Antitrust Restoration from California Anchored by a New Monopolization Synthesis
| Jurisdiction | United States,Federal,California |
| Author | By Jordan Elias |
| Citation | Vol. 33 No. 1 |
| Publication year | 2023 |
By Jordan Elias*
California is past due for an anti-monopoly law. With federal antitrust legislation stalled and monopolization cases slowly wending through the courts, the Law Revision Commission has begun considering how to amend the Cartwright Act to prohibit antitrust violations committed by a single firm. The attention is well deserved: Many U.S. markets are now effectively controlled by a company or small set of companies.
The new law should adopt specific principles and presumptions, rather than remaining vague like the Sherman Act.1 Monopolization standards have become "not just vague but vacuous"2—a description that is "hard to disagree with."3 An FTC official told The New Yorker: "You really have to be an expert, or hire an expert attorney, if you feel like one of these companies is acting inappropriately. The law only works when it is simple enough for the little guy to bring an action on their own."4
The increased acknowledgment of excessive concentration creates an opportunity to codify earlier, twentieth-century approaches to monopoly power, market definition, and remedies.5 California's business code and common law already can be applied to curtail market dominance and exclusionary conduct,6 which may explain why no legislation followed the California Supreme Court's holding in 1988 that the Cartwright Act's ban on trusts does not extend to single-firm conduct.7 As that very decision shows, however, California's competition laws are distinct from (and in certain cases may reach further than) federal law.8 But neither state nor federal law has proved capable of holding back the tide of consolidation.9
More than three-quarters of U.S. industries became more concentrated between 1997 and 2012, as measured by the Herfindahl-Hirschman index.10 Across industries the average increase in concentration was ninety percent,11 and between 1985 and 2017 the annual number of completed mergers rose from 2,308 to 15,361.12 A single firm or duopoly now controls many more markets than before.13 A 2019 study of fifty-four economic sectors confirmed this trend with "startling numbers"—the top four firms in each sector substantially controlled it,14 and the top two firms in most major U.S. sectors have gained share since 2000.15
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Regulators stood by as conglomerates and leading businesses in the post-internet economy acquired fledgling firms that might otherwise have competed.16 The second Bush administration did not bring a single monopolization case. The increasingly concentrated economic power, including in markets controlled from California, has prompted calls for reform.17
Stricter scrutiny of dominant firms is warranted, at a minimum, to the extent more of these markets and services concern a public interest.18 At a more basic level, today's highly centralized industries and platforms betray a central promise of the Sherman Act: "Congress appreciated that occasional higher costs and prices might result from the maintenance of fragmented industries and markets" but "resolved these competing considerations in favor of decentralization."19 Although "grudging acceptance of concentration" was "no part of th[is] bargain," by 1990 it had become the norm.20 From the standpoint of an ordinary consumer, a generation of monopoly and oligopoly control of major markets has coincided with financial instability, lost privacy, skewed distribution of wealth and income, regulatory capture by lobbyists, and other adverse effects such as prices climbing even higher than warranted by inflated costs.21
Before the law-and-economics movement, the conventional antitrust wisdom was "the commonplace conclusion that significantly increased concentration means diminished competition and the extraction of monopoly profits[.]"22 But in the late 1970s, with deregulation on the rise and libertarian views gaining influence, the U.S. Supreme Court endorsed the Chicago school,23 ushering in an era of deference to corporate interests,24 a lasting trend marked by far greater reluctance to intervene in the economy to bust up big companies. A hands-off approach toward deals serving to combine markets and limit their participants25 continued in the new millennium, reinforced by Trinko26 and other precedents. Doctrinally, this shift prioritized efficiencies from economies of scale and treated low consumer prices as an antitrust North Star, displacing economic control as the central concern.27Far from being limited to pricing considerations, however, antitrust law is intended to promote the "end that the people . . . might not be dominated by vast combinations and monopolies, having power to advance their own selfish ends, regardless of the general interests and welfare[.]"28 Evaluating pricing power also seems illogical for corporations that do not earn revenue from charges paid by consumers.
The spell cast by law and economics can confuse and intimidate29 while obscuring basic fallacies like the assumptions that economies of scale will benefit consumers indefinitely without bloat;30 that conglomerates will keep innovating at the same pace without a realistic threat to their business lines;31that "ultra-rational, profit-seeking monopolists . . . would generally leave themselves completely vulnerable to competitive attack."32 The verdict of history, Senator Klobuchar wrote, leaves the Chicago school "discredited. Instead of promised 'efficiencies,' we got monopoly power, higher prices, lower wages for workers, and runaway income inequality."33 An extensive study found that over three-quarters of recent mergers led to price increases across all products offered by the merged entity, with the average increase being over 10 percent, and that on average, product quality as well as research and development declined post-merger.34
Monopolization came to be defined with "two elements: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident."35 Courts have focused on the "superior" and "acumen" exceptions without fully accounting for the "growth or development" phrase.36 Once a monopoly has been acquired, it has already grown and developed. It is then being maintained—with an intrinsic advantage—and whether it was gained through anticompetitive methods does not change
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its ongoing detriment.37 Describing Alcoa, Judge Hand could "think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connections and the elite of personnel. Only in case we interpret 'exclusion' as limited to maneuvers not honestly industrial, but actuated solely by a desire to prevent competition, can such a course . . . be deemed not 'exclusionary.' So to limit it would in our judgment emasculate the Act."38
A durable monopoly presents more danger to the public than a newly acquired one.39 Although a newer entrant may soon lose share, entrenchment of an incumbent inhibits the "growth or development" of a business gaining share.40 A monopolist's continued grip on a market is itself a sign that competing firms have not been able to enter.41 For this reason, antitrust enforcers in the U.K. target monopolists in reference to their persistence.42Professors Turner and Areeda, the original authors of the leading antitrust treatise, proposed a law allowing the government to break up a durable monopoly, regardless of its business practices.43 The Nobel laureate economist Oliver Williamson took for granted that undue concentration causes social and economic ills: "the existence of a dominant firm, whatever its origin, commonly results in resource mis-allocation."44 The current state of affairs bears out this earlier understanding that persistence of a monopoly tends to deprive citizens of better goods or services and more choices45 (including, these days, to keep your private information private).46
A monopoly, once acquired, should be presumed illegal for similar reasons: control of markets by a dominant actor limits the development of beneficial processes or offerings and creates harmful imbalances47—the same serious harms that justify the treble damages remedy.48 If a new entrant cannot realistically emerge, the natural effect is an easing of the competitive pressures and discipline that spark wider progress.49 The realistic understanding, moreover, has long been that "having a single seller in a particular market . . . lead[s] unavoidably to . . . sharp practices" that contravene public policy.50
The U.S. Supreme Court therefore held that "monopoly power, whether lawfully or unlawfully acquired, may itself constitute an evil and stand condemned under [federal law] even though it remains unexercised."51 Further, "[i]t is not of importance whether the means used to accomplish the unlawful objective are in themselves lawful or unlawful."52 Instead, because "monopoly and the acts which produce the same result as monopoly, that is, an undue restraint of the course of trade, all came to be spoken of as, and to be indeed synonymous with, restraint of trade," "[u]ndoubtedly, the words 'to monopolize' . . . reach every act bringing about the prohibited results."53 Hence a plaintiff who has proved the defendant's monopoly power in a relevant market need only show "anticompetitive behavior capable of contributing to monopoly[.]"54These principles, which have faded, are ripe for restoration in the Business and Professions Code.
Section 2 of the Sherman Act would not preempt a California law that removes or reduces scrutiny of an alleged monopolist's conduct. Federal...
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