Collusion Illusion


Makan Delrahim, Assistant Attorney General in Charge of the Antitrust Division, DOJ Antitrust Division: Popular ends should not justify anti-competitive collusion

I have posted on the Antitrust Division’s odd investigation of four auto companies that reached a deal with the state of California. My attention has been called to the above irrelevant, platitudinous essay by the head of the Antitrust Division, and to a September 13 letter by Senator Kamala Harris. I reproduce the letter, after which I’ll have a little commentary.

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Mr. Delrahim’s piece begins by assuming that the conduct he’s investigating is illegal, and draws the unsurprising conclusion that it’s just fine and dandy to investigate illegal conduct. He is a poster child for petitio principii, begging the question.

Four auto manufacturers—Ford, Honda, VW, and BMW—entered into an agreement with the state of California, as described in Senator Harris’s letter. Not participating were General Motors, Fiat Chrysler, Hyundai, Kia, Mazda, Mercedes-Benz, Nissan, Subaru, Tesla, Toyota, or Volvo.

Insofar as the four companies merely agreed with the state of California on a course of action, their conduct fits squarely within the constitutional protections for lobbying and political participation recognized in the Noerr-Pennington doctrine. In his piece, Mr. Delrahim elected entirely to ignore this constitutional issue.

A Hypothetical Case

The widget industry, which has more than a dozen members, has been under attack for allegedly making products that are harmful to public health or safety. Industry leaders are motivated to address these concerns by some mixture of (1) corporate good citizenship and (2) desire to mitigate the business downsides that will ensue from government regulation—which is inevitable, unless they do something to head it off at the pass.

So motivated, all (or at least almost all) of the industry agree that they will all up their game—in other words, that they will set some minimum health and safety standards, and will cease to offer products that don’t meet those standards, even if some of their customer base would like to keep on buying them.

Note this key point: such a revision to their business practices probably wouldn’t make sense to any individual seller, unless they had assurance that all or almost all of their competitors would go along too. Otherwise, each company would risk losing market share to competitors that did not abide by the new standards.

Legal analysis: the hypothetical agreement would not be per se illegal, but it would be subject to antitrust scrutiny, and it might well pass muster—particularly if the health and safety concerns are well established by objective evidence and address a serious public risk.

Applying the Hypothetical

Mr. Delrahim could legitimately direct the Antitrust Division to investigate an agreement like the above hypothetical case. That’s because the agreement would be subject to antitrust scrutiny under the “rule of reason.”

But that is not what seems to be going on in the real world. In the real world, only four auto makers are in. GM is out. Toyota is out. Etc. Etc. Moreover, one of the companies that’s in the agreement is BMW, which makes luxury cars and only competes somewhat indirectly with Ford, Honda, and VW.

That suggests that each of the four participants viewed the California agreement as in its individual business interests regardless of what its competitors did or did not do.

It suggests that, unlike the hypothetical above, there is no collective action to suppress output of dirty cars, only a constitutionally protected collective agreement with California to limit the more stringent regulatory action it was attempting to take.