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A First Principles Approach to Antitrust Enforcement in the Agricultural Industry

Geoffrey Manne, Joshua Wright, Apr 29, 2010

In March 2010, the Department of Justice ("DOJ") and the United States Department of Agriculture began a series of workshops aimed at addressing competition policy issues facing the agricultural sector in the 21st century. While antitrust enforcement has a long history in the agricultural sector, the current workshops, combined with recent policy speeches by Antitrust Division officials and enforcement activity, suggest a reinvigorated regulatory interest in the sector. As Assistant Attorney General Christine Varney noted in her remarks kicking off the recent workshops, it is certainly true that competition policy in agriculture markets has some unique features that generate intense interest from a variety of economic and political stakeholders. Varney sensibly emphasized the unprecedented nature of the workshops:

This really is a historic undertaking. These workshops have brought together all the governmental agencies with a stake in the improvement of agricultural markets-Congress, the Department of Agriculture, the Department of Justice, the Commodity Futures Trading Commission, state executives and state law enforcement-and they have elicited an impressive level of popular engagement. We have received voluminous comments, and are extremely enthusiastic about the energy and initiative that all involved have shown in bringing these workshops together. It gives us confidence that we will be able to achieve our goal: a holistic and interdisciplinary look into how we can all work better, together, to strengthen and support fair and efficient markets in American agriculture.

There are very few industries that can attract the attention of Congress, multiple federal and state agencies, consumer groups, economists, antitrust lawyers, the business community, farmers, ranchers, and academics as the agriculture workshops have. Of course, with intense interest from stakeholders comes intense pressure from potential winners and losers in the political process, heated disagreement over how gains from trade should be distributed among various stakeholders, and certainly a variety of competing views over the correct approach to competition policy in agriculture markets.

These pressures have the potential to distract antitrust analysis from its core mission: protecting competition and consumer welfare. The economic approach to antitrust that has generated remarkable improvements in antitrust over the last fifty years has rejected simplistic and misleading notions that antitrust is meant to protect "small dealers and worthy men," fulfill non-economic objectives, that market concentration is a predictor of market performance, or that competition policy and intellectual property cannot peacefully co-exist.

Indeed, the economic approach is not without its shortcomings. Economic analysis that abstracts from real world conditions is a poor guide for policy in the real world:

While legal scholars typically avoid rigorous attempts to work through the available economic theory and evidence when discussing the optimal design of legal rules, economists frequently fail to assess their analyses in a realistic institutional setting and avoid incorporating the social costs of erroneous enforcement decisions into their analyses and recommendations for legal rules.

In the case of antitrust analysis in the agricultural sector the admonition is particularly significant. Perhaps no industry in the United States is more politicized than the agricultural industry. For this reason, it can and should be expected that optimal antitrust enforcement in theory will little resemble actual antitrust enforcement in practice, and evidence-based policy prescriptions must account for the substantially increased risk of antitrust error.

Unfortunately, in the run-up to and during the workshops much of the policy rhetoric encouraged adopting these rejected approaches, especially one that would favor one group of stakeholders over another rather than protecting the competitive process. In this essay, we argue that a first principles approach to antitrust analysis is required to guarantee the benefits of competition in the agricultural sector, and discuss three fundamental principles of modern antitrust that, at times, appear to be given short-shrift in the recent debate.

 


 

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  • There are 386 U.S. counties where poverty is the norm, writes the <a title="Support outlying America with Kansas Free Land" href="http://personalmoneystore.com/moneyblog/2010/12/01/kansas-free-land-homestead/"> Department of Agriculture</a>. Of those, 340 are of the outlying variety. In order to combat the ravages of the economic downturn and America's economic shift toward larger cities, these counties regularly extend free land programs to draw money to the area. Web sites like Kansas Free Land are a not-so-subtle call for the homestead-curious to take the plunge by claiming free building lots. Then their tax dollars and development may bring help to the suffering communities.

    Posted by Brice Zoo, 08/12/2010 12:58am (3 years ago)

  • Poppycock! While it has become fashionable to argue that competitiveness's valuation be based on "its core mission: protecting competition and consumer welfare.", the fact remains that there is another side to the market economy not considered. With out that side, there is no market. That side is the producer. It is the goose that lays the golden egg. Without the producer or supplier, there is no goose, there is no golden egg to sell.

    If one only looked at the consumer welfare and competitiveness with this narrow definition, one could easily externalize abuses to the goose into certain servitude. One cold justify any and all abuses to the suppliers, which is the certain intent of this line of argument. Walmart came up with the model using the same arguments to retail world products from what amounts to a country willing to manipulate its currency to buy markets. In the process, the suppliers ran from the U.S labor market to Mexico, then to China. Yes we get cheap supplies, but we have also lost the geese in this process. Meat packers try to make the same arguments that treating their suppliers unfairly benefits consumers, and so they are justified according to these narrow and quite frankly, juvenile definition of market efficiency. With this definition, child labor could be justified, stealing and then fencing goods could be justified, and a whole host of other actions that could give a company a competitive advantage in the market place could be justified..

    Under the federal court’s recent definition and requirement of proof of “competitive harm”, all of these actions could be defended if all or some of your competitors were doing the same thing in the marketplace. It is one of the most ridiculous assertions in defense of the indefensible. It is only a justification for mistreating suppliers to have advantages in the market---something the Packers and Stockyards Act was meant to prevent in relation to one of our basic food groups and the suppliers subject to market manipulation of meat packers.

    It is time we stopped using half definitions, and convenient ones for those abusing their market power, to justify unfair and unjustifiable practices to suppliers by those with market power over them. If you are cheating your suppliers because of your market power, which is what happens when you price/term discriminate for the same item, you shouldn’t be rewarded. You shouldn’t have advantages in the competition game, you should pay economic damages to those you cheated, even if it does mean that sometimes the hot goods are used in the competition game.

    The federal courts are just not doing their job to protect fair competition. They are buying half arguments that make no economic sense to justify business models that have stolen the profitability from their suppliers through the abuse of market power to win in the competition game. It is short sighted. These same judges and economists will not bear the responsibility of higher prices to consumers when the markets do get concentrated. They will not defend the other half of the free market economy because they are one eyed economists looking only after the interests of those with market power who are abusing that power with suppliers to their own advantage. Consumers are only on the ride for a short trip and to make arguments of convenience, not economically sound arguments.

    Tom

    Posted by Tom Terry, 27/05/2010 11:51am (4 years ago)

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