THE GLOBAL ANTITRUST ECONOMICS CONFERENCE 31 May 2019 — New York University Stern School of Business Welcome Remarks: Luis Cabral & Lawrence White Luis Cabral: Good morning, New York. My name is Luis Cabral and I’m the Chair of the Economics Department here at Stern School of Business at New York University. It gives me great pleasure to welcome you all to the Global Antitrust Conference. I’ve looked at the lineup and it’s a super-super-duper star-studded lineup, so I’m well aware of the opportunity cost of me standing here in front of you. But I cannot resist telling you a brief anecdote that involves one of our speakers, Roger Noll, who is here in front of me, and that’s the following. Next week it will be thirty years to the day that I was defending my doctoral dissertation — I was five years old back then [Laughter] — and Roger was on the committee. I was told it was just a formality, but of course I was very nervous. I mean it was the first time I was defending a PhD thesis — it was also the last, by the way, thank God. My thesis was on regulation and antitrust. So I go through the normal motions: I give my spiel and then the various members of the committee ask questions and so forth. So I go through it. Paul Milgrom said, “Okay.” Then Mike Riordan asks a few questions, then he’s fine. And Tim Bresnahan asks a few questions and he’s fine. Then, finally, it comes to Roger, and there’s a pause. Remember, this is a thesis on regulation and antitrust. He asks, in a very matter-of-fact, serious manner, “So how does your work relate to macroeconomics?” — and then there’s a pause. He doesn’t remember that, but I do remember it very well, for reasons that are obvious; because at that brief moment, which was probably just a fraction of a second but it seemed like an eternity, I was actually kind of panicking because, to be honest, I did not know what the relationship of my work was to macroeconomics. But, fortunately, that was all broken by one of Roger’s unmistakable laughters. Participant: Guffaws. [Laughter] Luis Cabral: And I realized it was only a joke. It had a happy ending, so I did not have to answer that question, fortunately. But fast-forward thirty years, and we hear antitrust is a very important and central issue in quite a variety of fields. If you can believe, in finance they are talking about joint ownership; is it an antitrust issue or 1 The Global Antitrust Economics Conference 31 May 2019 – New York University Stern School of Business Verbatim transcript of oral presentations provided by Concurrences without prior vetting by the speakers. is it not? In politics, of course it has become very central to the political debate. And, even in macroeconomics, several of my colleagues here are precisely studying the decline in the investment rate in the United States and to the extent that that is the result of antitrust — or lack thereof, if you will. So, Roger, now I know the answer: it is actually quite related, and in fact it is quite important, not only for the macroeconomy but for society more generally. A conference like this one could not be more topical, important, practical, and relevant. So it gives me great pleasure to welcome you all here. The lineup is fantastic. I wish I could take some credit for that, but I can’t, so I’ll just bask in reflected glory for all the work that the organizers did for this conference and I will give the floor to one of the core organizers, my colleague Larry White. Thank you. Lawrence White: Thank you. I just want to again second and reinforce Luis’s welcome. And let me mention that there were a number of organizers. Dan Rubinfeld, my colleague in the Law School here at NYU, was one of the important co-organizers, and so he deserves a great deal of the credit as well. As well as Nicolas Charbit, who I’m sure you’ve all met. A couple of logistic issues that I think are important. We are here on the second floor of this building. If you go out that exit, there’s a stairway that will take you down to the ground floor. If you go out here, you are going to discover there’s a bank of elevators immediately across. Unfortunately, those are express elevators, they don’t stop on this floor; and that’s compounded by the fact that all of our executive MBAs are here today. They do their classes on Fridays and Saturdays, and this is one of those Fridays, and that’s just going to mess up the elevators even more. So I urge you, if you want to get to the ground floor, the easiest way is just take that stairway down. If you really seek them out, there’s a set of local elevators, but then you’ll have to leave a trail of breadcrumbs behind you in order to be able to make sure you get back. So that’s just the easiest way to get down to the ground floor. You’ve got the program in the folder in front of you and you’ve got the speaker bios. My strong feeling is when people have the bios in front of them already there’s just not a lot of extra value for an introducer to be spending a lot of time repeating what everyone can read right in front of him or her. So, without much ado, I want to introduce Noah Phillips, who is one of the Commissioners on the U.S. Federal Trade Commission. He has been there for slightly over a year. You’ve got his bio. Commissioner Phillips. Opening Keynote Speech: Noah Joshua Phillips Thank you, Larry, and thanks everyone for having me here. It’s really a delight for me to be back. Just weeks after I first came to the FTC, I came up to New York to speak here at this conference, which is really one of the best conferences that goes on in antitrust every year. So it’s a pleasure and an honor to be back in the presence of people like Eleanor Fox, among others. 2 The Global Antitrust Economics Conference 31 May 2019 – New York University Stern School of Business Verbatim transcript of oral presentations provided by Concurrences without prior vetting by the speakers. I’m supposed to start with the caveat, which certainly applies today, that the remarks I give are my own and don’t necessarily reflect the views of my fellow Commissioners or the Federal Trade Commission as an institution. Let me just begin with that. Last year when I was here, I spoke about the idea referred to just a moment ago, that common ownership presented a competition problem and how the antitrust assumptions underlying the common ownership theory run up against our understanding of corporate law and policy. Today I want to talk about another context where corporate law, governance, and antitrust come together; namely, the market for corporate control. Considering the market for corporate control is critical right now. As politicians and the popular press focus increasingly on antitrust, they — and policymakers like me — need to take into account what experience and learning tell us about that market: we need to avoid policies that undermine its efficient functions. The market for corporate control is essentially the competition for companies, competition to run them better. This competition comes from a number of sources, including other firms that may be current or future rivals; private equity firms; activists’ funds specialized in identifying and enhancing underperforming firms; and so on. The market for corporate control is not about consolidation. In fact, it can be, and has in American history been, the mechanism for deconsolidation, forcing firms to focus on core strengths and shed extraneous efforts. This competition for the company can meaningfully benefit consumer welfare by ousting sub-par managers and keeping management generally on their toes, at least at public companies. The market for corporate control can increase efficiency within a firm, making it a stronger competitor that, for instance, is more innovative, offers better prices or quality, or increases output. The market for corporate control is a market mechanism that forces firms to compete. Given the competition — and, thus, the real consumer benefits that the market for corporate control can drive — I would like to spend some time today unpacking what it is, how it operates, and how antitrust agencies should consider its effects when making our decisions, the punchline being that policies that work with beneficial market forces work better and last longer than those that ignore them or work in opposition to them. We want to harness the market to achieve the ends of antitrust. The notion of the market for corporate control was revolutionary when Henry Manne first outlined it in his seminal 1965 article.1 Up to that time, following Berle and Means, corporate law scholarship preoccupied itself with the assumption — rather dismal — that management had all the power and that shareholders had no meaningful way to constrain management, leaving shareholders open to self-dealing and managerial abuse, among other wrongs. Antitrust law and scholarship for its part thought that mergers between competitors generally had no important saving grace and that their only justification, aside from increasing market power, was a sort of failing-firm defense, that the transaction would avoid a liquidation or a bankruptcy.