Lina Khan's Quest to Regulate Markets

Lina Khan is the chairman of the FTC. She has taken a hawkish approach to antitrust law in the US, with a vendetta for large technology companies. Despite the outcries of tech bros everywhere, her ideas are worthy of exploration, and she has yet to change the course of antitrust law.

A Brief History of Antitrust Law

US antitrust regulation began in the late 19th century as a result of large monopolies abusing their market power (Standard Oil, Railroad trusts etc.). This saga culminated with the passing of the Sherman Antitrust Act. Passed in 1890, the law generally outlawed the monopolization of any trade, and the act of conspiring to do so. Vague wording in the legislation led to broad interpretations of the law and the prosecution of over 135 companies in a ~20 year span. This would not last long.

Over time, the courts refined the interpretation of the Sherman Antitrust Act, and added new tests and methods to solve the core problem -- preventing anti-competitive behavior that hurt consumers. Enter the Clayton Act of 1914, which outlawed mergers and acquisitions and created the FTC.

The combination of these forces led legal thought to focus on maximizing consumer surplus rather than regulating companies for just being monopolies. The key evolution was realizing that monopolies were not inherently bad for consumers, and that qualifying the bad behavior required a deeper economic understanding was crucial to effective enforcement.

Turns Out Lina Khan Has Brain Cells

Lina Khan's approach to antitrust breaks tradition with over a century of antitrust policy. Her school of thought, the “New-Brandeis” movement, seeks to democratize markets for the sake of identifying ills that arise purely from the existence of consolidation. By expanding the guiding principle of antitrust policy beyond consumer surplus and price levels, they pursue a more Madisonian view of markets.

The ideology Khan prosthelytizes is sophisticated; her seminal academic paper “Amazon's Antitrust Paradox” concerns itself with the ways that consolidation can hurt other market players and give companies the opportunity to exploit their market power. To her, monopolies inherently are bad. She also seeks to take advantage of the judicial concept of “incipiency”, regulating companies before they actually do anything bad, clearly expanding the powers of the agency.

Put simply, Lina Khan wants to regulate large companies before they do anything bad just because they might do something bad. Imagine if we did this for individuals.

This is not to discredit her ideas, they are worthy of engagement and represent a much larger shift in academic law. She makes the novel observation that platform businesses can engage in anti-competitive ways other than impacting price, for example: Amazon subsidizing low-cost items may undercut competitors and reduce the variety of options available to consumers in the long run. Many of her arguments push important discussions into the spotlight: namely, how do we determine when platform businesses act in anti-competitive ways, and how can consumer surplus be measured beyond just final prices?

Instead of just dismissing her reign entirely, we should engage with the ideas that have merit, and throw all the others by the wayside. In fact, the only reason you are able to read this article on any browser not named Internet Explorer is because of aggressive FTC chairman like Khan.

What Next?

Don't fret, things are not that bad. For the record, Lina Khan has a rather abysmal record in court. She has lost 4 major merger cases levied by her organization, and of over 3 dozen total complaints filed, more than half have been dismissed. Relatively conservative courts have kept the antitrust law limited in scope and continue to focus solely on the consumer welfare standard. I'll give her an E for effort.

The costs of Lina Khan's regime have largely been the time and dollars spent fighting legal cases -- conversely has strengthened the current interpretation of antitrust law in the United States. On the other hand, she has successfully advanced the discussion around how platform businesses may secretly engage in anti-competitive behavior. One only needs to talk to an independent Amazon seller to see how Khan's understanding has at least a hint of truth.

Lina Khan's cadre seems unlikely to get another term, but at the least, we have a great example of the US political system at its best.

Additional Thoughts

Law is an imperfect science but its role is not to make normative societal decisions, it is to interpret legislation. If there was to be a deviation in antitrust policy it should come from the legislature.

The FTC is not the only government agency to test the limits of its power. Since WWII the American executive branch has tried to expand its powers (in some way it's been really successful). This is bad and disrupts the balance of power. Voters should put pressure on their representative to appoint better bureaucrats.

In what ways is consumer surplus measured beyond price (e.g. variety)?

Despite the outcries from tech bros, Khan's agenda would likely increase the number of small businesses and allow smaller companies to be more competitive (at the cost of efficiency). There would likely be less M&A, but more distributed profits. So for the large majority of startups, this is a more ideal world.