Timothy M. Denton

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The Efficiency Defence and the Curse of Bigness

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I may be adding two and two and getting seventeen, but I suspect there is a connection between Tim Wu's thesis in "The Curse of Bigness" and a recent article about our Competition Bureau, which is pondering getting rid of the "efficiency defence".

 As the National Post writes:

With the Competition Bureau poised to release new guidelines on the role of efficiencies in merger reviews, Canada’s unique “efficiencies” defence, which allows the Competition Bureau to clear mergers with likely anti-competitive effects, may be in jeopardy.

The defence, found in the Competition Act, prohibits the Competition Tribunal from preventing a merger producing efficiencies that will be greater than the anti-competitive effects of the transaction. In a landmark 2015 decision, the Supreme Court of Canada gave teeth to the defence by declaring that it “gives primacy to economic efficiency”.

I am not saying that the Bureau of Competition Policy reads Tim Wu, though they would find him  stimulating.  It was Wu who turned the ho-hum concept of common carriage into "Net neutrality" and repackaged an old idea as if it were revolutionary. 

The thrust of his excellent little book - brevity is the soul of wit - is that bigness itself is a threat to democratic society. It is competition policy as if it mattered to more people than just econometricians and a small clique of lawyers. It matters because size itself can be anti-democratic, and that the quality of political life is profoundly affected by who owns the legislatures.

Wu maintains that Louis Brandeis of the US Supreme Court and other trustbusters of the Teddy Roosevelt era established a choice in favour of decentralization over concentration and competition over monopoly. In the period of George W. Bush, the administration dismantled most of the checks on industry concentration. Wu exculpates Obama for the mergers that happened under his watch because the federal judiciary had accepted the premises of the Chicago School and the legacy of Robert Bork on anti-trust law. In particular Wu cites the influence of a professor called Aaron Director who championed the cause of "consumer welfare" - that is, lower prices - as the only relevant criterion for judging mergers and acquisitions.

Wu explores the reasons why anti-trust policy has so far given mergers in the tech field a free pass from hostile scrutiny. He concludes:

"There is good reason to think that anti-trust's intended economic and political roles cannot be fully recovered without jettisoning the absurd and exaggerated premise that "Congress designed the Sherman Act as  a 'consumer welfare prescription'."While the tools of economics will always be essential to antitrust work, it is a disservice to the laws and their intent to retain such laserlike focus on price effects as the measure of all that antitrust was meant to do."

Structure matters, as he reminds us. I particularly recall his adage that an industry is most easily captured by private or public regulation when its structure is concentrated.

Tim writes lucidly and in a deeply informed way about anything he turns his mind to. Industrial concentration is the subject of this pamphlet/book. I was inspired to turn to his previous book, the Master Switch,  for relevant quotes and to see whether his analysis had changed since he wrote it in 2010.

"As things stand, the American antitrust regime, unlike its European counterpart, is virtually dormant respecting the entertainment and communications industries" (at p.312)

He is still thinking big. He is still relating the issue of economic concentration to political power and to the possibilities for democracy. 

"The Neo-Brandesian antitrust agenda is not an agenda for solving every economic challenge produced by the new Gilded Age. But structure matters, and these suggestions would help us return  to an economic vision that prizes dynamism and possibility, and ultimately attunes economic structure to a democratic society."

 

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Timothy Denton is a lawyer by training who practices principally in telecommunications and Internet policy and domain name issues, with a strong concentration on explaining what the technology is and what it means.

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