By Kirk Victor. Originally published on FTC:Watch on June 2, 2017
It's not quite five months into the Trump administration and the antitrust bar is still speculating about what to expect. Yet, the remarks of some top players at the Federal Trade Commission leave little doubt that a shift in direction is looming.
Tad Lipsky, acting director of the FTC's Bureau of Competition, made waves recently when he said, "We are returning to the Baxter doctrine." That reference was to Bill Baxter, who served as assistant attorney general in the Justice Department's antitrust division from 1981 to 1983. Baxter had a large and lasting impact by making rigorous economic analysis a central part of enforcement decisions.
Lipsky, known for his blunt style, has made clear that he thinks the Obama antitrust watchdogs strayed from what he has described as "empirically tested conjectures" and "sound" economics. Acting Chairman Maureen Ohlhausen has made similar points.
In response to FTC:WATCH's questions about whether he believed the Obama antitrust team had walked away from the Baxter doctrine, Lipsky, in an e-mail, said: "Antitrust agencies in the previous administration took a number of actions whose fidelity to sound economic analysis could be questioned."
"In the previous administration, some of the senior appointees in antitrust enforcement made statements casting doubt on the preeminence of economic analysis as a key component of the best traditions of US antitrust enforcement — something that had been a matter of broad consensus within the US antitrust community since the path-breaking innovations in US antitrust analysis and enforcement that began in the 1970s," Lipsky elaborated.
"A number of such items have been identified in previous public statements by a variety of antitrust practitioners, scholars and enforcement officials, including Acting Chairman Ohlhausen, so I feel no need to rehash," he wrote.
As for what, more precisely, he meant by the "Baxter doctrine," Lipsky said: "Bill Baxter applied the following test to all of his activities as AAG: 'If it doesn't make economic sense, it doesn't happen.'"
When asked about Lipsky's comment that the Trump administration had "returned" to the Baxter doctrine, Mark Ryan, who served as director of litigation in the DOJ's antitrust division during the Obama years, said, "I am not aware of any enforcement action in the Obama administration that wasn't grounded on solid economic principles."
"I think if he has concerns about specific actions that were taken, he should identify them," Ryan, of Mayer Brown, added in the interview.
FTC Commissioner Terrell McSweeny, a Democrat, expressed similar sentiments in an interview in April, when asked about Ohlhausen's comment in January that "although well-intentioned, the majority commission under President Obama at times pursued an antitrust agenda that disregarded sound economics."
"I look forward to hearing more about what was unsound about our economics," McSweeny said. "I'll tell you, I take economics very seriously and don't recall making any decisions in which economic experts told me they were underpinned by unsound economics." (See FTC:WATCH, No. 914, April 7, 2017.)
Alden Abbott, deputy director of the Meese Center for Legal and Judicial Studies at the right-leaning Heritage Foundation, said that Lipsky's words should be put in context of his being "a great admirer of Baxter's" after having been his student at Stanford University and one of his deputies at the Justice Department.
"Baxter is viewed as sort of ushering in the Chicago School at the Justice Department," Abbott added. "I think what Lipsky is implying is that in the Obama administration there had been a lot of emphasis…on things like game theory, post-Chicago analysis and just conceiving potential cases on the basis of economic theory without strong empirical support."
"In the merger area, you have to look at the facts of a specific market — entry conditions, substitutes, what the merger would do to innovation, efficiencies," Abbott continued. "I think he is saying these are very fact specific, detailed issues, and you can't make blanket statements that most mergers are harmful."
Lipsky, writing in The Antitrust Source in February, before signing on with the FTC, singled out for criticism a comment by Renata Hesse, who had been acting head of the DOJ's antitrust division in the Obama administration. "I think the intuition behind antitrust economics is that all mergers cause harm," she said.
He wrote that such a view should be a reminder that "real antitrust analysis is actually hard work." Hesse declined to comment on Lipsky's criticism.
Law professor Stephen Calkins of Wayne State University put the debate in a more nuanced context, noting in an interview that "it is not a matter that they weren't looking at economics in the Obama administration. It rather is how you look at the economics and how much of a case do you think had to be made before a merger ought to be challenged."
Calkins added that Lipsky's comment about returning to the Baxter doctrine signified "a little more reluctance to challenge mergers and a little more demanding of proof of competitive harm before you go in and block it."
Richard Feinstein, who was director of the FTC's Bureau of Competition during the Obama administration, also took a more measured view.
"I often said when I was the bureau director that the cases that were brought tended to be cases where the evidence from a variety of sources, including the economics, pointed in the same direction," he said in an interview.
"People can debate about how much weight you give to the various pieces of the puzzle, by which I mean contemporaneous documents, data and economic analysis and the views of other market participants," he added. "I can't remember a case while I was there, at least, where the Bureau of Economics and the Bureau of Competition had dramatically different views."
"One of the things that is worth keeping in mind is that the economic analysis is important — very important — but, particularly when you are trying to quantify things, sometimes people assume more precision than may actually be achievable in the economic analysis when you are trying to make a prediction in the merger context about price effects," Feinstein noted.