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.