Prepared remarks: The Rising Importance of State Antitrust Leadership (Sept. 25, 2024)

NAAG Antitrust Seminar

It is no exaggeration to say that state antitrust enforcement is having a moment. In fact, we have very few Colorado AG’s Office team members with us today because they are litigating our challenge against the proposed Kroger/Albertsons merger as we speak. This is a historic case at a historic time—the moment when we are reversing the tide against years of pressure against antitrust enforcement. Unfortunately, the results of that pressure—pushed by the Chicago School of antitrust—is an economy more concentrated and less competitive than perhaps at any point in our history. In my talk today, I will begin by discussing the state of our economy, the importance of state antitrust leadership, and the work ahead for state antitrust enforcers.

I. The Changing Nature of Our Economy

To put the importance of antitrust enforcement into context, let me spend several minutes discussing how our economy is changing. Businesses often seek to increase their economies of scale, grow larger, and, in some cases, create formidable barriers to entry for would-be rivals. If business growth is driven by a desire to provide better products and services in an open in a competitive marketplace, that’s healthy and to be encouraged. But where businesses are not competing on the merits, and instead rely on building up market power through mergers, collusion, or excluding rivals through predatory conduct, antitrust enforcement is crucial.

And it’s not just about creating monopolies. It is increasingly obvious that we face circumstances in which a company may have been initially successful through genuine innovation but, after having acquired monopoly share, maintains that monopoly through exclusionary conduct. That was, of course, the circumstances in the Microsoft case and in our recent victory in the Google case.  Indeed, it may prove to be the case that monopoly maintenance cases are particularly important in high-tech and other innovation sectors precisely because market power, once achieved on the merits, can be difficult to dislodge.  So the lesson is clear: past innovation is no defense to more recent and ongoing competitive abuses.

In any discussion of modern antitrust enforcement, it is important to understand today’s historical context. For generations, dating back to the 1970s, a critique of antitrust enforcement known as the “Chicago School” has called for less robust enforcement.[1] The theory of the Chicago School, stated simply, is that overly aggressive antitrust enforcement creates unintended consequences whereas restrained antitrust enforcement creates little or no harm. This theory assumes that a firm with market power will, over time, eventually be disciplined by the market itself. Famously, Judge Frank Easterbrook made this case in his landmark article, The Limits of Antitrust.[2] Writing at an earlier time when some aggressive antitrust decisions lacked analytical rigor, he could plausibly argue that “false positives”—the use of antitrust to restrict conduct in instances without plausible injury—were a greater concern than “false negatives”—the failure to enforce antitrust law to prevent marketplace harms. But with the benefit of hindsight (and now forty years of economic history), it is clear that the Chicago School, as former FTC Chair Robert Pitofsky famously put it, “overshot the mark.”[3] More recently, Jonathan Baker investigated carefully the claim that false positives are a bigger concern than false negatives and explained why this critique, when taken as a categorical bar to antitrust oversight, is both wrong and dangerous.[4]

From the standpoint of how markets operate today, in industries ranging from airlines to Big Tech to supermarkets, the influence of the Chicago School is clear. It has allowed for a more concentrated and less competitive economy than at almost any point in U.S. history.[5] Take the airline industry.[6] On account of a series of mergers, four airlines now control almost 80 percent of domestic air travel in the United States.[7] Moreover, this industry witnessed a successful effort by American Airlines in the 1990s to stomp out rivals through predatory pricing.[8] In part because of that failure, we have seen little entry into the airline industry over the last twenty years.[9] For consumers, the decrease in competition and increase in airline industry market power hit them in their pocketbooks. Consider, for example, that when fuel prices fell dramatically several years ago, consumers realized no benefits in the form of lower air travel prices.[10] Rather, the airline industry recorded massive profits due to fuel savings, yet all that consumers received were, as the New York Times put it, “free peanuts.”[11] And because of a less competitive airline industry, consumer protection in that sector is more important than ever as consumers are presented with fewer choices when they travel. Thankfully, due to emerging collaboration with the U.S. Department of Justice, states are now better positioned than ever to address airline companies’ failure to treat consumers fairly.[12]

From the standpoint of antitrust doctrine, it merits emphasis that the airline industry is a case study in how the Chicago School overshot the mark. In its predatory pricing jurisdiction, the Supreme Court’s Brooke Group decision accepted the Chicago School claim that “predatory pricing strategies are rarely tried, and even more rarely successful.”[13] That claim, rather than relying on extensive empirical evidence, was made as an ideological one. And in the case where American Airlines was allowed to flood the market with cheap fares, only to raise them markedly again after its rival was forced out of business, the Tenth Circuit applied this precedent to conclude that it was powerless to take action.[14] That decision, like the Supreme Court precedent it was based upon, lacked a strong empirical basis and was not the only option available to the court. Ideally, other courts will recognize the mistake of this decision and be willing to push the envelope in future cases.[15]

II. The Importance of State Antitrust Leadership

Here, in Denver back in 1908, the National Association of Attorneys General held its second meeting ever to call for collaboration on the antitrust challenge of that era—the rising trusts in a range of sectors of our economy.[16] The cooperation between antitrust enforcers is thus hardly a new phenomenon. Indeed, many state antitrust enforcers predate their federal counterparts.[17]

Over the last thirty years, the nature of federal and state antitrust collaboration has changed. During the 1990s, I had the chance to observe such collaborations firsthand, as I worked with Assistant Attorney General Joel Klein as his senior counsel. At that time, it’s fair to say that collaboration between states and their federal counterparts was uneven. To be sure, state antitrust enforcement stepped up in the 1980s during the Reagan Administration, when state attorneys general like Bob Abrams led important multistate actions,[18] but his successor Dennis Vacco later frustrated the DOJ by undercutting their case challenging a merger of Long Island hospitals.[19]

As a powerful example of state antitrust leadership, a coalition of state AGs led by Attorney General Tom Miller of Iowa joined the Department of Justice in litigating the monopolization case against Microsoft.[20] That example, along with the work of AG Bob Abrams and others, represented what Congress and the Supreme Court had in mind in granting the states the authority to enforce federal antitrust law. As the Court stated in the California v. American Stores case, the role of states in antitrust enforcement “was in no sense an afterthought; it was an integral part of the congressional plan for protecting competition.”[21]

The example of Microsoft is notable because the States began by litigating alongside the Department of Justice, but later proceeded on their own, raising the question as to whether the states truly possess sovereign authority to approach antitrust issues differently than the federal government. In the Microsoft case, the court rejected a challenge to state authority and ruled that states can proceed in a case even when the Department of Justice takes a different approach, meaning that the states could challenge the settlement agreed to by the DOJ and Microsoft.[22] By contrast, after a coalition of state AGs challenged the merger between Sprint and T-Mobile and the Justice Department settled that merger, the DOJ argued that the states lacked authority to proceed.[23] Thankfully, the judge in that case rejected that argument.[24]

Most recently, the Justice Department has adopted a strong position in support of state authority, arguing in Colorado’s challenge to the proposed Kroger/Albertsons merger that the states have independent sovereign authority to make independent decisions under the antitrust laws.[25] Significantly, the DOJ explained that states can “often provide unique perspectives on the competitive harm of certain restraints within their jurisdictions, and state antitrust laws can provide bases for seeking and tailoring certain remedies.”[26] In so arguing, the Department cited an action by Colorado to impose remedies as part of a merger review above and beyond what the federal government required.[27]

The relationship between the states and the federal government is most effective when it proceeds from a place of shared respect and commitment to collaboration. That relationship works best when, as reflected by the Department of Justice’s statement in the Kroger/Albertsons merger, there is a respect for the sovereign role of states. In the ongoing Google Search litigation, for example, the states took a different path on some issues than the federal government, and the federal government remained engaged with the states in a cooperative manner. That included questions about how to frame the theory of the case and what witnesses to call. In short, the level of collaboration in this case exemplifies the spirit of being “better together” and is part of why the judge commended the lawyering in this case as “first rate throughout.”[28]

The Google case is not an outlier. It is the new normal. Consider the Kroger/Albertsons case, for example. When the State of Washington and the State of Colorado chose to litigate their separate cases in state court, the Federal Trade Commission did not take a turf-conscious position. Rather, it supported the states’ actions, and the Department of Justice filed a statement of interest standing up for the right of states to do so.[29] And the Federal Trade Commission—along with a bipartisan coalition of states (AZ, CA, DC, IL, MD, NV, NM, OR, and WY)—is litigating alongside of us. Similarly, with respect to a recent case filed by a number of states against the NCAA,[30] the Department of Justice, which was independently investigating the same conduct, did not try to derail or otherwise object to the action; rather, it joined the case filed by the states and constructively worked with us on a settlement.[31] Finally, in the recently filed case against Ticketmaster, the Department of Justice invited state participation and state feedback.[32]

During my two stints in the Justice Department, I witnessed real progress in viewing the states as partners in antitrust enforcement. In 2009, for example, then-Assistant Attorney General Christine Varney delivered a speech entitled “Antitrust Federalism: Enhancing Federal/State Cooperation,” concluding that “antitrust enforcement is a collaborative enterprise and the states are a key part of that enterprise.”[33] That promise has not always been honored, as reflected by the Department’s stance in the states’ litigation to block the Sprint/T-Mobile merger. But we are, indeed, witnessing real progress on that front and the collaboration we are currently seeing is promising and productive.

III. The Way Forward

For state enforcers, we have our work cut out for us. The courts are, unfortunately, still influenced by the Chicago School critique and we must be sure to develop rigorous theories and compelling evidence to win important cases. That is eminently doable and cases like the merger challenge against Kroger/Albertsons, the successful challenge of the Jet Blue/Spirit merger, and the Google monopolization case are all guideposts on the road.

Years ago, my mentor in antitrust, former FTC Chief Economist F.M. Scherer, spoke to a group of enforcers and advised them to “know your industry, do your homework, and don’t be afraid.” In the cases I mentioned above, that is exactly how enforcers proceeded. Similarly, in the landmark case against Microsoft, the Department of Justice and the States brought a similar mindset to the important work of proving that antitrust case.

For us as state enforcers, we have another special opportunity that can enable us to use our close position to our constituents in developing compelling antitrust cases: we can listen to them and ensure their stories and experience are translated into the courtroom. In the recent challenge we brought to the Kroger/Albertsons merger, for example, we held a 19-town hall tour to hear directly from consumers, workers, farmers, and community leaders.[34] The feedback from this series of listening sessions was impactful and valuable as we honed our theory of the case.

The specific merger challenge in the Kroger/Albertsons case is in the context of an ever-increasingly concentrated grocery store industry. For state antitrust enforcers, we can seek to work with our federal counterparts to better investigate industry dynamics outside of a specific merger to better understand what forces are driving industry consolidation, whether new entry is feasible or effective, and what natural experiments exist to demonstrate harm to consumers. The FTC famously did such retrospective analyses to evaluate what hospital mergers are most problematic and warrant antitrust action. Indeed, that retrospective led the FTC to identify a promising case—the Evanston Northwestern case—that demonstrated how hospital mergers can harm patients.[35] Ultimately, that challenge forged the way for successful merger challenges in that space.

Finally, I encourage everyone here not to limit the lens of oversight to bringing cases, but to look for how to advance competition policy more broadly. In the case of the airline industry, for example, this might involve regulating how airports make leasing decisions on which airlines receive landing gates. In the grocery store industry, it might involve careful evaluations of whether restrictive leases are keeping shopping center prime locations empty and how to address that barrier to entry.

* * *

            As we prepare for the work ahead, let me close by celebrating how antitrust remains a thoroughly bipartisan commitment. In the case of our monopolization case against Google, for example, almost every state joined that effort. And the cases involving the Kroger/Albertson merger, the NCAA, Ticketmaster, and the recently filed RealPage case are all bipartisan actions. I recognize that we live at a time of rising polarization and that this dynamic is a challenge to the rule of law. As we do the important work of principled antitrust enforcement, we can stand as a bulwark against powerful companies and other forces that too often prey upon and take advantage of consumers.

 

[1] See generally Herbert Hovenkamp & Fiona Scott Morton, Framing the Chicago School of Antitrust Analysis, 168 U. Pa. L. Rev. 1843 (2020).

[2] See Frank H. Easterbrook, The Limits of Antitrust, 63 Tex. L. Rev. 1 (1984).

[3] How the Chicago School Overshot the Mark: The Effect of Conservative Economic Analysis on U.S. Antitrust (Robert Pitofsky, ed., 2008).

[4] See Jonathan B. Baker, The Antitrust Paradigm (2019); see also Jonathan B. Baker, Taking the Error Out of “Error Cost” Analysis: What’s Wrong with Antitrust’s Right, 80 Antitrust L.J. 1 (2015).

[5] Rose Jacobs, Rising Corporate Concentration Continues a 100-Year Trend, Chicago Booth Review – Economics (Aug. 15, 2022), https://www.chicagobooth.edu/review/rising-corporate-concentration-continues-100-year-trend.

[6] I borrow the discussion below from my testimony before the U.S. House of Representatives Subcommittee on Antitrust, Commercial, and Administrative Law in March 2021. See Philip Weiser, Attorney General of Colorado, Testimony Before the U.S. House of Representatives Subcommittee on Antitrust, Commercial, and Administrative Law (Mar. 18, 2021) (available at https://coag.gov/app/uploads/2021/03/AG-Testimony-to-Congress-Antitrust-Subcmte-3-18-2021-Delivered-Statement.pdf).

[7] Peter Georgescu, Air Travel Grows More Dangerous, A Better Form of Capitalism Must Help, Forbes (Feb. 29, 2024, 10:51 AM), https://www.forbes.com/sites/petergeorgescu/2024/02/29/air-travel-grows-more-dangerous-a-better-form-of-capitalism-must-help/.

[8] See Stephen Labaton & Laurence Zuckerman, Airline is Accused of Illegal Pricing, N.Y. Times (May 14, 1999), https://www.nytimes.com/1999/05/14/business/airline-is-accused-of-illegal-pricing.html.

[9] See Kolin Schunck, Grounded Growth: The Decline of New Airline Foundings, TNMT (Apr. 5, 2023), https://tnmt.com/the-decline-of-new-airline-foundings/.

[10] Jad Mauowad, Airlines Reap Record Profits, and Passengers Get Peanuts, N.Y. Times (Feb. 6, 2016), https://www.nytimes.com/2016/02/07/business/energy-environment/airlines-reap-record-profits-and-passengers-get-peanuts.html.

[11] Id.

[12] See Four Additional States Join Justice Department’s Suit to Block JetBlue’s Acquisition of Spirit Airlines, Office of Public Affairs, U.S. Dep’t of Justice (Mar. 31, 2023), https://www.justice.gov/opa/pr/four-additional-states-join-justice-department-s-suit-block-jetblue-s-acquisition-spirit.

[13] Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 226 (1993) (quoting Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 589 (1984)).

[14] United States v. AMR Corp., 335 F.3d 1109, 1114 (10th Cir. 2003).

[15] Scott Hemphill and I argue for just this strategy. See C. Scott Hemphill & Philip J. Weiser, Beyond Brooke Group: Bringing Reality to the Law of Predatory Pricing, 127 Yale L.J. 2048, 2067 (2018).

[16] See Matt Suoja, AG Convention Held in Denver in 1908, Law Week Colorado (Oct. 11, 2023), https://www.lawweekcolorado.com/article/ag-convention-held-in-denver-in-1908/.

[17] See David K. Millon, The First Antitrust Statute, 29 Washburn L.J. 141, 141 (1990) (“No less than eleven . . . states passed various forms of antitrust legislation before Congress approved the Sherman Act in 1890.”).

[18] As former New York State Attorney General Abrams explained:

 

During the hands-off Reagan years, New York and other states acted together and effectively filled the void due to the lack of federal enforcement. Former US Attorney General Ed Meese made a revealing admission to me: “All that stuff about returning power to the states, that wasn’t really what we wanted. We had a laissez-faire plan of non-enforcement. You outfoxed us. We won the battle, but lost the war! We never thought that you guys would have the competence to do this. We never imagined that you would be able to work together.”

 

Colorado AG Phil Weiser ’94 Interviews Former New York AG Robert Abrams ’63 About His New Memoir, NYU Law News (Mar. 16, 2021), https://www.law.nyu.edu/news/robert-abrams-memoir-phil-weiser-alumni.

[19] See John R. Wilke & Lucette Lagnado, Justice Department Challenges Merger of New York Hospitals, Wall St. J. (Jun. 12, 1997), https://www.wsj.com/articles/SB866070709731511500 (“New York Attorney General Dennis Vacco took issue with the Justice Department, saying he approves of the merger and won assurances from both hospitals that the consolidation will lower costs for consumers.”).

[20] See New York v. Microsoft Corp., 224 F. Supp. 2d 76, 86 (D.D.C. 2002).

[21] California v. Am. Stores Co., 495 U.S. 271, 284 (1990).

[22] See Microsoft Corp., 224 F. Supp. at 87 (“The states which opted not to join the settlement between the United States and Microsoft have proposed a remedy distinct from that presented in the proposed consent decree.”).

[23] See Statement of Interest of the United States at 25, New York v. Deutsche Telekom AG, 439 F. Supp. 3d 179 (S.D.N.Y. 2020) (No. 1:19-cv-5434-VM-RWL), (“The Litigating States’ strong interest in this merger does not justify their attempt to substitute their judgment for the nationwide perspective of the United States.”). The then-Assistant Attorney General later reiterated that argument and expounded upon it. See Makan Delrahim, Asst. Att’y Gen., U.S. Dep’t of Just., Remarks at Media Institute Luncheon, “Getting Better”: Progress and Remaining Challenges in Merger Review (Feb. 5, 2020), https://www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahim-delivers-remarksmedia-institute-luncheon [https://perma.cc/4CTW-4DHK] (“Permitting states to undermine federal enforcement also would be contrary to congressional intent.”).

[24] See New York v. Deutsche Telekom AG, 439 F. Supp. 3d 179, 224–26, 225 n.21 (S.D.N.Y. 2020) (“Having been tasked with independently reviewing the legality of the Proposed Merger, the Court is not bound by the conclusions of these regulatory agencies. Similarly, the Court does not simply adopt their conclusions wholesale.”). I discuss the problematic nature of the Justice Department’s argument in The Enduring Promise of Antitrust, 52 Loy. U. Chi. L.J. 1, 4-6 (2020).

[25] Statement of Interest of the United States of America at 3, Colorado v. Kroger Co., No. 2024CV30459 (Colo. Dist. Ct. May 3, 2024), https://www.justice.gov/d9/2024-05/421700.pdf. (“Dual federal and state enforcement vindicates states’ authority as separate sovereigns to protect competition in matters of both regional and national concern.”); see also id. at 5 (“[N]o freestanding comity principle directs that states can only vindicate their sovereign interests by joining federal enforcement actions.”).

[26] Id. at 3.

[27] Id. at 3-4 (citing Consent Judgment, Colorado v. UnitedHealth Grp. Inc., No. 2019CV31424 (Colo. Dist. Ct.), at 5-7).

[28] Memorandum Opinion at 3, United States v. Google, LLC, No. 1:20-cv-03010-APM (D.D.C. 2020).

[29] See Statement of Interest of the United States of America, Kroger Co., supra note 20.

[30] Amended Complaint for Injunctive Relief, Ohio v. Nat’l Collegiate Athletic Ass’n, No. 1:23-CV-00100 (N.D.W. Va. Jan. 18, 2024), ECF No. 79.

[31] Justice Department Joins Lawsuit Challenging National Collegiate Athletics Association’s (NCAA) Transfer Eligibility Rule, Office of Public Affairs, U.S. Dep’t of Justice, (Jan. 18, 2024), https://www.justice.gov/opa/pr/justice-department-joins-lawsuit-challenging-national-collegiate-athletics-associations-ncaa.

[32] Complaint, United States v. Live Nation Entertainment, LLC, No. 1:24–cv–3973 (S.D.N.Y. 2024).

[33] Christine A. Varney, Assistant Attorney General, U.S. Dep’t of Justice, Antitrust Federalism: Enhancing Federal/State Cooperation (Oct. 7, 2009) (available at https://www.justice.gov/atr/speech/antitrust-federalism-enhancing-federalstate-cooperation).

[34] As Grand Junction’s Daily Sentinel put it:

 

[The town hall series] was a rare example of how government is supposed to work. [The Attorney General’s office] gave the public ample opportunity to weigh in on a critical issue. He was present at those meetings and listened to concerns with his own ears. Participants left those meetings feeling heard and confident that an informed decision would follow.

 

AG Listened, Took Action Accordingly, The Daily Sentinel (Feb. 20, 2024), https://www.gjsentinel.com/opinion/editorials/ag-listened-took-action-accordingly/article_ef2264f2-cf77-11ee-b177-83123de155fd.html.

[35] See In Re Evanston Northwestern Healthcare Corp. (F.T.C. 2007).