Lina Khan and the Threat of the Vague Antitrust

Jason Siegelin | July 2021

(Clockwise) FTC Chair Lina Khan in 20161; Justice Louis Brandeis in 1922; cartoonist Joseph Keppler's Bosses of the Senate, first published in 1889.

“Law is vulnerable to the winds of intellectual or moral fashion, which it then validates as the commands of our most basic concept.” - Robert Bork

*   *   *

T

he winds of intellectual or moral fashion. 


 

These winds, these fickle sentiments, these incomplete ideas: all too often these are what propel some in government to change the law. Half-formed thoughts, partisan expediency, and fear can push once-sensible legislation and regulatory schemes down that dark path we call inefficacy

 

I am no zealot for Bork. But we must take care in formulating new judicial policies, new legislation, new executive orders. These are not mere opportunities for intellectual exercise; they are the very backbone of a functioning democratic order. 

 

And while the new chair of the Federal Trade Commission (FTC), Lina Khan, is by no means entirely wrong in her positions on antitrust law, the enforcement regime she has proposed is rooted in a concerning misconception, one that might lead the FTC and the American economic landscape down a dark and disorderly path indeed. 


 

Understanding the Consumer Welfare Standard in Antitrust Law

 

Enter Robert Bork. Though famed for his brutally contested (and failed) nomination to the Supreme Court under President Reagan, Bork was at heart an antitrust scholar, and perhaps best known in such circles for his seminal book The Antitrust Paradox, which details his philosophy on antitrust enforcement. 

 

In the book, published back in 1978, Bork advocates for the pursuit of “consumer welfare” as the objective of antitrust law and enforcement. Granular detail aside, to Bork this entailed structuring markets conducive to “lowering the costs of goods and services or… increasing the value of the product or service offered” through “business efficiency.” 

 

In short, Bork’s philosophy initially stood in stark contrast to goals of antitrust at the time and earlier, which were comprised of “an interventionist, populist, Brandeisian, and vaguely Jeffersonian conception of antitrust law as a constraint on large-scale business power.” Bork, rather than seeing antitrust as a pursuit of vague, politicized objectives, saw it as consumer-oriented. For decades, and to this day, this consumer welfare standard has been the backbone of antitrust law and enforcement. 


 

Lina Khan’s Misconceptions

 

Now consider Lina Khan. Born to Pakistani parents in London, Khan received her J.D. from Yale Law School in 2017. In the same year, she wrote a paper titled “Amazon’s Antitrust Paradox” in the Yale Law Journal, wherein she laid out, at least at a high level, her own antitrust philosophy, particularly highlighting its divergences from Bork’s. 

 

In her paper, Khan attempts to refute the validity of consumer welfare as the primary objective of antitrust law, arguing that “the rise of dominant internet platforms freshly reveals the shortcomings of the consumer welfare standard.” 

 

Most of her argument I will leave untouched: she highlights several harmful business practices utilized by Amazon, ranging from predatory pricing to foreclosure to what some might call a form of corporate espionage on its Marketplace platform. In response to these practices, Khan calls to attention the need for a revitalized judicial standard for combating new forms of predatory pricing and a stricter scrutiny of vertical mergers that take advantage of “conflicts of interest,” among other new responses to anticompetitive practices. Undoubtedly, fresh ideas about antitrust enforcement are a necessity, especially when immense monopoly power is wielded by dominant “Big Tech” firms. 

 

Yet the flaws in Khan’s analysis lie in how she defines the consumer welfare standard. Indeed, Khan views this standard as “measuring the health of competition primarily through effects on price and output,” advocating for the abandonment of consumer welfare as the primary objective of antitrust enforcement. Throughout her paper, Khan repeatedly labels the consumer welfare standard as an objective devoid of any consideration of “product quality, variety, and innovation,” solely focused on price and output instead. 

 

This is incorrect. The 2010 Horizontal Merger Guidelines, one of the core documents defining the federal government’s approach to antitrust enforcement, put forth by the FTC and the Department of Justice (DOJ), explicitly states the following: 

“Enhanced market power can also be manifested in non-price terms and conditions that adversely affect consumers, including reduced product quality, reduced product variety, reduced service, or diminished innovation.”

 

In other words, the agencies tasked with defining the consumer welfare standard say it encompasses more than a mere scrutiny of business practices’ effects on price and output. And Khan even acknowledges this in her paper, nonetheless proceeding to consistently affiliate the consumer welfare standard with the narrow-minded pursuit of beneficial price and output levels. She attempts to refute this, by irresponsibly, and in a manner unsubstantiated by any quantitative data, stating that “it is fair to say that a concern for innovation or non-price effects rarely animates or drives investigations or enforcement actions...”

 

Sure, cases involving scrutiny of non-price factors, such as consumer choice, innovation, and product quality, might be less frequently filed than those involving price factors, but is this a reason to abandon the consumer welfare standard in its entirety, as Khan argues? 

 

What’s more, factors other than price and output have been explicitly, and frequently, considered by the courts as integral to the concept of consumer welfare in the past decade, conflicting with what Khan says about the consumer welfare standard. 

 

Consider recent case law. A swathe of high-profile antitrust cases has been argued in the past few years in which factors unrelated to price and output have been considered by the judiciary as affecting consumer welfare. 

 

In the Supreme Court case Ohio v. American Express, decided in 2018, Justice Thomas included “tangible or intangible services or promotional efforts” as factors which “enhance competition and consumer welfare.” In FTC v. Sanford Health, a 2017 case involving a hospital merger, the District Court for the District of North Dakota decided that “[m]ore convenient access to providers is of benefit to patients.” “Convenient access” is a non-price factor, considered here by the judiciary to be tied to consumer welfare. 

FTC v. Qualcomm is another example, in which the judiciary, this time the Court of Appeals for the Ninth Circuit, stated in 2020 that “diminished consumer choices,” a factor unrelated to price or output, are intertwined with consumer welfare. And FTC v. AbbVie, Inc., a Third Circuit appeals decision, cites United States v. Dentsply International in concluding that market power (and ensuing consumer welfare) involves “the size and strength of competing firms, freedom of entry, pricing trends and practices in the industry, ability of consumers to substitute comparable goods, and consumer demand.”

 

This is just a handful of federal cases from the past couple of years. Countless others exist to show that, yes, the consumer welfare standard is deeply intertwined with factors other than price and output, something Khan does not seem to understand. 

 

This fact, combined with the stance advocated in the 2010 Horizontal Merger Guidelines, leaves one to question why Khan advocates for the abandonment of the consumer welfare standard, when it explicitly, and frequently, is interpreted as considering those factors she claims it all too often ignores. 

 

The answer might lie in Khan’s promotion of a vague alternative to consumer welfare as an enforcement objective, namely “competitive markets.” In “Amazon’s Antitrust Paradox,” the most Khan can say about her supposedly better alternative is that “an analysis of the competitive process and market structure will offer better insight into the state of competition than do measures of welfare.” Beyond this, we are left in the dark. 


 

Khan and the Threat of the Vague Antitrust

 

Khan’s divergence from the consumer welfare standard is no inconsequential, merely academic issue. It has the potential to bring American antitrust enforcement back to its vague, populist, early-20th-century format. This is not to say that the new FTC chair’s philosophy is entirely negative, as it illuminates various business practices in the digital economy that are deserving of new forms of antitrust scrutiny. But it is to say that, in diverging from the consumer welfare standard, which has been pursued by courts for the past several decades, Khan is leaving antitrust enforcement prone to populist, political influences. 

 

This type of antitrust enforcement, that type rooted in the desire to preserve, as Bork put it, “for its own sake an economy of small business units,” along with other indeterminate, sentimental values, is what I refer to as the “vague antitrust,” and what others might call “populist antitrust” or “hipster antitrust.”

 

Vague antitrust finds its roots in the philosophy of Supreme Court Justice Louis Brandeis. Perhaps most indicative of Brandeis’s jurisprudence is his opinion in Chicago Board of Trade v. United States, a 1918 case, in which, rather than advocating for a clear standard by which to judge the case, he wrote that judges should take into account “the evil believed to exist” in a scrutinized business practice, the “history” of that practice, and a host of other vague and tangential topics. Vague does not begin to describe this. 

 

Other decisions embodying the vague antitrust include United States v. Aluminum Co. of America, decided in 1945, in which Judge Learned Hand justified his opinion by writing that, “[it] is possible, because of its indirect social or moral effect, to prefer a system of small producers, each dependent for his success upon his own skill and character,” and stating, “unchallenged economic power deadens initiative, discourages thrift and depresses energy...” Or consider United States v. United Shoe Machinery, a 1953 Massachusetts case in which the majority found that activities which merely “further the dominance of a particular firm” are illicit.

 

In short, this body of case law, predominant in antitrust jurisprudence in the former half of the 20th century, has no guiding principle, no consumer welfare standard by which to gauge each case. And, consequently, foolish, strange, and arbitrary opinions such as Chicago Board of Trade and Alcoa emerge. In those 20th-century cases, there was no “elegant and precise formula [that] could be applied with consistency, accountability, and scientific rigor,” and thus judicial proceedings had no predictability, no consistency, no method. The same potential exists now that Lina Khan might attempt to sever the consumer welfare standard from antitrust enforcement, advocating for an amorphous alternative. 

 

The vague antitrust is not without serious consequences. Specifically, its lack of predictability can easily “chill” potentially procompetitive business transactions and activities. What’s more, a less-specified antitrust objective leaves the door open for more antitrust complaints to be filed, increasing the number of suits filed by firms looking to gain a regulatory advantage over competitors. And let’s not forget that, according to FTC commissioner Christine S. Wilson, “indeterminate rules are more prone to capture by rent seekers,” making “antitrust more susceptible to political whims and influence.”

 

The costs are high. This is not an issue merely confined to the quiet halls of legal academia or the hidden conference rooms of a far-off government regulatory agency. Every negative consequence aforementioned might stem from Lina Khan’s unnecessary and odd desire to rip the consumer welfare standard out of antitrust enforcement. 


 

In Closing

 

Law is vulnerable, prone to those “winds of intellectual or moral fashion,” as Bork put it, and vulnerable, in the case at hand, to Lina Khan’s unfounded advocacy for the abandonment of the consumer welfare standard in antitrust law. Such advocacy, if continued, will remove the windshield of the consumer welfare standard, allowing the cold winds of judicial vagueness and inconsistency to blow directly into the faces of American consumers and producers alike. From Alcoa to United Shoe Machinery to the threat of regulatory capture, it is clear that divergence from a precise judicial antitrust standard is quite costly. 

 

This is the threat of the vague antitrust. It’s a threat with the potential to chill business activity, embolden lobbyists, and turn the American marketplace into a legal battlefield dotted with land mines. 

 

Is this what we want?

Jason Siegelin is the Editor in Chief of Midwestern Citizen and a rising senior at the University of Michigan, studying Economics and Political Science. His writing interests include constitutional law, American political development, antitrust policy, and creative nonfiction. Outside of MC, Jason enjoys running, investing, and college football.

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