CAPAF Senior Fellow David Balto testifies before the House Small Business Committee hearing on "Small Business Competition Policy: Are Markets Open for Entrepreneurs?"
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Over the past several years antitrust enforcement has gone on a misguided detour in failing to fully recognize the concerns of small businesses and entrepreneurs. When dealing with antitrust issues concerning small businesses and entrepreneurs, the antitrust enforcers always bring out the shop-worn bromide from Justice Brennan, that “antitrust laws protect competition, and not competitors.” That certainly is true, but in doing so, the antitrust agencies have become increasingly insensitive to the legitimate competitive concerns of small businesses, placing these businesses into a “disfavored class” for antitrust enforcement. This is a serious error, not only for these small businesses, but also for the American economy generally and for consumers.
My testimony today is based on over a quarter century as an antitrust practitioner, the majority of which was spent as an enforcer in the Antitrust Division of the Department of Justice, and in several senior management positions, including Policy Director at the Federal Trade Commission (“FTC”). I regularly practice before both the agencies, and frequently appear on behalf of small businesses and associations of small businesses, including pharmacies, healthcare providers, medical device manufacturers, truck stops, supermarkets, farmers, and others.
I want to make it clear at the outset that I am not criticizing the dedicated staff attorneys of the FTC, or the Antitrust Division of the Department of Justice, or even the individuals who set the enforcement agenda. For periods of time in the past, antitrust enforcement was somewhat misguided, and in some respects, attempted to protect competitors rather than competition. For example, in the 1960s the FTC brought countless Robinson-Patman enforcement actions, which may ultimately have led to higher prices for consumers. Perhaps one might have envisioned at that point that small businesses were sort of a “protected class” receiving undue recognition by antitrust enforcers. Those policies were clearly reversed during the 1980s with more sensible antitrust enforcement.
Unfortunately, the pendulum of antitrust enforcement has swung too far, with antitrust enforcers being increasingly unresponsive to the concerns raised by small businesses. In some respects as described in my testimony small business has become a “disfavored class.” That is why the Committee’s hearing on this issue is so crucial. By failing to recognize the legitimate concerns of small businesses and entrepreneurs, antitrust enforcement fails to live up to its mission to protect competitive markets and to protect consumers.
The problem identified in today’s hearing was illuminated in an extremely thoughtful article by Professor Warren Grimes “The Sherman Act’s Unintended Bias Against Lilliputians: Small Players’ Collective Action as a Counter To Relational Market Power.” Professor Grimes observes that:
There is a systemic bias against small players in modern markets. Large power players are ubiquitous. Because power checks power, big firms are relatively comfortable in dealing with fellow giants. Small players, in contrast, usually lack countervailing leverage and are likely targets of strategic behavior by power players. Antitrust law and policy has contributed to this bias. [A]ntitrust is relatively intolerant of collective action that would allow small players to achieve countervailing power. Doctrinal developments over the past three decades have exacerbated the problem by limiting small players access to antitrust remedies for power abuses. Well-intentioned but overreaching screening rules now limit the small player’s ability to establish claims such as predatory pricing or an unlawful tie-in, even when the conduct produces unambiguously anticompetitive effects.
So who falls into this class of Lilliputians that are victimized by this Sherman Act bias? Among the disfavored are professionals (such as doctors or lawyers) who practice individually or in small groups and must do business with power buyers of their services; small businesses (such as independent pharmacies or bookstore owners) that confront power buyers or sellers; small franchisees that have ongoing dealings with a powerful franchisor; small farmers or ranchers that sell their output to power buyers; and any independent contractor that sells services to a power buyer (such as a taxicab or truck owner that sells his services to a large taxicab or trucking firm).
The unintended bias against small business in antitrust enforcement costs both competition and consumers. Too often the antitrust laws and enforcement agencies fail to recognize the critical role of small businesses in providing competition and increased choices for consumers. Our parents could dream that we would have every opportunity to create our own businesses and bring new competition to the market. If we are going to be able to pass these dreams on to our children and grandchildren, it is absolutely imperative that small businesses and their concerns receive fair treatment in the antitrust agencies and the courts. The antitrust bias against small business must be reversed.
Read the full testimony (CAPAF)