Paradox lost

In 1978 Robert Bork, then a law professor at Yale, published a book called “The Antitrust Paradox”. It argued that competition law should ask one question of any business: does it make consumers better off? Prices, not the size of the firm, were the test. America’s courts adopted the idea with enthusiasm, and for four decades it served as the creed of the enforcers. On 15 June 2021 the creed acquired a prominent heretic as its guardian. The Senate confirmed Lina Khan, a 32-year-old Columbia law professor, to the Federal Trade Commission by 69 votes to 28, and the agency swore her in as chair the same day.^{1Federal Trade CommissionLina M. Khan Sworn in as Chair of the FTC15 Jun 2021,2FortuneLina Khan, the Amazon critic, is named FTC chairman by Biden15 Jun 2021}

Ms Khan made her name with a student note that borrowed Bork’s title. “Amazon’s Antitrust Paradox”, published in the Yale Law Journal in 2017, argued that the consumer-welfare standard cannot see the power of platforms that charge little, or nothing, while controlling the market on which rivals depend.^{3Yale Law JournalAmazon's Antitrust Paradox1 Jan 2017} She went on to work at the Open Markets Institute, to advise Rohit Chopra, a fellow Democratic commissioner, and to serve as counsel to the House antitrust subcommittee, whose 450-page report in October 2020 accused Amazon, Apple, Facebook and Google of anti-competitive conduct.^{1Federal Trade CommissionLina M. Khan Sworn in as Chair of the FTC15 Jun 2021,2FortuneLina Khan, the Amazon critic, is named FTC chairman by Biden15 Jun 2021,4House Judiciary Committee, via Rep. Jerrold NadlerInvestigation of Competition in Digital Markets: majority staff report7 Oct 2020}

We think she has half of the argument right, and that the half she has wrong matters more than it seems. Her diagnosis is sound: a test that treats a free service as harmless by definition has a blind spot the size of Silicon Valley. Her prescription, if it turns into a campaign to remake the standard through the commission rather than through cases and Congress, is not. Competition policy improves when enforcers win, and they win in front of judges.

Consider the case already on her desk. In December 2020 the commission sued Facebook, alleging that it had bought Instagram in 2012 for $1bn and WhatsApp in 2014 for $19bn to neutralise rivals.^{5Federal Trade CommissionFTC sues Facebook for illegal monopolization9 Dec 2020} “Personal social networking is central to the lives of millions of Americans,” said Ian Conner, the head of the agency’s competition bureau.^{5Federal Trade CommissionFTC sues Facebook for illegal monopolization9 Dec 2020} The theory is not exotic. Buying a threatening start-up is an old way of staying on top. A chair who wins this case under the law as written does more for the principle she cares about than a hundred speeches against Bork.

Her critics see matters differently. Mike Lee, a Republican senator from Utah, said her views were “wildly out of step with a prudent approach to the law.”^{2FortuneLina Khan, the Amazon critic, is named FTC chairman by Biden15 Jun 2021} There is something in this. A standard built on prices and output has the virtue of being measurable, and a regulator told to guard the competitive process may find that the process resembles whatever it dislikes this year. Ms Khan has said she looks forward to protecting “the public from corporate abuse”.^{1Federal Trade CommissionLina M. Khan Sworn in as Chair of the FTC15 Jun 2021} That is a mandate wide enough to drive a data centre through.

Yet the worry cuts both ways. A standard that cannot see harm in a market where the product is free is not neutral; it favours incumbents clever enough to charge nothing. The House report, with its emphasis on the gatekeeping power of the biggest platforms, is a record of what the old test did not catch.^{4House Judiciary Committee, via Rep. Jerrold NadlerInvestigation of Competition in Digital Markets: majority staff report7 Oct 2020} Mr Lee’s prudence is a fair demand. It is not a defence of the status quo.

The answer is a division of labour. Congress, which can change the statute, should decide whether the law needs to say more about platforms. The commission, which can bring cases, should bring good ones, pick the facts that fit and let judges test them. Ms Khan has the votes for it: Democrats hold a majority of the commission’s five seats, and she is one of three.^{2FortuneLina Khan, the Amazon critic, is named FTC chairman by Biden15 Jun 2021} She has argued that the law is too timid. Now she can find out whether it is merely under-used.

Antitrust, the saying might go, is too important to be left to academics. It has now been left to one.