Articles Posted in Competition

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Engineers and Bridge

Author: Jarod Bona

As an antitrust attorney, over time you see the same major cases cited again and again. It is only natural that you develop favorites. Here at The Antitrust Attorney Blog, we, from time-to-time, highlight some of the “Classic Antitrust Cases” that we love, that we hate, or that we merely find interesting.

The Supreme Court decided National Society of Professional Engineers in the late 1970s—when I was two-years old—and before the Reagan Revolution. But the views that the author, Justice John Paul Stevens, expressed on behalf of the Supreme Court perhaps ushered in the faith in competition often associated with the 1980s.

The National Society of Professional Engineers thought that its members were above price competition. Indeed, it strictly forbid them from competing on price.

The reason was simple: “it would be cheaper and easier for an engineer ‘to design and specify inefficient and unnecessarily expensive structures and methods of construction.’ Accordingly, competitive pressure to offer engineering services at the lowest possible price would adversely affect the quality of engineering. Moreover, the practice of awarding engineering contracts to the lowest bidder, regardless of quality, would be dangerous to the public health, safety, and welfare.” (684-85).

So price competition will cause bridges to collapse? I suppose the same argument could be made for any market where greater expense can improve the health or safety of a product or service. We better not let the car manufacturers compete to provide us with cars because they will skimp on the brakes. It is often the professionals–including and especially lawyers–that find competition distasteful or damaging for their particular profession and believe that they are above it. Well, according to the US Supreme Court, they are not.

Indeed, quite recently, in NCAA v. Alston (analyzed here by Steve Cernak), the US Supreme Court reaffirmed and applied National Society of Professional Engineers when it told the NCAA that if they don’t like competition, they better go to Congress because, as of now, the Sherman Act applies to them and that law is predicated on one assumption alone: “competition is the best method of allocating resources” in the Nation’s economy.

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Sculpture Man Controlling Trade

Author: Steven J. Cernak

How do you tie together evolution, the wave, and market prices?  As Neil Chilson explains in his brilliant little book, Getting Out of Control, all are examples of emergent order.  While Chilson is a former FTC leader, this book is not just for antitrust and consumer protection lawyers and economists but for anyone trying to understand what they can, and cannot and should not, control.

The book is about more than policy and certainly more than antitrust policy.  It explores many ways in which emergent order can play a role in your life, both personal and professional.  After all, the subtitle is “Emergent Leadership in a Complex World.” So parts of the book read like a self-help or leadership book.

Those parts might be the least interesting, at least to many of us.  There is nothing objectionable in those sections but there also did not seem to be many new insights from viewing familiar issues through an emergent-order lens.  For example, Chilson describes how changing your habits can change you and your actions and how changing your environment can help change your habits: “If you want to stop eating sugar, don’t visit candy stores.”

But that advice does not seem much different than the directions that many of us have received in various six sigma or other corporate efficiency seminars. Many of mine while at General Motors were based on lessons learned from the Toyota Production System applied to the white-collar office.  There, changing the environment might mean putting yellow taping around the stapler on the table next to the copier to develop the habit of returning it to the same place every time. Good advice that all of us, whether in the workplace a few weeks or decades, need to hear periodically, but not particularly new.

Chilson’s policy discussions, however, do offer fresh and necessary takes on policy issues, like antitrust and other economic regulation, that are especially important today.  He starts by defining emergent order and distinguishing it from both randomness and designed order. Here, emergent order is the complex behavior of a system created by the interactions of many smaller components following simpler rules with no central control. To illustrate the differences among the three types, he uses various actions of a crowd at a sporting event.

As an example of emergent order, consider “the wave” at a large sports stadium — I will use the University of Michigan football stadium. The system, that is, the attendees, engage in the complex behavior of creating the coordinated, observable pattern of a wave moving around the stadium. No central authority controls the wave — some group of students, though not always the same one, tries to start it at different points in the game — and the small components, each fan, follows the simple rule of standing at about the right time. The wave peters out as enough fans grow disinterested.

An example of randomness would be the fans entering the stadium.  As Chilson notes, “you would be hard pressed to predict when any particular fan would arrive and take their seat” (although, at Michigan Stadium, a safe prediction is that fans named Cernak will be in their seats at the one hour to kickoff announcement). Designed order, on the other hand, would be if placards are handed out that, “when everyone holds them up, spell out ‘GO TEAM’ [or a Block M] across the entire stadium.”

Chilson builds on those definitions and examples to examine “the classic economic example of emergent order,” the price system. From these concepts, he derives principles for anyone dealing with emergent order, such as: expect complicated results even from simple actions; push decisions down to those actors with important local information; and be humble.

While the book is not overly technical or academic, its points are well-supported with quotes and “greatest hits” from top economists like Adam Smith, F.A. Hayek and his knowledge problem, Ronald Coase and his theory of the firm, and Elinor Ostrom. Chilson even interviews Russ Roberts, who has been popularizing emergent order on his EconTalk podcast for years.  (Surprisingly, there does not seem to be a reference to Roberts’s It’s a Wonderful Loaf, an ode to the magic and beauty of emergent order that I suggest to all my antitrust students.)

Specifically on antitrust and other regulatory matters, Chilson has high praise for his former boss at the Federal Trade Commission, former long-time Commissioner and Acting Chairman Maureen Ohlhausen. She frequently spoke about the need for the FTC to exhibit “regulatory humility,” a position that I have supported in the past. Chilson also seems to channel Edmund Burke in advocating for a common law approach to policy decisions, rather than some elaborate rulemaking, as the many cases decided with specific and local knowledge in the past end up embodying wisdom that should be respected now and in the future.

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Author: Jon Cieslak

Many guitarists and rock music fans have recently gotten to know Rick Beato. Beato is a musician, music producer, and, most recently, a YouTube personality. He regularly produces YouTube videos about a variety of music topics, headlined by his most well-known series, What Makes This Song Great?, which breaks down and discusses popular songs. He also occasionally discusses legal issues, particularly copyright law and fair use, as he has had videos removed from his YouTube channel.

In one video, Beato touches on antitrust law in his discussion of what he refers to as the Y2K curse. The Y2K curse refers to his observation that a large number of successful rock bands from the 1990s—Beato gives twenty eight examples, including Live, Cake, Counting Crows, Bush, Blur, Goo Goo Dolls, and Barenaked Ladies—“did nothing after the year 2000.” This is not because they stopped releasing albums; rather, their releases in the 2000s did not have the same commercial success. He admits that this was not a universal problem, as bands such as Foo Fighters, Green Day, Red Hot Chili Peppers, and Weezer were able to maintain their success.

So why did so many (but not all) rock bands suffer from the Y2K curse? Beato attributes much of it to a change in radio formats indirectly prompted by the Telecommunications Act of 1996. According to the FCC, the Act’s goal was “to let anyone enter any communications business—to let any communications business compete in any market against any other.” But what happened in practice was the drastic increase in the consolidation of media ownership, particularly in radio stations. As Beato explains, in 1983, 90% of American media was controlled by fifty companies. By 2011, 90% of American media was controlled by just six companies (GE, News-Corp, Disney, Viacom, Time Warner, and CBS). This consolidated media ownership resulted in “consolidated playlists” with far fewer “gatekeepers”—who are frequently now market researchers instead of DJs—deciding what music would be played on the radio. That smaller number of corporate gatekeepers, all concerned about offending the smallest number of potential listeners, resulted in less variety and eliminated the main outlet for many popular bands from the 1990s.

Assuming this is all true, would antitrust law provide a remedy for the loss of musical variety on the radio? After all, the goal of antitrust law is to prevent the ill effects of reduced competition.

Probably not. Antitrust law most likely would not provide a remedy because it generally does not recognize the loss of variety—without some associated detrimental effect on competition—as a cognizable anticompetitive harm.

This recalls an interesting debate among antitrust scholars about what “the primary concern of antitrust law” should be. Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 51 n.19 (1977). The prevailing view—which the Supreme Court spurred with its Continental T.V. decision—is that federal antitrust laws should promote economic welfare (frequently referred to as consumer welfare) over other goals. As a leading antitrust treatise says, “economic concerns have generally dominated antitrust policy and trumped competing ‘populist’ concerns.” 1 PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶ 110 (5th ed. 2020). While the Supreme Court has never formally adopted the economic welfare standard—or any standard, for that matter—regulators, litigants, and courts frequently focus on price effects when evaluating alleged anticompetitive conduct. To be sure, those price effects should be based on quality-adjusted prices—i.e. prices that consider nonprice elements of a product that affect consumer preferences such as color, style, or brand reputation—but the economic welfare standard does not protect variety for variety’s sake.

Returning to Beato’s Y2K curse, application of the economic welfare standard would likely render antitrust law powerless to remedy the curse’s effects. The consolidation of media ownership and corresponding streamlining of radio playlists did not have the most common hallmarks of anticompetitive harm that courts usually consider. Prices for radio broadcasts did not go up. There was no substantial reduction in output of radio broadcasts. So unless a court was willing to find that the quality of radio broadcasts went down—while I would argue that Counting Crows are better than Limp Bizkit, I would not expect a court to take up the issue—it seems there was no loss of economic welfare and therefore no antitrust claim.

Not all antitrust scholars think this is the right result. Some have argued that the economic welfare standard is lacking precisely because it does a poor job of addressing nonprice competition. They have argued for a “consumer choice” standard instead of economic welfare, defined as business conduct “that harmfully and significantly limits the range of choices that the free market, absent the restraints being challenged, would have provided.” Neil W. Averitt & Robert H. Lande, Using the “Consumer Choice” Approach to Antitrust Law, 74 ANTITRUST L.J. 175, 184 (2007). If applied, the consumer choice standard would be more likely to provide a remedy for the Y2K curse.

Regulators and courts do sometimes consider diminished choices as indicative of anticompetitive activity. For example, in Associated Gen. Contractors v. Cal. State Council of Carpenters, 459 U.S. 519, 528 (1983), the Supreme Court held that “[c]oercive activity that prevents its victims from making free choices between market alternatives is inherently destructive of competitive conditions.” In Realcomp II, Ltd. v. FTC, 635 F.3d 815 (6th Cir. 2011), the Sixth Circuit upheld an FTC decision finding that certain policies violated the antitrust laws when they “narrow[ed] consumer choice” and “hinder[ed] the competitive process” without examining price effects.

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Author: Jarod Bona

The Coronavirus crisis has created an unusual situation for the world, but also for antitrust and competition law. People around the globe are trying to cooperate to solve and move past the crisis, but cooperation among competitors is a touchy subject under antitrust and competition laws.

Of course, cooperation between or among competitors isn’t unheard of, even during non-crisis times. Joint ventures are prevalent and often celebrated, companies will often license their technology to each other, and the existence of certain professional sport leagues, for example, depend entirely upon cooperation among competing and separately owned teams. Indeed, the Department of Justice Antitrust Division and FTC have published guidance (in 2000) on collaborations among competitors.

Human beings everywhere are working together to defeat the Coronavirus and that will require cooperation, sometimes even among and between competitors. It is unlikely that antitrust and competition law will get in the way of that. Indeed, the Antitrust Division of the Department of Justice issued a Business Review Letter confirming that certain competitors can cooperate “to expedite and increase manufacturing, sourcing, and distribution of personal-protective equipment (PPE) and coronavirus-treatment-related medication.”

At the same time, the foundations of antitrust and competition law—the “faith in the value of competition,” as articulated by the US Supreme Court in National Society of Professional Engineers—is the motor that will accelerate us toward solutions.

Private enterprise and the incentives inherent within it have created the foundations and the machinery to “science” our way out of this crisis. Over-coordination through a central planner will detract from that because we would lose the feature of massive a/b testing, or really a/b/c/d/e/etc. testing, that comes from a bottom-up, decentralized approach to creating and distributing resources.

So—at least in my opinion—antitrust and competition law should maintain their role in supporting competition during this crisis (and the FTC agrees with me). But—as is already true of antitrust and competition law—when there is a strong pro-competitive reason for cooperation among competitors, the courts and antitrust agencies can adjust to let that conduct go forward (and they have here).

And once we are past this crisis, I suspect that antitrust and competition law will become an even more popular area of discussion because of the likely greater concentration of markets resulting from government intervention.

In the meantime, here are some articles that our antitrust team has written about antitrust, competition, and the Coronovirus Crisis:

 

 

 

 

 

 

Also, Steven Cernak is heavily quoted in this article from MiBiz: Coronavirus price gouging spurs efforts to rein in ‘bad actor’ resellers.

Finally, we recommend that read the blog series from our friends at Truth on the Market entitled “The Law, Economics, and Policy of the Covid-19 Pandemic.” Lots of outstanding work by very smart people.

The other part of this, of course, is the economy. With stay-at-home orders throughout the country, there is a lot less commerce happening.

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Blockchain-Bitcoin-and-Antitrust-300x128

Author: Jarod Bona

I suspect that Antitrust DOJ head Makan Delrahim and I have had a similar reading list lately. And I am not even referring to any sort of antitrust books, like, for example, Steve Cernak’s book on Antitrust in Distribution and Franchising.

Let me explain.

I read, with great interest, a speech that Assistant Attorney General Makan Delraihim delivered on August 27, 2020 to the Conference on Innovation Economics in Evanston, Illinois (well, virtually).

His two topics were blockchain and Nassim Taleb’s concept of antifragility.

As a consistent reader of this blog, I trust that you already know that I am a big fan of Nassim Taleb and, particularly, his book, Antifragile: Things that Gain from Disorder. Indeed, a re-reading of Antifragile inspired an earlier article about Iatrogenics. If you haven’t read Antifragile, you should, right away.

My interest in blockchain, Bitcoin, and other cryptocurrency systems like Ethereum is relatively recent. But—like many before me—a little bit of knowledge has created an insatiable appetite for more. I am making my way down the rabbit hole, as they say.

Let’s dig in and talk about what the Department of Justice thinks about both antifragility and blockchain.

Antifragile

What does the term “antifragile” mean?

You might think that robust is the opposite of fragile. But those of us that have read Taleb know that isn’t true. Something that is fragile is likely to break or weaken from stress, shocks, or variability. If something is robust, it will resist this stress, shock, or variance.

But what you really want during times of stress (or, really, just over time), is antifragility. If you are antifragile, you improve from stress, shocks, and variance, which are inevitable, especially as time passes.

The human body is, in some ways, antifragile. Lifting weights, for example, creates a stressor on the muscles and surrounding tissues, which cause, ultimately, an increase in strength. So make sure you get your deadlifts in this week.

Antifragile is the opposite of fragile and it is better than robustness.

There is a lot more to antifragility than this. Indeed, there is an entire book about it (and, really, a set of books—Incerto). I urge you to read more—it might change your life.

Earnest Hemingway understood antifragility when he said in A Farewell to Arms that “the world breaks everyone and afterward many are strong at the broken places.” The next line is just as important for reasons you will understand if you read Antifragile: “But those that will not break it kills.”

So, what does antifragility have to do with the Department of Justice and antitrust?

Assistant Attorney General Makan, in his speech, emphasized that “the Antitrust Division has made protecting competition in order to advance innovation in the private sector one of our top priorities,” and that the Division wants to “ensure that antitrust law protects competition without standing as an impediment to rapid innovation.”

He then introduced the concept of antifragility and acknowledged that the pandemic can certainly be described as a “shock” producing a “wide array of trauma.” But with that harm comes an opportunity—“if we rise to the challenge of being antifragile, there is also an opportunity for tremendous growth.” More specifically, “[c]ritical innovations and technological developments often result from the kind of extraordinary experimentation the pandemic has made necessary. We have the opportunity to embrace antifragility, to delve into the experimentation and trial and error that drive growth, and to make ourselves better.”

According to AAG Makan, “[o]ur goal at the Antitrust Division is to extend the spirit of innovation beyond our latest efforts to combat the pandemic and protect competition—ultimately, to become antifragile.”

The market system—competition—is, of course, an antifragile system because it improves with variance over time, including shocks and stresses. As problems arise, the market provides solutions. As new preferences arise, the system meets those preferences. As demands for certain products or services decrease, resources move away from those areas. Indeed, the “heart of our national economy has long been faith in the value of competition.” And the purpose of the antitrust laws is to protect that competition.

I am pleased to read the DOJ Antitrust leader expressly affirm those values and I have no doubt that he believes them—you can’t read and quote Taleb and not be affected.

But let’s remember that large central government is not typically the friend of antifragility. Indeed, government interference is more likely to distort incentives and the market’s ability to adjust to stressors. It can also lock-up parts of the system and increase fragility.

When a knocking on your door is followed by a shout of “I am from the government and I am here to help,” your heart should feel fear not relief.

I view the antitrust laws, if applied with restraint, as similar to contract, property, and tort laws. They provide the rules of the game that allow the market to prosper. Failure to apply any of them uniformly or fairly harms the beneficial potential of markets and competition. But over-applying them does the same. Like much of life, sometimes the answer is complicated and doesn’t fit into a single tweet.

Government enforcers can, however, stay on the right track if they have in their mind the rule that doctors often forget: “First, do no harm.” Antitrust enforcement, like medical intervention, can be iatrogenic.

Blockchain, Bitcoin, and Cryptocurrency

The DOJ Antitrust Division’s attorneys have formally educated themselves on blockchain and other technologies. And, like me, once they started learning about it, they probably realized what a big deal it truly is.

My worry, frankly, is that the government is going to somehow screw it up.

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Author: Steven J. Cernak

As I prepare again to teach an antitrust survey course, part of the preparation involves rereading some of the classic foundational U.S. antitrust cases.  Many of them make some sweeping statements about how the Sherman Act embodies a national policy to order our entire economy through competition.  “The heart of our national economic policy long has been faith in the value of competition” comes from Standard Oil in 1911.  The Court went even further in 1958 in Northern Pacific Railway:

The Sherman Act … rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress, while at the same time providing an environment conducive to the preservation of our democratic political and social institutions.

Twenty years later in Professional Engineers, the Court described an argument that asserted competition might be unethical as “nothing less than a frontal assault on the basic policy of the Sherman Act.”

Were such broad statements true then?  Do they remain true now?  Is the Sherman Act “the Magna Carta of free enterprise” as the Court asserted in Topco in 1972?  After all, we have had exemptions, both legislative and court-made, for decades.  But even beyond those official exceptions, there are plenty more examples of our frequent desire for experts, not the competitive process, to supersede market outcomes.

One personal anecdote helps illustrate the point.  I have been involved in the ABA Antitrust Law Section for decades.  The ABA, like any good trade association of competitors, has its own counsel to ensure that it does not run afoul of the antitrust laws.  Years ago, however, when my day job was in-house antitrust lawyer at General Motors and my ABA assignment involved antitrust aspects of trade associations, I was asked by the Section to lead a compliance presentation for another ABA group consisting of several law school admission deans.

Our presentation started with the antitrust basics for trade associations:  The antitrust laws want to preserve competition among competitors, Sherman Act Section 1 is suspicious of agreements among competitors, trade associations are gatherings of competitors where such agreements can be reached, and law schools compete with each other in various ways, including to attract students.

After about fifteen minutes, one of the deans raised his hand and posed this hypothetical:  Some students change schools between first and second year.  Such transfers are not good for the student – usually, any issues leading to a transfer go beyond a particular school and the student should try to get help with any underlying concerns.  But the transfers also hurt the law schools – after all, we have spent considerable time, effort, and money to make that student one of ours and transfers destroy that investment.  So, could this ABA group make it unethical for law schools to solicit, or even accept, most transfer students?

My fellow presenters were taken aback and silent for a few seconds.  Had this dean not been listening when we had said a few minutes earlier that agreements not to compete among competing members of a trade association were antitrust violations?  Finally, I broke the silence.  I did a facepalm and said “D’oh!  What a great idea!  Why didn’t we think of that?  We could have gone to Toyota thirty years ago and said ‘you know, we spent considerable time, effort, and money to make those current Chevy owners ours and you selling to them will just destroy that investment.  How about we agree that you will only market to folks who have never purchased a car?’”

It took a few seconds but then the lightbulbs went off over the heads of the audience:  Yes, the competitive processes for legal education might be a little different than those for motor vehicles, but that competition still exists and antitrust law is designed to protect it.  Any agreements to short-circuit that process by having experts at the competitor-suppliers determine the customer’s best interest would be at least suspect.  My GM clients would have understood that my Toyota hypothetical was an antitrust problem.  Why didn’t this law school dean?

Was it because the deans saw themselves as “professionals” and so in some way exempt from the need to compete?  Perhaps, although the Court made clear in Professional Engineers that any hint of an antitrust exemption for professionals that some saw in Goldfarb was incorrect.  Professionals might compete in different ways but the antitrust laws still protect that competition to yield the best results for customers.

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Author: Steven Cernak

The U.S. House Antitrust Subcommittee of the Judiciary Committee’s recent hearings into “big tech” and antitrust were “must see TV” for antitrust attorneys.

Over the five hours of testimony, many interesting questions were asked of the leaders of Apple, Google, Facebook, and Amazon; unfortunately, the format often left little time for answers.  Because so many of our clients—manufacturers, retailers, and others—are active in the online retail space, we thought we would focus on Amazon and Jeff Bezos’s statement and answers.

These hearing are not the only antitrust scrutiny that Amazon is receiving.  The FTC and the states of California and Washington appear to be investigating the company and its actions.  Given all the publicly available information, what did the hearings teach us about the kinds of antitrust claims that might be made against Amazon in any antitrust suit?

Competing with Private Label Goods

Several of the questions involved allegations that Amazon had somehow “stolen” or misused data from some of its manufacturers or third-party sellers to determine which products it would begin to produce as private label goods.  Many of these questions grew out of a long Wall Street Journal report in April.  Bezos explained that Amazon’s policy is not to use data of an individual seller to make such decisions, although the company continued to investigate possible violations.  Also, Bezos clarified that aggregate data, which he defined as data relating to at least two sellers, could be used by Amazon under its policy.

As commentators have pointed out, retailers deciding to sell private label goods along with, or instead of, branded goods is not inherently an antitrust violation; in fact, many retailers like Kroger’s and Costco obtain significant revenue from the practice.  Bezos himself pointed out that Amazon’s policy limiting its use of data from the other sellers was “voluntary” and not required by any current law.  One of the questions at the hearings hinted at an allegation that Amazon might be in a different position than other retailers, either because of its size or greater access to seller data; unfortunately, inadequate time was given for a response.  Any antitrust actions here would need to be able to take on all private label goods sold by large retailers or explain why Amazon’s actions are uniquely anti-competitive.

Predatory Pricing

At least two sets of questions focused on potential “predatory pricing” by Amazon, that is, pricing products so low that competitors are forced out of the market.  The first set involved allegations from many years ago that Amazon had drastically lowered prices on diapers to weaken Diapers.com, later renamed Quidsi before Amazon purchased it.  In response to questioning, Bezos claimed to be unfamiliar with the details of pricing of one product nearly ten years ago.  In the second set, Bezos was asked if Amazon ever priced Echo or Ring or other in-home assistants below cost.  He claimed that the price of those products usually was above cost, although sometimes their prices might be below cost during periodic promotions.

As readers of this blog know, current law makes predatory pricing illegal only if a monopolist’s prices are very low, usually defined as below variable costs, and there is a chance that the monopolist can later raise prices to recoup its losses.  Certainly, not enough time was spent on the topic during the hearings to address those details in these Amazon examples.  Also, other commentators have already disputed the implications from the Quidsi story, describing it as another example of a retailer using a pro-competitive “loss leader” strategy to build customer loyalty to the store.  (In fact, it appears that Quidsi was trying to follow that exact strategy itself.)  While the questions did not directly lead to evidence of a violation under today’s law, it is possible that these hearings will lead to legislation to alter antitrust law’s current view of such aggressive pricing.

“Bullying” Competitors and Suppliers

Finally, Bezos was asked several times in several ways about Amazon’s treatment of its “partners,” both the manufacturers and third-party retailers who sell to consumers on its marketplace as well as manufacturers who sell directly to Amazon.  Many of the questions included quotes from anonymous third parties who felt a need to be on Amazon:  “have to work with them,” “we’re stuck,” “nowhere else to go.”

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Author: Jarod Bona

I bet your first question is “What is iatrogenics?”

Have you ever gone to the doctor for something minor, only to take the prescribed medication and suffer through side effects that are worse than the initial ailment?

Iatrogenics is your net loss in welfare from the doctor. Iatros means healer in Greek. Iatrogenics is the loss caused by the healer.

The Hippocratic Oath, of course, is “first do no harm.” But it doesn’t always work out that way.

This term came up in my re-reading of Antifragile by Nassim Taleb. This is one of my favorite books of all time and I highly recommend that you read it, along with everything else that Taleb writes. And not just because we both advocate for deadlifts.

If you are a fan of Nassim Taleb, you might enjoy our article on Antitrust, Antifragility, Blockchain, and the Departement of Justice.

Dr. Ignaz Semmelweis

Taleb, in Antifragile, tells the story of Austro-Hungarian doctor Ignaz Semmelweis.

In the early to mid-1800’s, treatment by doctors wasn’t, according to Taleb, a net positive—going to the doctor actually increased your chance of death. This is iatrogenics—the healer, if you net the positive and negative, wasn’t good for your health.

Dr. Semmelweis noticed that women giving birth were substantially more likely to die of childbed fever if they were treated by doctors than if they were treated by mid-wives. Semmelweis didn’t figure out exactly why this was, but he did discover that if doctors cleaned their hands and medical instruments with a strong disinfectant, the rate of childbed fever dropped dramatically. The deaths, of course, were coming from the hospital.

You might think that the next part of the story is that people hailed Dr. Semmelweis a hero and the rate of women dying in childbirth fell dramatically from that point in time. Maybe there was a parade.

Sadly, no.

Dr. Semmelweis’s approach worked, but it wasn’t a theory developed by the “experts” and implicit, well, explicit, in his discovery of the disparity in deaths between doctor-treated patients and mid-wife-treated patients was the idea that doctors were harming their patients—killing them, in fact.

Dr. Semmelweis apparently wasn’t polite and passive in his criticism; Taleb points out that Semmelweis, for example, called the doctors “a bunch of criminals.” Semmelweis’s ideas contradicted the conventional wisdom and the people that could change the policy probably didn’t like him. Semmelweis tried to convince doctors and relevant policy makers to change, but they wouldn’t.

This led to despair and depression for Ignaz Semmelweis. And he ended up in an asylum where he died of a hospital fever, in sad irony.

Innovation in Ideas

The lessons from this story are plentiful. Obviously, doctors should wash their hands. And this, of course, is a good example of an iatrogenic situation. But, just as significantly, we must understand that our assumptions and the “experts” are sometimes wrong. And it is critical that we don’t shut out ideas that grow from the bottom up that question the experts, who force their ideas from the top down.

For example, when certain social media websites decided to hide or warn against any information relating to Coronavirus that contradicted the World Health Organization dictates, they created major systematic risks and the potential for situations like that of Dr. Semmelweis’s warnings about washing hands and killing pregnant women. Mandating information flow from the top-down creates a dogma that eliminates the possibility of bottom-up innovation and insights that can improve humanity.

Indeed, the World Health Organization, like many “experts,” and others were wrong, many times over. Wrong isn’t necessarily bad—we can learn from wrong. But forcing a specific perspective or truth on everyone, even if it is the conventional wisdom and or a widespread belief, freezes the current state of science and thinking wherever it is, instead of allowing it to prosper, grow, and progress.

The idea that science uncovers facts is true, but only for a static moment. By contrast, time is dynamic and “facts” change with it.

Think back 20 years, 40 years, 100 years, or 1000 years to what was conventional wisdom and how wrong it was. Also think back to the groups and hierarchies that tried to lock-in those ideas—which at the time were widespread and thought of as the truth or as facts. Think about Galileo.

The foundation of federal antitrust law is that “The heart of our national economy long has been faith in the value of competition.” Allowing competition creates opportunity, from the bottom up, for innovation, along with high quality and low prices, to prosper.

The same is true of ideas. If we create monopolies for ideas, even if they are considered established facts, the quality of our ideas and society will diminish. Innovation will stagnate. The experts are often wrong—let’s not follow them off the cliff, or more accurately, let’s not let them talk us off a cliff while they sit on their perch without skin in the game, preaching.

Iatrogenics Outside of Medicine

Back to Iatrogenics.

A problem that Taleb identifies is that, although mostly discussed in the context of medicine, iatrogenics is not limited to that field. Professionals and others of all walks of like sometimes create more harm than good.

In Antifragile, Taleb includes a handy table that shows interventions of various fields and the resulting iatrogenics/costs. For example—here is something that hits home in California: In Ecology, micromanaging away from forest fires can worsen total risks, by creating larger “big ones.”

Economics is an obvious example where intervention can cause harm—even intervention that appears “good” on the outside. You may agree or disagree, but Taleb cites manipulation of the business cycle, i.e. trying to make the ups and downs disappear, as a major source of fragility, which will lead to deeper crises when they happen.

Taleb cites several examples and they are interesting and persuasive, but he unfortunately leaves out your favorite profession—the antitrust attorney.

Let’s talk about the iatrogenics of antitrust attorneys.

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Author: Jarod Bona

As antitrust attorneys, we advocate for competition in product and service markets. The US Supreme Court recognizes that “the heart of our national economy long as been faith in the value of competition,” and we agree.

But competition matters elsewhere too. We certainly see it in sports. You might notice that sport leagues strive to increase parity to make the league more competitive overall. So when your favorite NFL Football team creates twelve to sixteen sleepless nights for you one year, the league rewards it with a high draft pick the next year. And if your team wins more than it loses, the NFL scheduling gods will punish them the next year with a tougher path to the playoffs.

Anyway, if you read the Harvard Business Review, you may have noticed an article that is sure to pique the interest of an antitrust lawyer like myself. (July-August 2020 Issue). It isn’t about sports, but it is still interesting.

Katherine M. Gehl and Michael E. Porter wrote “Fixing U.S. Politics: What business can—and must—do to revitalize democracy.”

Everyone seems unhappy with the current state of political affairs—so maybe more competition is the solution?

(This is a good reminder that every profession—including antitrust attorney—sees solutions to problems through their own, very specific, eyes. Knee injury? You need more competition. Of course, it isn’t always effective.)

Before we jump into Gehl and Porter’s work, as a disclaimer, Bona Law isn’t a political law firm: we don’t take any specific positions on politics or candidates. Our firm is made up of actual people, all of whom have freedom of thought and their own individual views, which we respect. As a firm, we take positions on certain types of policy—like encouraging competition and discouraging the government from destroying competition. But Bona Law is an antitrust law firm, so that’s not a surprise. But when it comes to politics, that is for each person to decide for themselves. Politics is personal.

According to the authors, politics are driven by the same five forces that affect more traditional markets: “the nature and intensity of rivalry, the power of buyers, the power of suppliers, the threat of new entrants, and the pressure from substitutes that compete in new ways.” (117). The authors explain that—unfortunately—the politics industry doesn’t have healthy competition.

The key problem, according to the authors, is that the Democrats and Republicans have a duopoly and that they work hard to keep it that way—with great success.

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Author: Jarod Bona

We do our best to describe antitrust and other legal issues as straightforwardly as possible here. We tend to speak directly and avoid the guarded language that you often see from lawyers elsewhere (a little secret: most big-firm attorneys are afraid of getting in trouble in one way or another).

So, in case there was any doubt, I’ll tell you what I really think of certificate-of-need laws. These are laws, still on the books in many states, that actually require a new healthcare provider that wants to move into a market to get permission from the state to do so (a certificate of need). And, even more bizarre, the existing competitors—who certainly don’t want any more competition—often have a say or a role in whether the new provider receives a certificate of need, which can sometimes take months or years to obtain, if at all.

We hear all the time how important health and safety is: The sanctity of human life. Take care of yourself. Eat well. Exercise. Get your yearly physical. Follow your doctor’s advice.

We also hear complaints from every politician, news agency, and anyone that’s ever paid a medical bill about the costs of health care.

And, although healthcare workers have been heroes both before and during this pandemic, I think we would all agree that there is a lot of room for improvement in healthcare in the United States. I’ve been to the Mayo Clinic in Rochester, Minnesota many times and my son was born there, so I know how good healthcare can be. We have a lot of room to improve healthcare as a country.

I think we can all agree that healthcare is vitally important to us as human beings. That is what I hear the media tell me and what politicians preach all the time. And this makes sense: If you are sick or dying, getting better shoots up the priority list of needs and wants.

Switching gears briefly, here is something that I’ve learned as an antitrust attorney and as a student of economics: Markets with monopolists and markets with less competition have higher prices, lower supply, and lower quality for products and services.

Let’s say you are an evil troll that hates people. Let’s also say that you have the single opportunity to pass legislation in a state to hurt human beings that care about health and healthcare, but you don’t want it to be something that is so obvious that they’d just repeal it after your opportunity passes. You want something that is sneaky bad.

What would you do if you were that evil troll?

You’d pass certificate-of-need laws.

These laws are sneaky bad because it takes a couple steps of reasoning to see how they harm our health and healthcare. By creating the barrier to entry of these certificate-of-need laws, the evil troll can artificially limit the supply of healthcare, decrease its quality, and raise healthcare costs—almost without detection. And by offering the existing monopolist or provider an opportunity to participate in the process, the government agency is much less likely to award the certificate to improve people’s lives. At the very least, if the existing healthcare provider is involved, they will be able to help delay any competition.

Let’s say that you end up with a pandemic and really need a lot of hospital beds or other healthcare all at once. If that happens, the evil troll has won because their certificate-of-need laws are specifically designed to reduce the supply of healthcare, including hospital beds.

Bona Law opposes certificate of need laws and we call for their repeal and challenge. You can read our earlier article about certificate of need laws on this website here.

On April 28, 2020, Aaron Gott and I published an article in the Minneapolis Star Tribune entitled “State Certificate-of-Need Laws for Hospitals Must Go: These anti-competition laws have left us unprepared for the current pandemic, with fewer hospital beds for care.”

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