Big is Bad is Back
There are essentially two schools of thought when it comes to antitrust legislation: The Harvard School and the Chicago School. “The Harvard School is best summed up as: Big is Bad,” wrote Andy Kessler. This school of thought dominated antitrust legislation during the ’50s, ’60s, and ’70s.
However, the Chicago school, emphasizing the consumer welfare standard, emerged and has been the dominant antitrust thought over the last 40 years. “That school’s thinking was popularized by Yale’s Robert Bork in his 1978 book, ‘The Antitrust Paradox.’ His thinking was that if consumers are harmed, regulators should look into why. But if consumers aren’t harmed, there’s no case,” said Kessler.
The Chicago School believed in the market to correct itself, and “big” was no longer “bad.” What mattered most was consumer harm: Will resources still be sufficiently allocated, will prices stay low, and will quality remain high?
Mergers, therefore, are not inherently doom and gloom in and of themselves. What’s mattered for the past forty years is the consumer.
Yet, that is not the guiding principle of FTC Commissioner Lina Khan.
We’ve written before about the Commission’s suit to block Facebook’s acquisition of VR company, Within. Kahn’s FTC is also now seeking to block Microsoft’s $75 billion acquisition of video game developer, Activision Blizzard, Inc., widely known for gaming franchises such as Call of Duty and World of Warcraft.
These are not one-off suits. This is a pattern driven by a belief. In fact, Khan once wrote about the rise of “Big Chocolate” and how to best break up Amazon. She’s simply now putting into practice what she’s written about before.
As others noted: “The FTC under Khan is unlike the FTC of the past forty years, which followed the Consumer Welfare Standard to make the right call…This new Commission is organized around adversarial posturing without regard for success.”
Khan’s antitrust philosophy is a throwback to the era before the consumer welfare standard—“big is bad” really is back. And now, the issue is that continual lawsuits brought against mergers and acquisitions will undoubtedly stifle innovation and prevent capital from flowing into emerging markets, regardless of the outcome of those suits. Wins and losses don’t ultimately matter.
Even if the FTC continually brings suits that are dismissed due to faulty logic and the inability to prove consumer welfare harm, the perpetual suits are only going to serve as a deterrent to innovation. So far, these suits are focused on a few tech sectors. But the precedent is being established for innovation and startups across the board, who often proceed with their work with the intent of being bought in mind. Yet, to sue and lose seems to be a strategy of deterrence in and of itself.
“My understanding from looking at the writings of Chair Khan and the community of those who demand transformation of the antitrust system is that it is better to litigate and lose than to watch from the sidelines. So there’s a belief that just bringing the case has a deterrent effect,” said Bill Kovacic, former head of the FTC.
That is the strategy of the current FTC regime: Big is bad and must be deterred through continual lawsuits. This is at odds with forty years of antitrust legislation–the legislation that allowed the rise of companies like Myspace, Nokia, IBM, and Xerox and then stayed out of the way of the competition that brought their fall.
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