Volume 10 | Issue 1 Article 11
1998 Consumer Choice: The rP actical Reason for Both Antitrust and Consumer Protection Law Neil W. Averitt Attorney, Office ofo P licy & Evaluation, Bureau of Competition, Federal Trade Commission
Robert H. Lande Prof., University of Baltimore School of Law, Baltimore, MD
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Recommended Citation Neil W. Averitt & Robert H. Lande Consumer Choice: The Practical Reason for Both Antitrust and Consumer Protection Law, 10 Loy. Consumer L. Rev. 44 (1998). Available at: http://lawecommons.luc.edu/lclr/vol10/iss1/11
This Feature Article is brought to you for free and open access by LAW eCommons. It has been accepted for inclusion in Loyola Consumer Law Review by an authorized administrator of LAW eCommons. For more information, please contact [email protected]. FEATURE ARTICLES Consumer Choice: The Practical Reason for Both Antitrust and Consumer Protection Law
Neil W. Averitt, B.A. Harvard, M.Sc. London School of Economics, J.D. By Neil W. Averitt and Robert H. Lande Harvard, is an attorney in the Office of Policy & Evaluation, Bureau of Competi- tion, Federal Trade Commission. Mr. Averitt can be reached at
44 - Loyola ConsumerLaw Review Volume 10, number I deception or the withholding of material infor- price competition. In certain sectors of the mation. Protection by both the antitrust and economy, such as high-tech or media-related consumer protection laws is needed to ensure industries, diversity of options may be far more that a market economy can continue to operate important to consumers than price competition. effectively. Third, because consumer choice is important, This protection is needed when "market consumer protection actions should be limited failures" arise, which may create or permit to conduct that has a reasonably clear effect on competition or consumer protection problems. consumers' ability to select, and such actions This article will demonstrate that antitrust should not be brought against conduct that is violations (which impair the menu of options) objectionable on less clearly defined moral or stem from market failures in the general mar- equitable grounds. Finally, our framework ketplace external to consumers, whereas should be useful to those countries that are consumer protection violations (which impair establishing or reorganizing trade regulation the individual's ability to select) flow from programs for the first time. internalmarket failures that take place, in a The discussion of our proposed unified sense, "inside the consumer's head." '2 While theory will be divided into four principal this formula appears on its face to be of Doric sections. The first section introduces and simplicity, it provides a coherent theoretical defines the concept of effective consumer framework from which antitrust and consumer choice, which requires both the existence of protection law may be better understood and consumer options and the ability to select applied. among these options. The second section This framework has not only theoretical reviews antitrust and consumer protection case interest, but also at least four significant practi- law and shows that this law is consistent with cal consequences. First, a unified theory of (and explicable by) an option-oriented model of antitrust and consumer protection law will consumer choice. The third section identifies assist the enforcement authorities in determin- and discusses the economic market failures that ing when particular conduct or transactions may tend to impede the exercise of consumer should be pursued on antitrust as opposed to choice by restricting either the menu of options consumer protection grounds. Many concrete or consumers' ability to select among them. aspects and effects of a litigation vary accord- Finally, the fourth section explores the practical ing to whether it is classified as an antitrust or a implications and consequences of our proposed consumer protection matter. For example, only framework. Among these consequences, the antitrust violations give rise to criminal sanc- framework suggests that antitrust law should be tions and automatic treble damages, and only in construed somewhat more broadly than in the consumer protection cases is the Federal Trade past, and consumer protection law somewhat Commission ("FTC" or "Commission") re- more narrowly. quired to use certain rule making and investiga- tory procedures. A unified theory will make I. An Option-Oriented Concept clear when antitrust or consumer protection laws should be utilized. Second, the importance of Consumer Choice of marketplace options in consumer choice Simply put, consumer choice or consumer suggests that antitrust should devote more sovereignty is the state of affairs that prevails attention than it now does to the role of non-
1998 Loyola University Chicago School ofLaw • 45 or should prevail in a modern free-market Thus, we do not simply require the maxi- economy. It is the set of societal arrangements mum number of options. Antitrust law does not that cause that economy to act primarily in prevent all conduct or transactions that have the response to the aggregate signals of consumer effect of reducing the number of options avail- demand, rather than in response to government able to consumers. Nor does the law affirma- directives or the preferences of individual tively require the creation of options. Rather, it businesses. It is the state of affairs in which the prevents business conduct that artificially limits consumer is truly "sovereign," in the sense of the natural range of options in the market- having the power to define his or her own place.4 Indeed, the law permits even some wants and the ability to satisfy those wants at artificial reductions, such as some mergers, if prices not greatly in excess of the costs borne the benefits of the action appear to outweigh by the providers of the relevant goods and the costs. Through these means, the antitrust services.3 The concept of consumer sover- laws aim to preserve a sufficient, although not a eignty goes so far as to embody at least some perfect, array of options for consumers to implicit notions about the proper relationship choose among. between the individual and the state; it is part of Consumer protection laws are similar in the the Western world's answer to the prescriptions sense that they seek to protect the ability of of Marxism. consumers to make rational choices among The essence of consumer sovereignty is the competing options but do not necessarily strive exercise of choice. By choosing some goods or to ensure that consumers have perfect informa- some options over others, consumers satisfy tion.5 Probably no consumer is a perfect rea- their own wants and send signals to the soning machine, existentially free from all the economy. It is, therefore, critical that the extraneous influences of early upbringing, exercise of consumer choice be protected. cultural values, or half-remembered advertising We have already seen that effective con- campaigns from years ago. What we ask of sumer choice requires two things: options in consumer protection law is therefore something the marketplace and the ability to select freely relatively modest. We ask that consumers be among them. To turn this conceptual paradigm enabled to make rational choices to the extent into operational policy, at least some rough that they wish to concentrate on doing so. degree of quantification is required. Just how Consumer protection law ensures that buyers many options must be present in the market? are protected from coercion, deception, and Just how free from external influences must other influences that are difficult to evade or to consumers be? In an imperfect world, of guard against, but it does not protect buyers course, the answers to these questions must be from the milder, knowable influences of things standards of sufficiency rather than standards of like "image" advertising, which they could set perfection. In other words, we look for enough aside if they desired. options and enough freedom to ensure that the As protected by these two principles, the choices are right (i.e., welfare-maximizing) exercise of consumer choice should be benefi- most of the time. That approach does not cial to consumers in a number of concrete prevent unsatisfactory outcomes in some ways. It will support and lead to an efficient individual cases, but it should ensure that economic market.' That, in turn, will tend to unsatisfactory options are weeded out fairly produce an environment offering the lowest quickly. prices, the best product quality and variety, the
46 Loyola Consumer Law Review Volume 10, number 1 Consumer Choice: The Practical Reason for Both Antitrust and Consumer Protection Law highest degree of consumer surplus, optimal directly affect the supply of options, but rather levels of innovation, and all the other benefits the ability to choose among them. They are of a competitive economy.7 therefore consumer protection violations. Most cases are relatively easy to classify in this II. Case Law Embodies This way.' Option-Oriented Approach to Consumer Choice A. Antitrust Violations Reduce Consumers' Options Antitrust and consumer protection case law generally follows the pattern that a consumer- Traditional antitrust violations - such as choice model would suggest. The antitrust case price fixing and related horizontal restraints, law can be explained in terms of protecting the anticompetitive mergers, unreasonable vertical supply of options in the market, and the con- restraints, and predatory pricing - fit well into sumer protection case law can be explained in our model of consumer choice. Those viola- terms of protecting the ability to select among tions can distort the supply of options by the available options. The model that we are imposing restrictions on the variety of prices presenting thus becomes a means of explaining, and products that the free market would offer. interpreting, and applying a long line of legal The antitrust laws have banned that restrictive precedents. conduct. We demonstrate this thesis under two head- Price fixing and other illegal horizontal 9 ings. The first discusses the law of antitrust by restraints artificially restrict the array of price first identifying the main functional areas of options the competitive market would other- 10 antitrust such as collusion, mergers, and verti- wise provide. Price fixing prevents consum- cal restraints. It then shows that the law in each ers from choosing the best price (or best qual- of these areas addresses a reduction in market- ity- or variety-adjusted price) that would place options. Under the second heading, we otherwise have been available.1 conduct a similar assessment of consumer Mergers are another traditional antitrust protection law. We identify the basic substan- violation that has effects on the range of options tive topics in this area of the law, such as available to consumers, both directly in the deception or failure to disclose material infor- short term, and indirectly in the long term. An mation, and then show how these topics all anticompetitive horizontal merger can directly address conduct that affects the ability to select eliminate significant competition by diminish- among options. ing options with respect to price, product For most practices that violate the antitrust or quality, or product variety. It can also have the consumer protection laws, the dichotomy this long-run or indirect effect of making industry- article identifies will neatly separate and distin- wide collusion easier or more probable, 2 thus guish the two fields of antitrust and consumer leading to the elimination of still more options protection law. Predatory pricing and price that consumers might prefer. fixing, for example, overwhelmingly affect the Resale price maintenance ("RPM") and other supply of options rather than choice among vertical restraints can also have the effect of them. They are, therefore, antitrust violations. limiting consumer options. RPM directly Fraud and deception, on the other hand, do not restricts the price options open to consumers,
1998 Loyola University ChicagoSchool ofLaw • 47 limiting them to the manufacturer's preferred the firm acquired this power to constrain price." Non-price restraints, such as exclusive options certainly might be. The firm's actions dealing and exclusive territories, have similar vis-a-vis its competitors may then be con- effects, often significantly restricting down- demned as involving anticompetitive mergers. stream firms in the choices that they can offer In short, antitrust law can best be understood to consumers. 14 as a way of protecting the variety of consumer Predatory pricing similarly interferes with options in the marketplace. the array of options that a competitive market would present.15 Predatory pricing occurs when a firm prices goods below cost in hopes B. Consumer Protection Viola- of driving rivals out of the market, discourag- Ability to ing entry of new firms and/or extending the tions Impair Consumers' firm's monopoly power. Predatorily low prices Select Among Options are good for consumers only in the short run. In Consumer protection cases are similarly long run,16 such prices threaten to eliminate the explicable as a means of safeguarding the firms that are providing alternatives that con- ability of consumers 9 to select among the sumers would actually prefer. options that the market provides. Thus, for on options also explains why certain A focus example, the FTC has found that false or practices that raise rivals' costs are undesir- misleading statements about objective product 17 costs force the vic- able. The rivals' higher characteristics are impermissible. It has acted to their invest- tims to raise their prices (or reduce prevent such misrepresentation in claims ment in product improvement and innovation), involving the materials from which a product is which enables the predator to raise its own made,20 the functions that it can perform,21 or investment prices (or reduce option-enhancing the effectiveness with which it can perform in research and innovation).18 The consumers them.22 The FTC has been emphatic about this thus lose the option of purchasing better or choice-oriented approach: "The Commission more competitively priced products. does not ordinarily seek to mandate specific principle Depending on the specific antitrust conduct or specific social outcomes, but rather involved, improper restrictions on consumer seeks to ensure simply that markets operate options may occur either directly as a result of freely, so that consumers can make their own or firms' actions vis-a-vis their customers, decisions. 23 Misinformation on any of these indirectly as a result of firms' actions vis-a-vis basic points will, of course, tend to prevent a if a firm with their competitors. For example, customer from making the most appropriate market power over a product will sell it only choice from among the options in the market- when packaged with a second product, place. consumers'options are directly reduced and The importance of choice in consumer distorted. The firm's action vis-a-vis its custom- protection matters is particularly well illus- ers may be condemned as an illegal tying trated by one special class of cases, which arrangement. Alternatively, suppose that a firm involve misrepresentations regarding the collat- merges with all of its competitors and then eral, social, or business attributes of a firm. raises prices to a monopoly level. While mo- Some cases of this sort may involve false or nopoly pricing and the production of only a misleading claims that a particular product is single brand is not illegal, the process by which
48 Layola ConsumerLaw Review Volume 10, number 1 Consumer Choice: The Practical Reason for Both Antitrust and Consumer Protection Law environmentally benign or was produced in an ures are external to the consumer, or "outside environmentally friendly manner.' Other cases the head," leading to an inability of the market involve the improper use of the "Made in to provide sufficient options. Other failures are U.S.A." designation. Information on these internal to the consumer, or "inside the head," points is psychologically important to many in the sense that they make the consumer consumers, even though it does not bear di- unable to effectively select among the available rectly on operational product characteristics. options. For example, while some consumers regard the Antitrust and consumer protection law may fact that a product was domestically manufac- be viewed, in economic terms, as intended to tured as an indirect indication of product identify and compensate for these two types of quality, many other consumers may prefer to market failures.28 By so doing, they are again purchase domestic products with only the seen, this time through the lens of economics, patriotic goal of supporting the American as helping to attain the ultimate goal of con- economy. By determining that misrepresenta- sumer choice. tions on these subjects are improper, the FTC In the discussion that follows, we will first has made it clear that the impairment of the explain what is meant by a "market failure" ability to choose among options is a harm in generally, and then will discuss the specific itself, and that no more concrete economic market failures that are of concern to antitrust harm needs to be shown. and to consumer protection. The consumer protection case law thus can be understood as addressing concern over the A. Market Failures Defined impairment of the buyer's ability to select from among the market's options provided.25 The It is axiomatic that perfect competition, the centrality of this element is underscored by the perfect functioning of a competitive market, FTC's Policy Statement on Deception,26 which will maximize the welfare of consumers.29 states that one prerequisite to liability for Markets that diverge significantly from perfect deception is that the alleged misrepresentation competition may not do so. If a market's is "material," meaning that it "is likely to affect characteristics differ dramatically from those a consumer's choice of, or conduct regarding, a ; 27 required for perfect competition, "market product. failure" can result. The overall level of con- sumer welfare may then be far below what it III. Market Failures Can otherwise would be, and wealth that Congress Threaten Consumer Choice assigned to consumers may be "unfairly" acquired by firms with market power. Consumer sovereignty is the state of affairs Although economists generally agree on the in which consumers have an unimpaired ability fundamental concept of perfect competition, to make decisions in their individual interests, there is no universally agreed upon list of and markets operate efficiently in responding to factors that define perfect competition or whose the collective effect of those decisions. These absence may lead to market failure. A leading market mechanisms can fail for a variety of scholar of the subject, Professor Edwin reasons, however, leading to an impairment of Mansfield, believes that perfect competition consumer choice. Some of these market fail- requires four conditions: (1) product homoge-
1998 Loyola University ChicagoSchool ofLaw • 49 neity; (2) a relatively small number of buyers Except on rare occasions, ultimate consumers and sellers; (3) mobile resources; (4) and have no choice but to deal with a cartel or perfect information.3" Professor Jack monopoly (or else to move to a less-desirable Hirshleifer has considered the converse situa- substitute); it generally is not cost effective for tion and found a list of three possible imperfec- an individual consumer to build his or her own tions that can prevent a market from function- factory. ing perfectly, including imperfect information, By thus subdividing market failures into time lags, and transaction costs. 31 Significant those taking place "inside" and "outside" the problems in any of these areas can cause head of ultimate consumers, we make the competition to be suboptimal. Despite disputes categories of our economic analysis most over taxonomy,32 a basic list of factors that can nearly congruent with the kinds of consumer plausibly cause competition to become subopti- choice problems that are of concern to antitrust mal is relatively noncontroversial.33 enforcement agencies.
B. Market Failures Subdivided C. Antitrust Violations Require Into Those External and Internal to Market Failures External to Consumers Consumers The market failures identified in the previous The market failures that permit antitrust section in general terms can be divided into two violations all take place in the world external to types. The first take place "outside the head" of the consumer. Without such market failures, as the ultimate consumer of the product or service this term was broadly defined above, there at issue and involve imperfections in the exter- could be no antitrust violations that signifi- nal market. These failures can lead to a reduced cantly harm consumer welfare. choice of options and to antitrust problems. The In a perfect, frictionless world, businesses second type of market failures take place could still meet and fix prices. This would "inside the consumer's head." They involve the result in a technical violation of the antitrust consumer's imperfect ability to process infor- laws and even in criminal penalties. 34 But, the mation and to distinguish the true from the violation could not substantially harm consumer false. These failures can lead to a reduced welfare because perfect information among ability to select among options and to consumer businesses would allow some to quickly enter protection problems. the price-fixed markets and compete away A consumer is affected to different degrees supracompetitive margins. by these two kinds of market failures. The What makes antitrust injury possible in these model economic consumer - all- knowing, circumstances is the presence of external all-rational, and supremely intelligent- is not market failures. Market imperfections such as vulnerable to consumer protection violations. search costs, faulty information, time lags, and But even this hypothetical "perfect" consumer sunk costs can enable a cartel to keep prices could be vulnerable to antitrust violations. No elevated for a significant period. consumer, no matter how astute, experienced, External market failures may be necessary or well-informed, can protect him- or herself for the existence of anticompetitively low against a cartel or illegally acquired monopoly. pricing as well as for anticompetitively high
50 Loyola Consumer Law Review Volume 10, number] Consumer Choice: The Practical Reason for Both Antitrust and Consumer Protection Law prices.35 The most straightforward form of D. Consumer Protection Viola- predatory pricing - deep-pocket predation - tions Require Market Failures requires that there be a flaw in the capital Internal to Consumers market, for without such a flaw the victim would be able to secure a loan and ride out the Similarly, consumer protection problems period of below-cost pricing.36 Indeed, for cannot occur absent market failures occurring every possible predation strategy, a counter- "inside the head" of strategy could probably ultimate consumers. be devised by a suffi- M 1 imp r ect s such as Hypothetical consum- ciently informed and ers who are perfectly astute competitor or Scosts caneinformed, rational, 3 7 potential victim. t lag, and c,"and intelligent can Other antitrust cases a crtl to keep ices', elevadfor a never be subject to involve practices that significantpe"i I consumer protection take advantage of, even abuses. Ordinary if they do not cause or consumers, however, exacerbate, market imperfections. For example, can have greater difficulties. imperfect information led to the anticompetitive The most common internal market failures use of resale price maintenance in In re Levi revealed by the FTC's experience fall into five Strauss & Co.3" When jeans were a relatively categories. (1) Some consumers are subject to new product for middle-class consumers, Levi coercion and cannot act with free will. (2) Strauss had to use resale price maintenance to Other consumers are members of a vulnerable guarantee retailer margin and in effect buy shelf group (such as children) and are not always space.39 During this period, consumers' imper- able to make rational decisions. Still other fect information concerning this relatively new consumers will be acting rationally and with product led to the procompetitive imposition of free will, but will be vulnerable to exploitation resale price maintenance. After the product was due to any of several types of information well established, however, resale price mainte- problems: (3) information that is wrong, (4) nance was no longer needed, and Levi Strauss information that is incomplete, or (5) informa- anticompetitively kept prices at too high a tion that is unduly hard to process. Virtually level.' Imperfect information on the part of every consumer protection concern can be Levi Strauss caused the company to fail to understood in terms of one or more of these realize that it should have changed marketing five types of internal market failure. strategies. It maintained a resale price mainte- The first of the above mentioned market nance strategy longer than was optimal for failures involves situations in which an indi- society, or for Levi Strauss. vidual cannot exercise free will. This situation Some of the market failures discussed above can arise most obviously when individuals have directly impact individuals, and some impact been subjected to overt coercion. Such cases businesses. Regardless of who the ultimate are rare but they do exist. One arose when a consumers are, however, the failures in all furnace company adopted the practice of these antitrust cases are external to such con- having its salesmen disassemble a homeowner's sumers. heating unit for "inspection" and then refuse to
1998 Loyola University Chicago School ofLaw 51 reassemble it until the homeowner agreed to shopping. Like the fourth category, the focus buy additional parts or services.41 here is on giving the consumer not only accu- A second type of market failure involves rate information, but also accurate information situations in which consumers are members of that is reasonably complete and useable. vulnerable groups, and thus are susceptible to All five of these categories are consistent undue influence by sellers. For example, with our consumer sovereignty model of the certain lottery techniques for selling candy have consumer protection laws. They all tend to been found improper in part because they were address types of market failures that occur aimed at "children, too young to be capable of "inside the consumer's head" and tend to exercising an intelligent judgment of the trans- impede the consumer's ability to choose from action.... "42 among the available options. By far the most important type of consumer protection market failure involves consumers IV. Practical Consequences of a who are capable of rational decisions, but whose decision making abilities have been Unified Theory impaired by incorrect information. A The view of the law outlined in the previous manufacturer's use of false or misleading sections of the article is of more than theoreti- information is perhaps the greatest single threat cal interest. It also has a number of intensely to the free exercise of consumer choice. There- practical implications. Four of those implica- fore, both the FTC Act and other general tions will be discussed in this section. First, a prohibitions separately and specifically ban unified theory of consumer sovereignty helps 43 unfair consumer practices. ensure that the litigation in each case will A related type of "inside the head" market follow the procedures and standards set out in failure can arise if sellers withhold particularly the appropriate part of the statute. Second, a important information, not readily available modified theory modestly extends the scope of elsewhere, that consumers need in order to antitrust law by reminding the legal community make informed comparisons. The FTC has of the important role played by non-price issued several rules addressing such problems. competition. Third, it modestly limits the scope These have required manufacturers to disclose of consumer protection law by focusing atten- the most basic functional characteristics of their tion on conduct that impairs the ability to products such as the R-value of insulation and select, rather than on conduct that is "unfair" in 44 the octane rating of gasoline. some broader sense. Finally, it suggests a The fifth class of market failures can be conceptual framework to countries that are thought of as a specialized subset of the fourth. adopting or organizing fair competition laws Both Congress and the FTC seek to protect for the first time. consumers against information disclosures that are in a form too difficult for consumers to process and apply. Credit reporting laws, for A. Jurisdictional Coverage of the example, mandate disclosure that a payment of Antitrust and Consumer Protection $100 per month of interest on a certain princi- Laws Can Be Clarified pal amount for four years really equals a 22% rate of interest. These laws make it easier for Our dichotomy will make the definitions of consumers of credit to engage in comparison antitrust and consumer protection law more
52 ° Loyola Consumer Law Review Volume 10, number 1 Consumer Choice: The Practical Reason for Both Antitrust and Consumer Protection Law rigorous, which in turn will assist government B. Non-Price Competition officials in deciding under which theory to pursue a particular problem. This determination Should Become a Higher Priority is important for three reasons. for Antitrust Enforcement First, Sherman Act antitrust violations can A second implication of this article's analysis lead to criminal penalties,45 and virtually every is that the antitrust laws should focus on pro- antitrust violation can lead to automatic treble tecting consumer options generally, not just low damages.' In light of these relatively heavy price options in particular. Expressed differ- penalties, it only seems fair to articulate more ently, it suggests that the interpretation of the clearly which type of actions are antitrust antitrust laws should be mildly expanded to actions. take a somewhat greater account of non-price Second, the decision on which statute to competition. apply has many practical consequences for the The enforcement agencies have already development and conduct of a case. It will recognized the importance of preserving non- affect the procedures the parties will follow, the price options in sufficiently clear circum- remedies that are available, and which enforce- stances. They have certainly recognized that ment staff will have jurisdiction over a case. firms can compete on dimensions other than For example, the FTC has been given special price. Non-price competition can be extremely procedures for use in rule making47 and in important to both commercial and industrial consumer redress4 8 in consumer protection purchasers. Such competition can take place in cases but not for use in antitrust matters. The terms of innovation, scheduling, service, FTC is similarly required to use civil investiga- convenience, or product variety. Such factors tive demands ("CIDs") in most consumer can be especially important in particular indus- protection cases but not in antitrust matters. 9 tries. Properly assessing the type of case involved At certain times in the past, for example, the will determine which of these procedures airlines appeared to compete in large part in should be used. terms of scheduling and convenience, and Third, our dichotomy can help determine members of the motion picture industry com- whether the main substantive charge in a pete in terms of product innovation. Similarly, particular matter has been framed under the consents in several recent pharmaceutical proper provision of law. This will help prosecu- merger cases have resolved FTC concerns that tors ensure that a matter has been brought using mergers might impair competition, not in the proper terms, and by the right enforcer, and current business, but rather in the innovation of thus may protect against motions to dismiss. future products. 0 These concerns may or may Conversely, familiarity with these issues may not be readily expressed in terms of price, but help members of the defense bar to secure the they definitely involve the range of choice that dismissal of actions that have been brought might become available in the marketplace and under an improper legal heading. thus are most easily comprehended under a formula that focuses on the factor of choice. Indeed, in some products, quality competi- tion may be the most important dimension to consumers. In the market for bulletproof vests,
1998 Loyola University Chicago School ofLaw • 53 for example, buyers certainly care much more entitled "Purpose and Underlying Policy about product reliability than about product Assumptions of the Guidelines,5 2 which price. For this reason, the FTC was concerned contains roughly a dozen references in the text when an association of bulletproof vest manu- to "price," the "transfer of wealth from buyers facturers adopted a rule restricting comparative to sellers," and similar monetary concepts. 3 advertising. The association's rule had declared Only a single footnote in the guidelines sug- that it was unethical for any member to repre- gests that merger policy includes non-monetary sent that another member's vests had failed concerns.5 4 The NationalAssociation of Attor- certification testing even if the advertising neys' General ("NAAG") State Merger Guide- claim was true. The FTC sought and accepted lines reflect a similar emphasis.5 Both the a consent agreement against this practice federal and NAAG Merger Guidelines there- because elimination of the advertising ban fore permit consideration of non-price elements would tend to foster useful quality competi- of competition, but both are structured in such a tion.5' way as not to particularly encourage use of that In more ordinary antitrust cases, however, consideration. where the elimination of non-price competition Some elements of non-price competition is not so obviously central to the violation, the might be captured through use of the concept of enforcement agencies have sometimes tended "quality-adjusted price." Again, however, to de-emphasize this factor. For example, the neither Guideline is structured to particularly conventional antitrust analysis under Section 7 encourage that approach. Moreover, "quality- of the Clayton Act concentrates almost exclu- adjusted price" may be a difficult concept to sively on the price effects of a merger, conclud- apply in concrete situations where the non-price ing that the merger is to be condemned if it is components of competition are particularly likely to lead to higher prices. Even if the important or where they take subtle or complex merger has no significant effect on price, forms. however, an anticompetitive merger might Consider, for example, an industry making adversely affect consumers with respect to men's neckties. If this industry was to consoli- other forms of competition. A focus on con- date through merger to a non-competitive sumer choice as a goal will make it easier for number of firms, the price might not rise. The enforcement agencies to consider the merger's firms might instead hold prices steady but effects in these areas. Moreover, given that invest less money in high-quality materials or in competition in these dimensions might be staying abreast of fashion.56 In theory, one affected at concentration levels different from could say that the quality-adjusted price of a tie those most relevant for pure price consider- would have risen since a less-desirable product ations, attention to consumer choice may would then be offered at the same price as sometimes suggest challenges to mergers that before. This formulation is not particularly would not otherwise be illegal. useful, however, since, in the absence of mar- This would represent a change of emphasis ket prices for the (nonexistent) high-quality from traditional merger analysis. Although ties, antitrust enforcers cannot know the quanti- merger analysis makes proforma bows toward tative extent of the implicit price rise that has other dimensions of competition, the analysis occurred. (What is the value of fashion?) promptly returns to price. The Horizontal Rather than trying to force the analysis into Merger Guidelines, for example, have a section price terms for which we lack the necessary
54 ° Loyola Consumer Law Review Volume 10, number 1 Consumer Choice: The Practical Reason for Both Antitrust and Consumer Protection Law data, therefore, it will sometimes be simpler carefully scrutinized for loss of non-price and more effective to frame the analysis di- competition along the dimension of diversity in rectly in terms of quality, diversity, and programming and, where that loss is suffi- choice.58 ciently severe,' that they be challenged under This issue must be approached with caution, the Clayton Act, even if there has been no however, because, where price competition still showing of harm to price competition. exists, it will often serve as a reasonably good Suppose, for example, the country had only proxy for non-price competition. Once a five book publishers, and that two of them particular market is price-competitive, in other merged. This might not lead to a loss of price words, it may often offer self-equilibrating competition or to a narrowing in the range of levels of competition in other dimensions as price options.6 On the other hand, it might well. Consider, for example, a post-merger well lead to a quantifiable loss of editorial market that is price-competitive but that, as the diversity and thus to a narrowing of the com- result of a merger, no longer produces the peting marketplace options expressed in terms optimum level of product variety. If consumers of the types of titles offered. An antitrust suit truly want more variety, and if the firms are might properly challenge this result. This suit truly competitive, then they will soon begin to would not seek to apply a special standard for extend their product lines by introducing a the media that is based on First Amendment or greater number of models and variants to the diversity considerations.62 Rather, it would be market. based on the ordinary, universal standards of Sometimes, however, price competition Section 7, once that section has been properly alone may provide consumers insufficient construed to recognize the role of options and protection.5 9 This problem is most likely to of non-price competition. arise with respect to certain kinds of intellectual property, some of which can play a competitive C. Consumer Protection Should role only in an environment of organizational independence. Focus More Closely on Conduct The most important option of this sort may that Impairs Choice be the independent editorial programming of a If our model of consumer choice suggests communications medium. If one communica- that antitrust law should be modestly expanded, tions medium were to buy another of the same it also suggests that the scope of consumer kind, the acquisition might not concentrate the protection should be modestly contracted. The market sufficiently to threaten price competi- consumer choice model suggests that unfair tion. Being competitive, the market might also consumer practices should be limited to those soon produce the product menu that consumers that have a more or less demonstrable effect on desire in terms of types and formats of shows. consumers' ability to exercise effective selec- But the market will have inevitably sustained a tion, and that the concept should not be ex- loss of editorial diversity, and this cannot be tended to conduct that is thought to be "unfair" recreated through the normal mechanism of on more general, less predictable moral or non-price competition among the surviving equitable grounds. firms; the new products would necessarily bear In this respect, the consumer choice or the editorial stamp of their common owner. consumer sovereignty model supports and This suggests that media mergers should be
1998 Loyola University Chicago School ofLaw • 55 ratifies a trend that has been underway for the ernment should not try to control. Consider last twenty years. At the beginning of that image advertising that associates use of a period, the FTC was following a construction particular toothpaste with youth and vitality. articulated in its "Cigarette Rule," which stated This association may lead to purchases that are that consumer unfairness was defined by "irrational" by objective standards, but, if reference to three broad factors: (1) "public consumers freely elect to place a high value on policy;" (2) whether the conduct was "immoral, the intangible attributes of a product, that is a unethical, oppressive, or unscrupulous;" and market decision that should be respected. (3) whether the conduct caused substantial 63 injury to consumers. Since then, the definition D. Countries Establishing or of consumer unfairness has progressively narrowed. In a 1980 Policy Statement, the FTC Reorganizing Trade Regulation declared that it would no longer rely on the test Programs Can Do So in a More of immoral or unethical conduct.' The FTC Beneficial Manner believed that this test was merely duplicative of the others and had never supplied an indepen- Many nations currently are deciding whether dent basis for action. In 1994, Congress de- to establish or reorganize trade regulation clared that a second element in the Cigarette programs and, if so, which legal areas should Rule - established public policies - could be the subject of concern and how the different likewise no longer be used as independent parts of these programs should relate to one grounds for finding conduct unfair. This factor another. The framework suggested here should would henceforth be used only in conjunction help with this task and may also help these with other evidence and presumably in order to governments explain the programs in a rela- confirm a finding of consumer injury.65 The tively coherent way to their citizens. grounds established in the Cigarette Rule have A legislature writing on a clean slate might thus been narrowed to the single primary factor wish to express its trade laws specifically in 67 of injury, and an actionable injury of that sort choice-oriented terms. A statute embodying has increasingly been defined as one that this approach could be worded as follows: manifests itself through the mechanism of impaired consumer ability to select.66 It is the national policy to foster an Consumer protection jurisdiction can be economy in which consumers can make more narrowly expressed in this way without free choices among goods and services concern that the agency will become unable to in a competitive marketplace. Conduct reach some significant number of meritorious that unreasonably impairs this goal is cases. If conduct is truly "oppressive" or hereby declared illegal. It is specifically "contrary to public policy'" then it will almost illegal to engage in: (1) A, B, C, and certainly affect consumer choice. any other conduct that unreasonably Telemarketing worthless securities to the limits the range of competitive options elderly, for example, while surely oppressive, that would otherwise have been present also involves actionable elements of deception. in the market; and (2) X, Y, Z, and any Conversely, if some conduct cannot be charac- other conduct that unreasonably impairs terized as harmful to choice, then there is a consumers' ability to select among good chance that it is something that the gov- these options.
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A legislature enacting this statute would interpretation, this uncertainty would tend to be complete it by filling in the blanks for ABC and limited to questions of degree - identifying XYZ with those specific items that the country the threshold level of net effect that becomes was confident it wished to ban in light of its actionable - rather than leaving the door open own national experience. If the United States to broader uncertainty about what kinds of was using this approach, for example, it would harm are improper. include specific bans on such things as mo- Perhaps the greatest advantage of a choice- nopolization, mergers that may substantially oriented statute is that it would help govern- lessen competition, and deception. ments explain to their citizens - particularly A statute along these lines would have those businesses and individuals who are several attractive features. The specific prohibi- relatively inexperienced at dealing with a tions would give the business community as market economy - why a system of competi- much notice as the nature of the subject matter tive capitalism is in their best interests. permits. At the same time, the general residual clauses, written in terms of options and the VI. Conclusion ability to select among them, would preserve the flexibility necessary to deal with changing Trade regulation law is ultimately about conditions.68 In this respect, our model statute choice, and choice is ultimately about options would be similar to a combination of the - getting them, keeping them, and selecting Sherman Act and the FTC Act in American among them. The disciplines of antitrust and law. consumer protection law are best defined in The proposed model seems to be an im- terms of their roles in this process. An antitrust provement over the present combination in two violation may be understood as an activity that important respects, however. First, by putting unreasonably distorts or restricts the options the specific and the general clauses in a single that otherwise would be available to consum- statute, it encourages the enforcers and the ers. A consumer protection violation may be judiciary to employ general principles to guide understood as activity that unreasonably inter- the development and application of the specific feres with consumer selection among the prohibitions. The statute itself, in other words, options provided in the marketplace. These two would set out internal, general principles of fields of law, acting together, give consumers construction that would provide a context the tools they need to effectively exercise within which the specific provisions will be consumer sovereignty. interpreted in the proper manner. Second, even A number of benefits should flow from this the general clauses would be framed in a unified conception of the trade regulation relatively objective way. Conduct would be laws. 69 It should make lawyers practicing in banned, not on grounds of "unfairness" (the these disciplines more alert to the possibility approach used in the FTC Act), which can that a case focusing on one element of con- cause considerable judicial uncertainty, but sumer choice will also raise issues involving because of its unreasonable effects on the the other element. It also suggests that econo- exercise of consumer choice. The underlying mists practicing primarily in one field should concept of consumer choice will tend to focus gain insights from the other. For example, the inquiry. Even though the concept of "unrea- economists have perhaps tended to be most sonable" effects on choice still leaves room for comfortable as a discipline with the hard,
1998 Loyola University Chicago School ofLaw • 57 "objective" market imperfections involved in innovative or efficient as rival firms; and some firms antitrust, and to be less comfortable with the disappear through merger because they had not attained a more subjective and sociological kinds of minimum efficient scale. These processes reflect the ordinary workings of the marketplace. What antitrust "inside the head" failures that mark the typical forbids is conduct that artificially reduces the number of consumer protection matter. Both types of options directly and without the mediating agency of market failures seem to be of equal importance, consumer choice. so both would seem equally deserving of 5. The FTC has the authority to require that certain professional study.. fundamental information be make available to consumers The final purpose of this article has been to for such purposes as correcting statements that would help focus the attention of both fields on op- otherwise be misleading, or correcting "pure omissions" tions - a shift in focus from the current admin- in circumstances where doing so would deliver a net istrative and judicial emphasis on price. Al- benefit to consumers. The scope of this authority is limited by several factors, however. There are practical though price competition often is of utmost and equitable limits on how much affirmative disclosure importance to consumer welfare, so too is the firms can made. See, e.g., In re International Harvester variety, quality, safety, service and innovation Co., 104 F.T.C. 949 (1984) (holding that though of new products. These attributes have some- manufacturer's failure to disclose known safety risks in times been treated as afterthoughts when they its tractors was a statutory violation, no remedial action actually should be at the forefront of debate and was needed because the tractor design was no longer produced and the manufacturer's voluntary notification analysis in this important area of the law. program provided as much relief as could be expected.)
6. Both antitrust and consumer protection statutes Endnotes have the goal of enhancing economic efficiency. See Robert H. Lande, Wealth Transfers as the Originaland Primary Concern ofAntitrust: The Efficiency Interpreta- . Not every activity that unreasonably distorts or tion Challenged,34 HASTINGS L.J. 65, passim and restricts the options that otherwise would be open to especially at 106-26 (1982). The statutes serve other consumers is an antitrust violation, however. The activity economic goals as well. The primary goal of these statutes in question must also violate a specific antitrust statute. is to prevent unfair transfers of wealth from consumers to Similarly, not everything that unreasonably interferes with firms with market power (the antitrust statutes) or to firms consumers' ability to choose among the available options unfairly acting against consumer interests (the consumer is a consumer protection violation. The activity also must protection statutes). See id. at 108. violate a specific consumer protection principle. 7. We should add some refinements and complexi- 2. Not every market failure is or should be illegal. ties to our basic model of consumer sovereignty. In some Certain market failures lead to specific activities that cases the "consumers" who need protection from mislead- society has made illegal, however, including cartels and ing information are actually corporations who may be deceptive advertising. buying an industrial input for use in their own operations. See generally Eastman Kodak Co. v. Image Technical 3. Moreover, each product has a cluster of other Servs., Inc., 504 U.S. 451 (1992) (describing independent attributes, such as quality, safety, and availability of service provider's suit against producer of copy machines, related services. The free market will decide the mix of which tied replacement parts to service). In other cases, price, quality, and related attributes that consumers value the direction in which market power is exercised may be most. reversed, and it may be the manufacturers who need help finding a range of marketplace options. For example, a 4. Some products are withdrawn from the market manufacturer may confront a single monopsonist, or because not enough consumers desire to purchase them; confront a cartel of purchasers (or oligopsonists) that have some firms exit the market because they are not as agreed on a common policy to keep prices low. With
58 Loyola ConsumerLaw Review Volume 10, number 1 Consumer Choice: The Practical Reason for Both Antitrust and Consumer Protection Law appropriate adjustments, our concept of consumer Provide Guidance?,32 ANTITRUST BuLL.609, 615-23 sovereignty can accommodate these different circum- (1987). stances. For the sake of simplicity, however, in the discussion that follows we will normally speak in terms of 14. See id. Of course, each of these practices also the most common situation, which is that of ultimate can cause significant, potentially offsetting consumers purchasing from a limited number of manufac- procompetitive effects. See id. at 615-16. Moreover, these turers. offsetting efficiencies can sometimes be characterized as attempts to overcome market failures. See, e.g., 8. Some situations, however, do not fit so neatly id. (discussing the point of sale 'free rider" problem). If into our model. The pure dichotomy only deals with they are imposed by firms without market power the relatively direct effects of the practices in question. In the possibility that their anticompetitive effects (i.e., their long run, the effects may interact in more complex ways. option distortions) will be significant is probably quite Market failures internal to consumers may eventually lead small. For this reason, non-price vertical restraints are to market failures external to consumers, and vice-versa. judged under a rule of reason standard. See Continental Similarly, practices that affect the market's menu of T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 59 (1977). options can also, in time, affect consumers' ability to Many believe that RPM also should be judged under the choose among options, which in turn could lead to further rule of reason or even that it should be deemed per se restrictions, or distortions, in the options made available legal. See Fisher et al., supra note 13, at 615 n.18. In any through the marketplace. These complexities must be event, it is the possibility of anticompetitive option loss factored into the enforcer's decisions regarding whether that makes antitrust law enforcement agencies concerned to prosecute and, if so, what remedy to seek. For a with these transactions. discussion of these interactions see Neil W. Averitt & Robert H. Lande, Consumer Sovereignty:A Unified 15. For an excellent discussion of predatory pricing Theory ofAntitrust and ConsumerProtection Law, 65 theory and case law, see James D. Hurwitz & William E. ANTTRUST L.J. 713 (1997) 713,734-44. Kovacic, JudicialAnalysis of Predation: The Emerging Trends, 35 VAND.L. REv. 63 (1982); HovENKA, supra 9. Of course, not every horizontal restraint is note 9, at 298-328. illegal. A joint venture that increases industry-wide 16. This assumes the existence innovation, for example, is generally procompetitive and of effective barriers legal. See generally 1ABA SECTION OF ANTITRUST LAW, to entry, for without them similar firms would be able to ANTITRUST LAW DEVELOPMENTS 77 (Angland eds., 4th ed. enter and offer the desired options. 1997); HERBERT HovENKAM, FEDERAL ANTITRUST PoLIcv 17. See Thomas G. Krattenmaker & Steven C. Salop, 140-240 (1994). Anticompetitive Exclusion: Raising Rivals' Costs to 10. Price fixing also can, to a small degree, distort Achieve Power Over Price,96 YALE L.J. 209 (1986). consumer choice. A few consumers might not purchase if is. For a thorough explanation and discussion of they knew that prices were fixed. The principal reason why we condemn it, however, is because it eliminates the the necessary prerequisites to this conduct, see Thomas G. option of price competition from the market. Krattenmaker et al., Airlie House Conference on the Antitrust Alternative: Monopoly Power and Market 11. Price fixing also has a number of indirect Power in Antitrust Law, 76 GEO. L.J. 241, 248-53,265-69 anticompetitive effects. It shields inefficient firms from (1987). hard competition. See Lande, supranote 6, at 78-79. It also causes allocative inefficiency and a transfer of wealth 19. Actions that undercut the ability of competing from consumers to producers. See id. at 72-77. firms to make free or informed decisions are properly considered antitrust violations, insofar as these actions 12. See HOVENKAMP, supranote 9, at 455-66,479- ultimately affect the range of choice that is made available 88. to the marketplace. For example, predation may be accomplished through false or deceptive information if an 13. For an overview of these effects, see Alan A. incumbent firm implements a "noisy" pricing strategy, Fisher et al., Do the DOJ Vertical Restraints Guidelines which conceals the fact that its low prices are not based
1998 Loyola University Chicago School ofLaw • 59 upon superior efficiency but instead are actually below 27. Id. at 20,916. Although the consumer's "conduct cost. Alternatively, a firm could develop an undeserved regarding a product" is treated separately from the initial reputation for predatory pricing. In both these situations, purchase decision, the two concepts are clearly related in the false information is likely to affect the target firm's that they both bear on the desirability and utility of the offerings to the marketplace rather than its purchases from product, and hence on the choice among options. the marketplace, and thus raises more antitrust than consumer protection issues. See infra notes 44-45. 28. This should not be taken to imply that every practice that has the adverse economic effects of taking 20. See, e.g., Federal Trade Comm'n v. Algoma advantage of market failures, distorting options, or Lumber Co., 291 U.S. 67 (1934) (holding inferior "yellow restricting consumer choice is or should be a law viola- pine" could not be sold as "white pine"); Federal Trade tion. Often these effects are insignificant or are out- Comm'n v. Winsted Hosiery Co., 258 U.S. 483 (1922) weighed by offsetting pro-competitive benefits. At other (ruling clothing made from a part-wool mixture could not times, practical considerations may suggest that the most be sold as "wool"). appropriate rule is one that is relatively inexpensive, predictable, and easy to administer, even if it does not halt 21. See, e.g., Carter Prods., Inc. v. Federal Trade all instances of anticompetitive behavior. For a discussion Comm'n, 268 F.2d 461 (9th Cir. 1959) (describing of these jurisprudential issues, see Alan A. Fisher & situation where laxative pills were misrepresented as a Robert H. Lande, Efficiency Considerationsin Merger "natural method of self-treatment, that they contained no Enforcement, 71 CAL. L. REv. 1580, 1652-59, 1670-77 strong medicines, and that they were effective to treat liver (1983); Phillip Areeda, Monopolization, Mergers, and conditions"); Charles of the Ritz Distribs. Corp. v. Markets: A Century Pastand the Future,75 CAL. L. REv. Federal Trade Comm'n, 143 F.2d 676 (2d Cir. 1944) 959, 960 (1987) (stating "[a]ntitrust law cannot feasibly (ruling that no cosmetic cream could restore youth and address every deviation from perfect competition. ... "). that it was therefore deceptive to advertise a product as such). 29. See F.M. SCHmRER & DAvm Ross, INDusTRIAL MARET STRucrun AND ECONOMIC PERFORMANCE 15-29 22. See, e.g., Continental Wax Corp. v. Federal (3d ed. 1990). Trade Comm'n, 330 F.2d 475 (2d Cir. 1964) (holding that the product name "Continental Six Month Floor 30. See EDwIN MANSFIEL,, MICROECONONICS: THEORY Wax" where unsupportable by empirical evidence, was & APPLICATIONS 232-33 (5th ed. 1985). deceptive); In re Warner-Lambert Co., 86 F.T.C. 1398 (1975), aff'd as modified, 562 F.2d 749 (D.C. Cir. 1977) 31. See JACK HIRSHLEIFER, PRICE THEORY AND (ordering that manufacturer cease and desist from APPLICATIONS 417-19 (3d ed. 1984). advertising that it mouthwash "prevented, cured and alleviated the common cold"). 32. For example, a market with difficult entry and with sellers or buyers large enough to affect price could 23. In re International Harvester Co., 104 F.T.C. at be said to experience a "physical" market failure. We also 1061. could ask how these firms were able to become so large, and to characterize the causes (e.g., the imperfect informa- 24. For statutory requirements regarding tion or transaction costs themselves as "market failures"). envirnomental advertisements, see FTC Guides and Trade Practice Rules, 16 C.F.R. §§ 260.1-.9 (1998). 33. For a further discussion of some of the com- plexities that can arise, including the issues of how often 25. The FTC cases cited in the preceding paragraphs market failures are likely to occur and how quickly they each involved circumstances of deception. Matters will correct themselves, see Averitt & Lande, supra note involving the FTC's less frequently invoked consumer 8. unfairness authority also involve the ability to make free choices, however. See Averitt & Lande, supra note 8. 34. See ABA SEurION OFANITrRUST LAW, supra note 9, at 219-59. 26. See Deceptive Acts and Practices,4 Trade Reg. Rep. (CCH) 13,205. 35. See Richard 0. Zerbe, Jr. & Donald S. Cooper,
60 ° Loyola ConsumerLaw Review Volume 10, number 1 Consumer Choice: The Practical Reason for Both Antitrust and Consumer Protection Law
An Empiricaland Theoretical Comparison ofAlternative Act. See Neil W. Averitt, The Meaning of 'UnfairActs or PredationRules, 61 TEx. L. REV. 655,658 (1982). Practices'in Section 5 of the FederalTrade Commission Act, 70 GEO. L.J. 225 (1981). 36. If information is perfect and a would-be predator lowers price, an equally efficient competitor will have an 44. See Labeling and Advertising of Home Insula- incentive to mothball its plant and reopen it after the tion, 16 C.F.R. § 460 (1996) (requiring disclosure of R- predation ends. If the intended victim runs out of money values); Automotive Fuel Ratings, Certification and in the short run, it can get a loan and repay it out of its Posting, 16 C.F.R. § 306 (1996) (requiring disclosure of expected future monopoly profits. Since this mothballing octane ratings of automotive gasoline). can happen, the antecedent predation will not happen often. In Matshushita Electrical Indus. Co., Ltd. v. Zenith 45. See 15 U.S.C. §§ 1-3 (1996). Radio Corp., 475 U.S. 574 (1986), the Supreme Court 46. See 15 U.S.C. § 15(a) (1996). Some exceptions cited Judge Bork and other Chicago School analysts and essentially embraced the view that predatory pricing was exist for those relatively rare events that violate the FTC an extremely rare phenomenon. The antipredation Act but not the Sherman or Clayton Acts. See generally scenario might not work, however, if information is Neil W. Averitt, The Meaning of 'Unfair Methods of imperfect. Suppose the owner of the mothballed factory Competition' in Section 5 of the Federaltrade Commis- goes to a bank for a loan. The banker probably would say sion Act, 21 B.C.L. REv. 227,265 (1980). that - due to imperfect information - he or she was not certain that the victim was as efficient as the monopolist. 47. The FTC Act was amended to provide special, The banker therefore would either deny the loan or would specific rule making procedures for use "with respect to loan only at an extremely high rate. Thus, if information is unfair or deceptive acts or practices.... ." 15 U.S.C. § imperfect even old-fashioned deep-pocket predation might 57a(a)(1) (1996). The amendment spells out procedures be possible. For a discussion of more complex forms of affecting Federal Register notice, notice to Congress, the predation, including "reputation predation" and "noisy rights that the parties have to present evidence, specific pricing predation," see Averitt & Lande, supra note 8. points to be addressed by the Statement of Basis and Purpose, and similar matters. See id. at § 57a. The section 37. See Frank H. Easterbrook, PredatoryStrategies further specifies that "[t]he Commission shall have no and Counterstrategies,48 U. Cm. L. REV. 263 (1981). authority... other than its authority under this section, to prescribe any rule with respect to unfair or deceptive acts 38. See In re Levi Strauss & Co., 92 F.T.C. 171 or practices ... ." Id. at § 57a(a)(2). Competition rules, in (1978) (Compl. 8). contrast, may be promulgated through the general procedures of the Administration Procedures Act. See 39. See Sharon Oster, The FTC v. Levi Strauss: An National Petroleum Refiners Ass'n v. Federal Trade Analysis of the Economic Issues, FederalTrade Commis- Comm'n, 482 F2d 672 (D.C. Cir. 1973). sion, in IMPACT EVALUATIONS OF FEDERAL TRADE CONMMS- 48. specifically authorized to grant SION VERTICAL RESTRAINT CASES 1,48 (Ronald N. Lafferty Courts are et al., eds., 1984). redress in certain consumer protection matters. An amendment to the FTC Act states that, where there has 40. See id. been a violation of a rule involving unfair or deceptive acts or practices, or certain types of particularly clear 41. See In re Holland Furnace Co., 55 F.T.C. 55 violation of the general consumer protection statutes, (1958), aff'd, 295 F.2d 302 (7th Cir. 1961). courts "shall have jurisdiction to grant such relief as the court finds necessary to redress injury to consumers .... 42. See Federal Trade Comm'n v. R.F. Keppel & Such relief may include ... rescission or reformation of Bro., 291 U.S. 304,309 (1934). contracts, the refund of money or return of property, [or] the payment of damages... ." 15 U.S.C. § 57b(b) (1996). 43. Deception cases, an integral part of the larger Somewhat similar remedial authority, usable in both effort to protect consumer sovereignty, are one specific competition and consumer protection contexts, has also application of the broad prohibition against "unfair" been judicially implied as inherent in the courts' equitable consumer practices embodied in Section 5 of the FTC powers to grant injunctions under § 13(b). See Federal
1998 Loyola University Chicago School ofLaw 61 Trade Comm'n v. H.N. Singer, Inc., 668 F.2d 1107, 1113 20,573-9 (1992). See also HorizontalMerger Guidelines (9th Cir. 1982). 4 Trade Reg. Rep. (CCH) 13,405, at 21,186 n.17 (March 10, 1987). These Guidelines also declare, more 49. CIDs may be used in antitrust matters, although fundamentally, that the "central purpose" of merger law the antitrust staff generally prefers to rely on conventional "is to prevent firms from attaining market or monopoly subpoenas. See 15 U.S.C. § 57b-1(a)(7) (1996) ("viola- power, because firms possessing such power can raise tion" includes "any antitrust violation"). For most forms prices to consumers above competitive levels ... ." Id. at of administrative litigation in consumer protection 21,185. matters, however, CIDs must be used as the vehicle for discovery. "For the purpose of investigations performed 56. For purposes of this example, we assume that pursuant to this section with respect to unfair or deceptive the other conditions of the industry, such as entry barriers, acts or practices.., all actions of the Commission [under are conducive to an anticompetitive outcome. certain sections] shall be conducted pursuant to subsec- tion (c)...... Id. at § 57b-1(b) (1996). That section then 57. In the real world, it is of course also possible spells out special procedures covering such matters as that antitrust enforcers will simply observe the absence of oaths, where and how the CIDs are served, in what way a price rise and wrongly conclude that no anticompetitive the subjects of the inquiry may be represented by counsel, effects at all have taken place. and the like. See id. at § 57b-1(c). 58. Cf. National Macaroni Mfrs. Ass'n. v. Federal 50. See, e.g., Ciba Geigy, Ltd., Analysis to Aid Trade Comm'n, 345 F.2d 421 (7th Cir. 1965) (manufac- Public Comment, FTC File No. 961-0055, 1997 WL 1540 turers had agreed to use less desirable mix of ingredients). (Fed. Reg. Jan. 3, 1997) (agreement intended to protect Other forms of non-price competition may involve competition in development and commercialization of product variety rather than product quality. Some con- gene therapy treatments) (consent provisionally accepted sumer needs will not be met by even a high-quality Dec. 1996). product at a low price if it is the wrong kind of product. S1 See Personal Protective Armor Association, 59 The consumer harm felt here, while real, is also not particularly well suited to price analysis. For example, a Fed. Reg. 19,019 (1994) (to be reported at 117 F.T.C. family of seven might strongly prefer to purchase a van 104). rather than a conventional car. In an extreme case we can imagine that after a series of mergers the 52. U.S. Departmentof Justice and Federal Trade resulting automobile monopoly might decide to limit consumer Commission HorizontalMerger Guidelines, 62 Antitrust choice to cars only. This family's welfare will be signifi- & Trade Reg. Rep. (BNA) § 0.1, at 107 (April 2, 1992). cantly diminished by the lack of product variety even if the new cars are priced at a competitive level. Since this 53. See id. welfare loss cannot be readily quantified, however, particularly in the absence of market prices for vans, it 54. Footnote 6 of the 1992 Horizontal Merger would not seem useful to try evaluating the desirability of Guidelines reads, "Sellers with market power also may these automobile mergers solely in price terms. lessen competition on dimensions other than price, such as product quality, service or innovation." Id. 59. In looking for possible harms to non-price competition, antitrust decision makers need to be careful 55. They concede in a footnote that consumers can and cautious. The consumer choice model will remind the be harmed by oligopoly behavior "on terms of trade other antitrust agencies of the relevance of non-price factors, than price." The footnote elaborates this consideration at but it does not alter or expand the actual reach of Section somewhat more length than the federal guidelines. It reads 7. Harms to non-price competition are already covered by as follows: "Tacit or active collusion on terms of trade the Clayton Act and have already informed decisions in other than price also produces wealth transfer effects. merger cases. See, e.g., Federal Trade Comm'n v. PPG This would include, for example, an agreement to Indus., Inc., 798 F.2d 1500 (D.C. Cir. 1986) (enjoining eliminate rivalry on service features or to limit the choices preliminarily the merger of manufacturers of "high otherwise available to consumers." See MergerGuide- technology" aircraft transparencies, who competed, lines 4 Trade Reg. Rep. (CCH) 13,104, § 2.11 n. 14, at among other ways, in new product development).
62 • Loyola ConsumerLaw Review Volume 10, number 1 Consumer Choice: The Practical Reason for Both Antitrust and Consumer Protection Law
60. Antitrust enforcers could not challenge every an act or practice is unfair, the Commission may consider merger involving intellectual property on the grounds that, established public policies as evidence to be considered by removing the products of the acquired firm as an with all other evidence. Such public policy considerations independent force in the market, the merger would may not serve as a primarily basis for such determina- necessarily impair consumer choice. True, in some tion"). linguistic sense every merger of a product involving some element of creativity removes a choice from the market. 66. See Policy Statement, supranote 64, at 20,909 The incorporation of Oldsmobile into General Motors (Most unfairness actions "are brought, not to second- deprived those consumers who preferred the independent guess the wisdom of particular consumer decisions, but Oldsmobile design department of that choice. This alone rather to halt some form of seller behavior that unreason- cannot be the basis for illegality, however, for such an ably creates or takes advantage of an obstacle to the free argument would prove too much. It would result in the exercise of consumer decision making"). illegality of every merger involving non-fungible products, regardless of how small the element of independence in 67. Organizationally, countries adopting new laws the product or how much or little importance consumers might wish to consider the approach that the United attach to that independence in the context of the particular States has taken and have both these types of issues product involved. Congress cannot have intended this to handled by one agency, equivalent to our FTC. There is constitute the "substantial" lessening of competition that logic to this approach since the two areas of concern have is the concern of Section 7. Actually figuring out how to such a close functional relationship. express the threshold of substantiality for different types of non-price competition would be a difficult job, of 68. There is room for disagreement as to whether course, because there is probably no empirical bright-line general provisions of this sort are desirable in the first test comparable to the measure of concentration at which place. Clearly they have both advantages and disadvan- price effects often become visible. Defining such a tages. As disadvantages, they offer less certainty and leave threshold is nonetheless a task that needs to be under- more room for judicial discretion than would simple taken if antitrust is to fully come to grips with non-price prohibitions against things like price-fixing. This may be competition. a particular concern in countries that do not yet have a tradition of a non-partisan judiciary. On the other hand, 61. An absence of price effects is particularly likely general provisions allow the law to better adapt to if we assume relatively low entry barriers and a strategy of changing business practices and to new forms of organiza- limit pricing by the firms in the market. tion. A resolution of this dispute is beyond the scope of this article, although we may note in passing that many 62. See Associated Press v. United States, 326 U.S. jurisdictions have found it desirable to adopt some form 1, 20 (1945) (ruling First Amendment considerations of general clause, either overfly or through expansive support application of Sherman Act to the media since constructions of terms such as "contracts in restraint of both these provisions are intended to encourage diversity, trade." In any event, if a decision is made to adopt some although the media context did not alter ordinary Sherman form of supplemental general clause, then we believe that Act standards). the form set out here will achieve the benefits of that approach while creating the fewest associated difficulties. 63. Unfair or Deceptive Advertising of Cigarettes in Relation to the Health Hazards of Smoking, Statement of 69. If one contrasts an option-oriented definition of Basis and Purpose, 29 Fed. Reg. 8324, 8355 (1964). antitrust to other possibilities, one should conclude that These criteria were set out in full, and briefly discussed, the option-oriented version is superior. See Neil W. in Federal Trade Comm'n v. Sperry & Hutchinson Co., Averitt & Robert H. Lande, A New Definition of Anti- 405 U.S. 233,244-45 n.5 (1972). trust: Option Restriction (1997) (unpublished manu- script, on file with authors). 64. Commission Statement of Policy on the Scope of the Consumer UnfairnessJurisdiction, 4 Trade Reg. Rep. (CCH) 13,203 atp. 20,909-03 (Dec. 17, 1980).
65. See 15 U.S.C. § 45(n) ("In determining whether
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