The Antitrust Attorney Blog
Author: Jarod Bona
As antitrust attorneys, we advocate for competition in product and service markets. The US Supreme Court recognizes that “the heart of our national economy long as been faith in the value of competition,” and we agree.
But competition matters elsewhere too. We certainly see it in sports. You might notice that sport leagues strive to increase parity to make the league more competitive overall. So when your favorite NFL Football team creates twelve to sixteen sleepless nights for you one year, the league rewards it with a high draft pick the next year. And if your team wins more than it loses, the NFL scheduling gods will punish them the next year with a tougher path to the playoffs.
Anyway, if you read the Harvard Business Review, you may have noticed an article that is sure to pique the interest of an antitrust lawyer like myself. (July-August 2020 Issue). It isn’t about sports, but it is still interesting.
Katherine M. Gehl and Michael E. Porter wrote “Fixing U.S. Politics: What business can—and must—do to revitalize democracy.”
Everyone seems unhappy with the current state of political affairs—so maybe more competition is the solution?
(This is a good reminder that every profession—including antitrust attorney—sees solutions to problems through their own, very specific, eyes. Knee injury? You need more competition. Of course, it isn’t always effective.)
Before we jump into Gehl and Porter’s work, as a disclaimer, Bona Law isn’t a political law firm: we don’t take any specific positions on politics or candidates. Our firm is made up of actual people, all of whom have freedom of thought and their own individual views, which we respect. As a firm, we take positions on certain types of policy—like encouraging competition and discouraging the government from destroying competition. But Bona Law is an antitrust law firm, so that’s not a surprise. But when it comes to politics, that is for each person to decide for themselves. Politics is personal.
According to the authors, politics are driven by the same five forces that affect more traditional markets: “the nature and intensity of rivalry, the power of buyers, the power of suppliers, the threat of new entrants, and the pressure from substitutes that compete in new ways.” (117). The authors explain that—unfortunately—the politics industry doesn’t have healthy competition.
The key problem, according to the authors, is that the Democrats and Republicans have a duopoly and that they work hard to keep it that way—with great success.
The authors explain that the Democrats and Republicans “target mutually exclusive groups of partisans and special interests in order to minimize overlap of core customers. This division enhances customer loyalty and reduces accountability. Each competes to reinforce the division by demonizing the other side instead of delivering practical solutions that would most likely require compromise.” (118). In some ways, this sounds like a market-allocation scheme, but I don’t think that anyone could say that each side would not accept the other’s supporters as a “customer,” i.e. voter. Of course, that is not the point.
From a political perspective, I suppose it is not surprising, however, that, ideologically, each party would attract a different group of followers.
The authors also explain that “Channels (media coverage, advertising, direct voter engagement) and suppliers (candidates, lobbyists, voter-data shops) have been compromised and co-opted to serve the duopoly’s agenda.” (118). That makes some sense. It does seem that major media is also increasingly picking one side or another, rather than even pretending to offer neutral or straightforward journalism. The Democrats, for example, seem to have CNN and the NY Times supporting their talking points, while the Republicans and Fox News often march together (with exceptions all around, of course).
Ultimately, the two major parties—despite seeming at odds with each other—work together to strengthen barriers to entry by independents or new parties. The authors provide the following example: “[T]o keep new entrants at bay, the duopoly created fundraising rules that allow a single donor to contribute $855,000 annually to a national political party (Democrats, Republicans, or both), but only $5,600 per election cycle—every two years—to an independent candidate committee.” (118).
As often happens with duopoly and high entry barriers—a large segment of people are unhappy with both providers, but new entrants don’t come in to take large market share to satisfy the unmet need.
The authors also blame party primaries and plurality voting for diminishing competition in elections. (118-19). Plurality voting, for example, discourages third-party candidates because such candidates usually are “spoilers” for one of the two major party candidates, which tend to increase the likelihood that the candidate from one of the major parties that is more ideologically different will win. The authors explain that there is something “inherently unhealthy about a system in which having more talented, successful people competing is seen as problematic.” (119).
And if a new legislator makes it to Congress, he or she will confront a structure that is run by the two political parties, requiring allegiance and cooperation with one party or the other to accomplish anything: “Congressional lawmaking takes place under a powerful set of party-created rules that prioritize the interests of the political-industrial complex. Committee chairs and membership are controlled by party leaders, and the House speaker, who controls the legislative agenda, has the power to single-handedly block a vote on almost any bill for any reason—even those supported by a majority of the House.” (119).
Like many articles that criticize “the system,” the authors here lament the inability of Congress to pass major legislation or dig in and significantly solve major problems. I, personally, am less concerned about this, as our government overall (incorporating all three branches) was set up to make it difficult to make big moves. Although that can seem frustrating, a government that is overly efficient in acting is likely a government on the way to totalitarianism. Perhaps we should make it easier for the government to further restrain itself than assert itself? But that is a debate that fills up most of history, so we won’t resolve it here.
Anyway, the authors go on to describe the role for business in restraining lobbying, spending on elections, etc., but those points are anything new; you can read about that in the article.
They do complain about corporate lobbying on antitrust policy and how that hurts competition in the markets because of lax antitrust enforcement.
The question of whether antitrust enforcement is too lax is a large one that is vigorously debated. On one side, you want to be careful to avoid over-enforcement because that can chill the competition you want to protect. On the other side, market restraints really do have a significantly negative effect on the economy and its players. Antitrust rules and enforcement help the economy run more smoothly. But where do you draw the line?
I think it is a little simplistic to blame lobbying for any particular level of antitrust enforcement. Some administrations are more interested in enforcing certain antitrust laws than others. But, in the end, the courts have the major role in determining the actual rules. And there are plenty of private-attorney generals ready to file antitrust claims to support competition (or destroy it), depending upon your perspective. Government priorities do affect antitrust merger enforcement, but in my experience that is less about particular companies and more about the administration’s view of antitrust (and reasonable minds differ).
But let’s return to the authors’ overall point that our political system lacks competition: I think it is interesting and probably correct. In my experience, incumbents with market power will spend substantial resources protecting their market power that they could otherwise spend on improving their product or service. And the Republicans and Democrats have been in their privileged position for centuries. They’ve institutionalized their protections from competition and there isn’t much an antitrust lawyer can do about it.
I appreciate the discussion from the authors and I recommend that you read their article.
Image by chayka1270 from Pixabay