I just think that’s crazy. That’s not what my understanding of antitrust is about. And that really puts a fine point on my notion that antitrust should not be about the bottom line, it should be about the process. If people compete fair and square, that’s great. They have the blessing of antitrust law, and the chips will fall where they may. Antitrust is not about industrial planning; it’s not about social engineering; it’s not about micromanaging the economy.

Those are things that maybe the current Federal Trade Commission wants to do, but they are not historically what antitrust has done, although I know there were some cases in the sixties where that’s kind of how antitrust had been remade. But that’s a long time ago now, we put that behind us, and if you look at the cases, you are not finding successful attacks on single-firm conduct where that conduct was competition on the merits. If you look at the Microsoft case, though not very recent anymore, but it’s still the most recent of the big cases, and you look practice by practice at what was condemned and what wasn’t condemned by the court of appeals. For every single practice that was condemned, there was no legitimate business justification, but there was an immediate, palpable threat to competition.

Now, maybe not a big threat to competition, maybe not a big impact on the marketplace. The court didn’t require much in the way of impact on the marketplace. What the court required was that there was a legitimate business reason for doing it, and I think the court was, without citing it, applying the no economic sense test. And I think the court was saying that competition on the merits is lawful without any need for justification, although it didn’t say that either.

But that’s the practical import, and I don’t think there have been any inconsistent decisions since then.

Alden Abbott: Now, interestingly enough, this is very helpful. Interesting enough. Professor Timothy Wu, former White House advisor to the Biden administration on antitrust and competition has also written that he supports a competitive process standard test.

Can you discuss any differences between his approach and your approach.

Gregory Werden: Professor Wu has addressed this subject in three very short papers, which have left much unsaid, probably un–figured out. But what he has said is very similar to what I have said and so we probably agree about quite a bit.

Let me put it this way, there is often a long and complex, causal chain between the conduct that is subject to antitrust scrutiny and any metric of performance that we might look at, like the welfare of consumers.

Professor Wu and I agree that antitrust focuses on the first part of the chain, maybe not just the first link, but the first part of the chain. It doesn’t go very far down the chain, and that is consistent with a huge body of non-antitrust law as well. Antitrust law, like other bodies of law, does not try to figure out complex, causal chains.

So, we agree that there should be a limited inquiry. We agree that that’s what the statutes contemplate, and we agree that that’s all the legal system can handle.

But I think we probably diverge a little bit, maybe even a lot, I get the impression from what Professor Wu has written that he favors a much more limited inquiry than I do. And I get the impression, and it’s just an impression, that he pretty much wants to cut economics out of the picture here.

That’s not at all what I want to do, I think there’s a big role for economics to play. Economics is what you need to figure out what the impact of practices is on competition.

And it needs to be grounded in fact, of course, but combining basic tools of economics with the proven facts of the case, you can frequently get to a reliable judgment about what the impact of a practice is on competition, and I think that’s all you need. And in most cases, I think that’s what the Supreme Court has been saying all these years.

Alden Abbott: Okay, so now you mentioned the complex analysis. Of course, there are lots of complexities. And looking at some of these cases, and error is going to creep in so from time to time. It’s inevitable.

Now, the importance of minimizing error costs in antitrust enforcement has been emphasized by Judge Frank Easterbrook and some other scholars. Dr. Werden, how effective do you think is a competitive process standard in dealing with the issue of avoiding or minimizing error cost compared, say, to the consumer welfare standard?

Gregory Werden: Well, let me preface my answer by saying that we lack hard evidence on what the error costs are, and different people carry around different beliefs about that, and including advocates of the consumer welfare standard have widely divergent beliefs on error costs, which leads to widely divergent views on antitrust policy. Error cost considerations, I don’t think affect the choice among alternative standards, nor does the choice of a standard affect how you account for error costs. Errors are accounted for in calibrating litigation burdens, which can be adjusted in lots of different ways to make it easy or hard for a plaintiff to win. And the standards that we have been discussing determine how those burdens are framed, but not how high the bar is set and, for example, if one believed that the right standard was a consumer welfare standard, and that meant that output was the touchstone, then the plaintiff’s task would be to prove an output reduction. Okay? Well, that may sound like a very well-defined task, but when you get down to the nitty gritty in antitrust cases, it’s not.

And the first cut, the question is, wel, does that have to be proved directly? If so, there are a lot of cases where you certainly could never prove that. The question arises, well, what kind of inferences can you draw? And if you’re open to lots of inferences, and you’re readily making inferences from other things, well, then you can get there very easily.

And you know there’s all kinds of ways that this gets fine-tuned in actual litigation. I was just trying to sketch briefly how you could set the bar at different levels. Right now, it’s set pretty high for reasons that are not always right in my view, but some of them clearly are. But I think output is not, of course, what plaintiffs should be trying to prove but anything that one has to prove one can have to prove it to different degrees of certainty. And it is very possible to make it hard or easy to prove anything that ever has to be proved.

Alden Abbott: Okay, so that’s helpful on your—let’s talk about harmonizing the standards. Now you’re basically, what you’ve been saying is these are two different ways of looking at an antitrust prosecution, deciding, you know, what you have to show, what you have to prove. And I get from what you’re saying is that in most cases, if not all, the committed process standards are much easier to apply. You don’t have to worry about measuring particular facts in any case. For example, in the Microsoft cases, it is not at all clear what actual short-term effects there were. But I think that your point is there. So, they’re looking at competitive process, but more generally, it’s been argued by some that “oh, it doesn’t really matter. Cases mainly will lead to the same results in most cases.” Is that correct?

Gregory Werden: Well, it should be. Having a different focus doesn’t mean that you don’t look at the same things. You just look at them with a different focus. So, in a world of perfect information, which we, of course do not live in, with error free adjudication, you will probably get to the same answer in every case. But we live in a very different world. So, there are some cases where the harm to competition is relatively clear, and the effect on performance is not. You were just mentioning that. In these cases, the consumer welfare standard clearly favors defendants relative to the competitive process standard. I mentioned the American Express case, that’s an example.

Professor Hovenkamp and I agree that the Supreme Court got it wrong in that case, although I don’t think we agree on exactly what the error was. When performance effects are clear, as in some of the cases, Professor Hovenkamp cites, like Rambus and Qualcomm, but causal responsibility is not clear, the consumer welfare standard favors plaintiffs relative to the competitive process standard.

Those cases certainly exist. If the consumer welfare standard demands fairly direct and persuasive proof of an output reduction, then plaintiffs are going to do much better under the competitive process standard. But, if you set the bar a lot lower, if you allow output reduction to be inferred, then the proof standards might not be materially different. I do want to note that I think you should look at this in quite a different way also. And that is, from the perspective of criminal enforcement, which most people involved in antitrust have never had anything to do with, and so they just never think about it as a core part of antitrust. But I spent 42 years at the agency that prosecutes all the criminal antitrust cases, and I worked on a lot of these cases, and so this is kind of a starting point when I think about antitrust.

And I strongly believe that the competitive process standard makes it much easier to explain and defend the per se rule against price fixing, bid rigging, and customer or market allocation. And the Justice Department does have to defend that rule in criminal cases, and it defends it from constitutional challenges. I mean the rule is the law, as the Supreme Court has laid it down. Courts won’t second guess the Supreme Court. They’re not allowed to do that, but they do consider these constitutional challenges. And so far, the Justice Department has won across the board, but the defendants haven’t let up.

There have been several cert. petitions in the last five years raising these issues, and if the per se rule was just a matter of administrative convenience, which is how it is explained under the consumer welfare standard, then there are pretty good arguments that applying it in criminal antitrust cases violates the Constitution in three distinct ways. I won’t go into the details, but they’re not bad arguments.

But if the per se rule is a direct implication of the statutory text, as I believe it is under the competitive process standard, then there is no constitutional infirmity.

It is the Sherman Act itself that declares that price fixing is illegal. It is not an invention of a court. It is a plain implication of the text. And that is what the Supreme Court has said, and that is why the per se rule has stood against constitutional challenges. But if the Supreme Court was firmly of the view that it was a rule of administrative convenience, it could not uphold criminal prosecutions under the per se rule, and that precise argument has been made in cert. petitions where cert. was denied. At some point it might be granted.

Alden Abbott: Let me very briefly touch on merger analysis. Now, just my own background, I know that staff in the Enforcement Agencies spend a lot of time looking at proposed mergers, doing merger simulations, trying to figure out well, what will be the effect on consumer surplus or output, or something of this particular merger, and that sometimes those estimates can be controverted. You’ll get battles among experts and so forth. But could you avoid those sorts of complications if you just had a pure competitive process standard?

Gregory Werden: Maybe, but not necessarily.

Since I have believed in the competitive process standard for a long time, and since I believe that it is the law of mergers, I have thought about this question for many years. And I think the analysis, the complicated analysis that is currently being done is the right analysis, because it sheds light on how the merger affects the competitive process. And I mentioned this before, here’s where you can work backwards, you construct a model, a merger simulation, and you see what the result is. And then the question is, well, how do you use that? And the answer is, well, you don’t use it to be able to tell the court if this merger takes place, the price will go up three to six percent.

That’s not the question that’s asked by the law, the law says, was the merger anti-competitive? Well, if the model tells you that price is going to go up by three to six percent, it almost certainly is telling you that the reason price goes up by three to six percent is that firms will compete less intensely because there are fewer of them. That’s the insight of the model. That’s a fairly straightforward insight. The three to six percent is neither here nor there. If it was three to six hundredths of a percent, well, that would be significant, that would be telling you competition isn’t going to change.

But the model’s just a way of organizing thoughts when you get a lot of thoughts and a lot of facts, and you need to put them all together in a way.

In many cases, you can see that competition is being reduced. But the question that the Clayton Act asks is, well, is it being reduced substantially? That’s where you need to do a little bit more analysis. You have to put numbers on some things. That’s what the models help you do—helps you do that in a systematic way. So that you can distinguish three to six percent from three to six hundredths of a percent. Crude distinctions are all the Clayton Act calls for, and the models help you make those crude distinctions. So, I don’t think the right analysis is any different than the analysis that has been done for the past 10 or so years.

Alden Abbott: Okay, now, would, Dr. Werden, would things be simplified if Congress just decided to enact an enforcement standard? What would be the problems with such an approach?

Gregory Werden: Well, the problem with such an approach is that Congress can’t write an antitrust law very well, and they tried it out in a fairly obscure antitrust law in 1982—the Federal Trade Antitrust Improvements Act. Which was designed to “clarify,” that’s the word that Congress used, the extent to which US antitrust law applies to conduct that occurs outside the United States.

Well, I can tell you, having worked on a lot of the cases under the FTIA, that law did no such thing. It made things much less clear because these are hard things to write, and Congress is not the kind of expert body you need to write them. So, I would predict that any attempt by Congress to clarify antitrust law would do precisely the opposite, and I really worry that that will hamper enforcement, particularly criminal enforcement.

I’ve already mentioned constitutional challenges to criminal prosecutions, and all this could be solved by a new law.

Well, the problem is, it’s really hard to write that law. And I know this for a fact, because a colleague and I, some years ago, were tasked with writing it. This was a lark, it was a project that we didn’t work on for very long, but somebody said, from the front office, “hey, we might be able to get Congress to do some kind of antitrust amendment in the last few days of this Congress. What would we ask?”

And so, we tried to write this law, and we did a pretty good job. But we were not convinced that the world would be a better place with this law than without it. It was the best we could do, but it didn’t answer all of the questions. There’s no way that a law, with as few words as it would need to have, would answer all the questions. It would just raise a different set of questions than the current law raises, it would take time to answer them. You never know what answers courts are going to give.

Some of the answers they gave under the Federal Trade Antitrust Improvements Act of 1982 were, in my view, crazy answers. So, all of this is a can of worms that I do not want opened.

Alden Abbott: Well, speaking of cans of worms, at least, whatever you approach is, consumer welfare in some form or process, at least, there’s some structures to sort of guide cases. Now the Biden Administration’s senior officials have referred to say, “oh, well, antitrust we should take into account lots of additional factors, just as effects on small competitors, on workers, on poor communities, income distribution, and so forth.”

What’s the problem with all of that, taking into account all of these additional factors?

Gregory Werden: Well, I don’t think it can be done for starters.

There’s a wonderful quote, I’ve used several times in articles from Don Turner. In the first speech he gave as Assistant Attorney General in charge of the Antitrust Division back in 1965, and I don’t have it in front of me, so I can’t read it. But the gist of it is he went through all of the public interest justifications for mergers that he’d been hearing, and then speculated on some that he might hear as he stays on in the job. And there’s no way you could figure out (1) whether any of them is true, and (2) how to weigh them against any other considerations.

So, all he can do is sweep them all aside, and just look at the effect on competition. And it is crystal clear to me, that’s all the antitrust agencies were ever meant to do. They’re not the whole government. They’re just the tiniest little piece of the government.

Their brief is just about competition. When they try to solve all the problems of the world, they probably cause more problems than they solve.

I thought all this was resolved back in the 60’s. There was a debate that you will recall, Alden, but most people in antitrust don’t, among four Ivy League Law professors in the pages of the Columbia Law Review over what antitrust was all about. And it was triggered by the Chicago School reaction to 1960’s Supreme Court decisions. And the two Columbia professors basically defended these decisions and talked about the political values in antitrust and why you needed to do certain things, even though you know that you know may mean there’s less competition rather than more competition, but still, it’s the right thing to do. And as far as I’m concerned, the two Yale Professors, Bork and Bowman, from the Chicago school, both students of Aaron Director, won that argument.

And all these other values that Bork was trying to banish from antitrust did disappear.

But there are people that want to bring them back. And I am very troubled by these ideas. I don’t quite get the point. These people say antitrust is not just about competition, and that just boggles my mind. I don’t think it makes any sense at all if it’s not just about competition, I don’t think it can be done.

I doubt its constitutionality. It’s just a complete hash. It just says the government has a lot of power to do the “right thing.” And that’s not where we are today in our understanding of how government works. And even if some parts of the government may have these broad powers; it’s just dangerous and ill-conceived to give it to antitrust agencies.

I’ll give you a little vignette from my time at the Department of Justice. There were a number of situations back in the 70’s, 80’s, 90’s, where the possibility of giving the Justice department veto power over things that were not within the domain of antitrust came up in the legislative arena. And the Justice Department always said, “no, that’s crazy. We don’t want veto power. We want to tell whoever is the decision maker under a public interest standard what the competition implications of this are, and let them figure it out. We don’t want to have anything to do with the public interest standard. There’s just no way to weigh all these competing values. We’ll just weigh in on this one value of competition, and that can be the important value that carries the day or not.”

But ultimately, I think you just have to put one value in front of all the others. You can’t weigh them, that doesn’t work. So antitrust puts competition ahead of all the other values.

It says, “okay, you know, you want to worry about these other things. Well, you need other laws and other agencies for that. We’re only going to worry about competition,” and that’s the way I want it to be. I hope it stays that way. I don’t think the agencies have deviated too far from that. The rhetoric coming out of the Federal Trade Commission is disturbing, but what they’re actually doing in enforcement is less so.

Alden Abbott: Well, that’s very insightful, Dr. Werden. I think we’re running short on time. I hope to ask you about your thoughts on the draft merger guidelines that the two agencies have put forth, and a policy statement on unfair methods of competition that the FTC put forth a year ago in 2022.

I know you’ve written eloquently about them, and in a negative sense. But my sense is I mean unfair methods of competition basically not defined the way they say it is. It’s whatever feels and looks bad, and that seems to go…jive with what you just said about public interest.

And the merger guidelines seem to go back in a peculiar way to a lot of thinking from the 1960’s, which you pointed out, which is a different era. I don’t know if you have any last comments to add about those two topics or anything else, Dr. Werden.

Gregory Werden: Okay, very briefly.

Yes, I agree with what you just said. Let me add a couple of points. First, one of my big issues with the draft merger guidelines is a rule of law issue. The draft provides far too little guidance on which mergers the agencies plan to challenge, and to my mind, more importantly, far too little guidance on what mergers are safe. I have preached for many years, and I worked on the merger guidelines from 1982 to 2019, that the main function of law enforcement guidelines is to tell people what they can do. The agencies don’t want to do that. That’s a tragedy.

The draft also abandons the leadership role the agencies had taken since 1968. All prior merger guidelines have sought to lead the courts, and the courts did follow. That’s the important thing. This draft guideline does not do that, it disclaims leadership. It says it’s just following the case law.

Getting more down into the weeds, one of my pet topics is the delineation of relevant markets in merger cases. I’ve written a lot about that, and I was responsible for what the 1982 merger guidelines said on that subject, and I’m very chagrined that the new draft guidelines abandoned most of the market delineation principles from the 1982 guidelines that assured mergers would be assessed in markets that made sense and weren’t defined just to maximize the merging firms’ shares.

On the FTC policy statement. I’ll just, I’ll make two very quick comments. (1) It seems to me the FTC has come to embrace what it was running away from in the past, which was this moniker of the “National Nanny,” that it was given in the 1970’s when it overreached in consumer protection. The statement basically says, “we, the FTC, assert the power to right every wrong.”

Well, that’s ridiculous. I also take issue with the history in the document. There’s lots of legislative history citations. I think it’s about 50, and some of them are just wrong.

They’re not actually legislative history of Section 5 of the Federal Trade Commission Act in some cases. And they miss the key thread, Section 5 of the Federal Trade Commission Act, which prohibits unfair methods of competition, was written by this guy named George Rublee, and we have a document from him, a memo to the President on what he means, what he wants to prohibit, how it’s supposed to work. And the FTC completely ignores it. It’s a very narrow vision, an efficiency-focused vision of competition that is very current.

And I think it would be great if the FTC would go back and do its homework better.

Alden Abbott: Well, the agencies have not been doing their homework, the FTC. That’s a good way to close.

And… certainly it’s been a very stimulating discussion, Dr. Werden, and I was going close with perhaps feigned hope that current policymakers will pay attention and turn away from their current approach. But we may have to wait and see if the next generation of policy makers or new leaders will go back to what had been sort of a mainstream set of approaches to antitrust analysis that had existed and succeeded pretty well over several decades.

Thank you so much. I hope you’ve enjoyed this discussion. Stay tuned for further discussions from our antitrust corner on antitrust and goodbye, and as Bugs Bunny used to say, “that’s all folks!” Thank you.