Stick Versus Carrot: Comparing Structural Antitrust and Behavioral Regulation Outcomes

DOI10.1177/0003603X211023463
AuthorSumit K. Majumdar
Date01 September 2021
Published date01 September 2021
Subject MatterArticle
Article
Stick Versus Carrot: Comparing
Structural Antitrust and
Behavioral Regulation Outcomes
Sumit K. Majumdar*
Abstract
Debates on whether structural antitrust remedies or behavioral regulatory remedies should be used to
implement institutional mandates are long-standing. Historical data for an entire population of firms for a
fourteen-year period have been used, in a natural experiment format, to evaluate the impacts of both
(a) structural antitrust policy (stick) and (b) behavioral regulation (carrot), for (i) exactly the same efficiency
outcome, (ii) for the same firms, and (iii) at the same time. The results indicate that the stick has been less
effective than the carrot. Implementation of regulations has had a significantly larger economic impact
relative to implementing structural antitrust remedies on firm efficiency. Fiscally, annual incremental gains
generated by the regulatory approach versus the antitrust approach have been over US$2 billion. Beha-
vioral institutional design, implementation, and outcome assessments could be based on dynamic evolu-
tionary process ideas situated within a managed incentive regulation framework. Given recent clamor for
actions against technology companies, the facts suggest that behavioral regulations could constrain unac-
ceptable firm behaviors and the results question contemporary antitrust remedies’ relative efficacy.
Keywords
antitrust, regulation, behavioral remedies, dynamic efficiency, incentives, managed regulation,
mechanism design, natural experiments, stick and carrot, structural remedies
I. Introduction
American antitrust issues invite scrutiny,
1
given the severely dysfunctional consequences of mono-
polization.
2
Relatedly, many
3
have called for strict regulation of technology giants, such as
* University of Texas at Dallas, Richardson, TX, USA
Corresponding Author:
Sumit K. Majumdar, University of Texas at Dallas, 800 W Campbell Road, Richardson, Dallas, TX 75080, USA.
Email: majumdar@utdallas.edu
1. Diana L. Moss, Breaking Up is Hard to Do: The Implications of Restructuring and Regulating Digital Technology Markets,
ANTITRUST SOURCE 1 Oct. (2019).
2. THOMAS PHILIPPON,THE GREAT REVERSAL:HOW AMERICA GAVE UPONFREE MARKETS (2019); Sumit K. Majumdar, The Bigness
Complex Redux: Horizontal Ownership Concentration and Efficiency Conundrums,65A
NTITRUST BULL. 628 (2020).
3. Lina Khan, The Separation of Platforms and Commerce, 119 COLUMBIA LAW REV. 973 (2019); Competition Policy
International, US: Companies plead for Congress to regulate Apple, Amazon, Facebook and Google, January 19 (2020),
https://www.compe titionpolicyinter national.com/us-c ompanies-plead-fo r-congress-to-regu late-apple-amazo n-facebook-
The Antitrust Bulletin
2021, Vol. 66(3) 431–455
ªThe Author(s) 2021
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DOI: 10.1177/0003603X211023463
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Google,Facebook,Amazon,Apple, and Microsoft, among others, for presumed anticompetitive acts.
Antitrust is thought to have failed,
4
and enforcement laxity is presumed to have set in,
5
with a few
individuals and businesses materially benefiting at the expense of the many.
6
Thus, institutional
involvement clamor is substantial.
Two complementary institutional approaches exist. The first approach is structural, anchored on
antitrust. This is the stick. The second approach is behavior regulation,
7
anchored on regulatory
policies. This is the carrot; defined in a relative sense where regulations incorporate incentives.
The presumed anticompetitive behavior of firms has raised concerns, and a remedies’ need is
stated.
8
The necessity to control firms and make them answerable is palpable.
9
An assessment
of presumed anticompetitive behavior has led to suggestions involving the enforcement of struc-
tural separations as sanctions.
10
Theissue iswhethertouseastructural or a behavioral approach in
remedy design. The allied question of which approach, the structural or the behavioral, generates
relatively better performance is unexplored. This article presents evidence as to which remedy is
better.
A. The Crying Need and a Confusing Controversy
While the need for rebalancing antitrust versus regulatory approaches has been recognized,
11
there is a
misperception on how to achieve rebalancing.
12
The debate is extensive and otiose, but facts are
nonexistent
13
as to which approach, structural or behavioral, is more effective.
14
Absent factual
assessment, involving the weighing of each type of remedy’s merits, debates are inchoate.
A set of views posit that competition, as an outcome of the structural approach, is always superior
for governing an economy.
15
Another view describes the endemic cases of market failure arising as
due to firms’ preconceived egregious behaviors.
16
These market failure outcomes call for extensive
and-google/?utm_sour ce¼CPIþSubscribers&utm _campaign¼a6987a6f83- EMAIL_CAMPAIGN_2020_0 1_25_06_27&
utm_medium¼email&utm_term¼0_0ea61134a5-a6987a6f83-237067643.
4. Carl T. Bogus, The New Road to Serfdom: The Curse of Bigness and the Failure of Antitrust,49U.MI.J.LAWREF. 1 (2015).
5. Carl Shapiro, Protecting Competition in the American Economy: Merger Control, Tech Titans, Labor Markets, 33 J. ECON.
PERSP. 69 (2019).
6. Maurice E. Stucke & Ariel Ezrachi, The Rise, Fall, and Rebirth of the U.S. AntitrustMovement, HARVARD BUS.REV.,Dec. 15
(2017).
7. JOHN A. KAY &JOHN S. VICKERS Regulatory Reform: An Appraisal,inDEREGULATIONOR RE-REGULATION 223 (GIANDOMENICO
MAJONE, ed., 1990).
8. Joseph A. Farrell & Philip J. Weiser, Modularity, Vertical Integration, and Open Access Policies: Towards a Convergence
of Antitrust and Regulation in the Internet Age, 17 HARVARD J. LAW &TECH. 85 (2003); Howard Shelanski & J. Gregory
Sidak, Antitrust Divestiture in Network Industries, 68 U. CHICAGO LAW REV. 1 (2001); U. S. House of Representatives,
Subcommittee on Antitrust, Commercial and Administrative Law of the Committee on the Judiciary, Investigation of
Competition in Digital Markets (2020) [hereinafter Competition in Digital Markets].
9. Kelly Fayne & Gabrielle Kohlmeier, Editor’s Note: “No Question of More Pressing Importance?”82A
NTITRUST L. J. 763
(2019).
10. Competition in Digital Markets,supra note 8.
11. Howard Shelanski, The Case for Rebalancing Antitrust and Regulation, 109 MICH. L. J. 683 (2011).
12. Howard Shelanski, Antitrust and Deregulation, 127 YALE L. J. 1922 (2018).
13. Three studies, by Tomaso Duso et al., How Effective is European Merger Control? 55 EUR.ECON.REV. 980 (2011); John E.
Kwoka, Does Merger Control Work? A Retrospective on U.S. Enforcement Actions and Merger Outcomes,78ANTITRUST L.
J. 619 (2013); and JOHN E. KWOKA,CONTROLLING MERGERS AND MARKET POWER:APROGRAM FOR REVIVING ANTITRUST IN
AMERICA (2020), have concluded that both structural and behavioral remedies are, at best, only partially effective.
14. Hal R. Varian, Recent Trends in Concentration, Competition and Entry, 82 ANTITRUST L. J. 807 (2019).
15. William E. Kovacic & Carl Shapiro, Antitrust Policy: A Century of Economic and Legal Thinking, 14 J. ECON.PERSP.43
(2000).
16. Williamson, Economies as an Antitrust Defense: The Welfare Trade-Offs, 58 AMER .ECON.REV. 18 (1968); OLIVER E.
WILLIAMSON,MARKETS AND HIERARCHIES:ANALYSISAND ANTITRUST IMPLICATIONS (1975); Oliver E. Williamson, Economies as
432 The Antitrust Bulletin 66(3)

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