Below, we have provided the full transcript of the interview with Prof. Daniel Rubinfeld, Professor of Law at New York University School of Law, recorded on September 8, 2021.
This interview was done as part of the Antitrust Brainstorming Board created by CPI with the support of the CCIA.
Thank you, Prof. Rubinfeld, for sharing your time for this interview with CPI.
A video of the complete interview is available HERE.
Do you think the current antitrust framework works for consumers?
Do you think the current antitrust framework works for consumers?
Daniel RUBINFELD:
I think it works only moderately well, and I do think some changes are necessary within the current environment. I just think generally we need to be more aggressive in enforcing the current antitrust laws. I would say mostly in the area of looking at what we call vertical issues, lots of activities, both through mergers and non merger activities involve working with related markets, complimentary products and so on, and a lot of, not all of those activities, but in some cases, those activities can generate anti-competitive outcomes. I don’t think we’re aggressive enough in that area. The vertical merger guidelines that were revised over a year ago, move us to some extent in that direction, but I don’t think they’re aggressive enough. I particularly think there’s room to make a big impact on the merger policy.
Do you believe the vertical merger guidelines need to be changed?
RUBINFELD:
Yeah. Revising guidelines is a very complex process. I was involved in a small update of the merger guidelines when I was at DOJ around the late 1990s. And I was also deeply involved in doing the so-called joint venture guidelines. We went through a complicated process in revising the guidelines, the vertical merger guidelines, through 2020. I wouldn’t want to try to revise them again. I would probably just try to ensure that the agencies are just aggressive in putting together strong cases, then involve vertical mergers.
My overall impression in the work I’ve done over my career is that there are a lot of mergers which go through, which claim benefits in the vertical area, perhaps not really fully accounting for the fact that those benefits are either not cognizable or they’re not merger specific. So to put it in sort of more normal economic terms, a lot of vertical relationships can be achieved. Efficiencies can be achieved through contract. And if they can be achieved though contract we really don’t need to actually go through the merger process. And I think the agencies just need to really take a hard line in looking at every vertical merger to make sure that, as I said, that the efficiencies are really cognizable and merger specific. I think if they do that, they’ll find a number of mergers are really problematic.
Do you approve of the shift from competition towards regulation?
RUBINFELD:
I don’t generally approve of it. To me, that’s a last resort. And the reason is that two things. First of all, once we start going through the public utility orientation, we go through all of the issues that we’ve studied for 50, 60 years about the difficulty of managing public utilities. That’s particularly true in the world where, which is very dynamic, where we care about innovation, where things are changing rapidly. I think the way to go is to be very aggressive in enforcing, but to basically do that within the confines of the existing antitrust laws. Hopefully, with luck or skill, we’ll get some decisions by the courts that will help us in that direction.
How would you ensure antitrust is enforced vigorously if no changes are made to the current antitrust system?
RUBINFELD:
Well, you’re hearing from someone who served in the Clinton administration. I think generally the Democratic administrations have been, tend to be, more aggressive in enforcement. There have been periods under Republican administrations where were the enforcement was competent, but not nearly as aggressive as I would have liked. When I was at the Justice Department in the late 1990s, for example, we aggressively pursued section two cases, Sherman act, section two cases. We filed four major section two cases, and three of them were successful and still basically have an impact today. Everyone knows US cognizable. Microsoft, but not everyone remembers US cognizable. Dentsply, an exclusive dealing case, which is still on the books, still a case I occasionally reference when I’m teaching. And then, of course, there was the analysis and criticism of the Visa-MasterCard relationship, which changed significantly as a result of that enforcement.
We were after section two claims that basically more or less disappeared, not entirely since that time. And it’s been only recently that they’ve been resurrected. I think that’s one area where there’s room for improvement. Then some of the major firms that people are talking about regulating through public utilities or firms that in some relevant markets have a lot of market power and so it’s natural for us to take a really hard look at them. I would also take a hard look at any acquisitions by some of the firms that have substantial market power. As I said earlier, really look carefully to see whether those acquisitions make sense. I would not presume that vertical acquisitions are pro-competitive. They are of course in some cases, but I would really take a very hard look at that.
What are your thoughts regarding start-up acquisitions?
RUBINFELD:
Again, I’m kind of a traditionalist here. I really think it would be dangerous to impose artificial restrictions on these startup acquisitions. The reason as we know is that it’s the fact that one might be acquired that provides a significant incentive for VCs to invest and invest in supporting these, these startup firms. So if we took a really hard line and say, you can’t do these acquisitions, I think we would have had an adverse effect on innovation. Having said that, I think again, we have to take a really hard look at these acquisitions and ask, are they really generating pro-competitive benefits that couldn’t be achieved otherwise. Could the innovation occur as well through internal R and D rather than through acquisition? I would be reluctant to support an acquisition if I thought the internal R & D could achieve essentially the same purpose. I would take a hard look.
I would almost flip the bird. So I wouldn’t quite go that far, but to flip the bird is to say if you’re acquiring a small firm, you’ve got to put forward a very strong case as to why the efficiencies are real and as I said before, and really are merger specific.
Is break-up the best solution for the digital economy and for consumers?
RUBINFELD:
Well, that’s an interesting question for me, because again, back when I was at the Justice Department, I was very active in ultimately supporting a breakup of Microsoft, which as we know, did not happen as a result of the settlement. But I would point out that the staff and a group of economists, both inside and outside the agency, spent close to a year analyzing the pros and cons of such a breakup. And I would say that even though I thought breakup made sense in that case, it was a difficult decision.
The reason is that there are real efficiencies generated by some of the major companies. If you start pulling them apart, you’re going to lose those efficiencies. You have to really believe that the separation is going to generate improved innovation and other benefits before you go in that direction. So I would think twice about thinking about breakup, although, at some point that may, that may become relevant. I’m pretty much a believer that we can do more by just staying within the confines of the existing structure, we have trust laws and just pursuing it more aggressively. I would just add, if I can, that the reason I focused on mergers is that I do think we have to worry a lot about parallel behavior or some forms of collusive activity.
We know that if we’re pursuing collusion under, say of section one of the Sherman act, the law says that basically we have to prove some form of agreement. And the problem with that is that there’s a disconnect between what the law says about what is an agreement and what the economists are doing when they’re analyzing parallel conduct. It makes it very hard to prosecute some of those cases. Whereas, if we’re pursuing a merger under section seven of the Clayton act, we don’t have to worry about an agreement, that agreement isn’t that the relevant issue. We just have to look at whether the merger will have a substantial likelihood of lessening competition. That allows us to think about for example, whether acquisition of data through some form of merger can be problematic. I think that’s an area of potentially great concern.
Acquisition of data can allow for the possibility of collusion either I would say in part, perhaps through the use of artificial intelligence. We now know that AI by doing pro-competitive things with data also has the potential to lead to coordination. So that distinction, the distinction for me, suggests there’s a lot to gain if we focus our attention on merger policy and probably less to gain, if we go aggressively after section one. Of course, we will go after classic cartels. But I’m thinking now about the more difficult cases where there’s coordinating activity, which probably would not be illegal under section one in the Sherman act. But if it’s achieved through acquisition would be.
How do you see the role of the FTC and the DOJ in ensuring competition works for consumers?
RUBINFELD:
I’m a big supporter of the agencies. I think the push now to increase the budget for the agencies is well supported. My impressions are that the staffs are working very hard, and my impression, but at which I can’t prove is that there are probably investigations that could be undertaken in greater depth than maybe investigations that would slip by otherwise, that can be handled by bigger budgets. And not surprisingly since I’m an economist, I really think it’s important that the economic staffs be well supported. And that’s not just because I’m an economist, but it’s also because a lot of these complex cases that arise with high-tech really require rule of reason type analysis, where the economics is delved into quite deeply. And we need the staff to be able to do that. I think the agencies, whether it’s been a Republican or a Democratic administration, and the agency’s staff are generally hard working, most of those staff are very talented, we just need to give them more support.
