I am used to prosecutors saying something to the effect that, “The law is clear, one must not do X, Y and Z.” After all, one cannot expect people to adhere to laws that are so vague that’s it is not even clear what sort of actions are in violation of the statute.
Here’s how this principle was described by Cornell Law School’s Legal Information Institute:
Void for vagueness
Definition
1) In criminal law, a declaration that a law is invalid because it is not sufficiently clear. Laws are usually found void for vagueness if, after setting some requirement or punishment, the law does not specify what is required or what conduct is punishable. For more information, see vagueness doctrine.
2) Under vagueness doctrine, a statute is also void for vagueness if a legislature’s delegation of authority to judges and/or administrators is so extensive that it would lead to arbitrary prosecutions.
3) In property law, a declaration that a deed or other instrument purporting to affect property rights is invalid because it lacks a sufficiently clear description of the property.
Thus I was surprised to see the new FTC chair cite the vagueness of antitrust law as a reason that she should have free rein to decide how the law is applied, that is, to engage in what Cornell Law School calls “arbitrary prosecutions”:
Shapiro has been critical of Khan’s approach to antitrust, particularly her view that enforcers focus too heavily on a so-called consumer welfare standard that emphasizes price as the main sign of a lack of competition. . . .
“Antitrust over the last few decades has become dependent on a particular type of economic theory,” Khan said. “The antitrust statutes are quite sparse. They are very general. There’s nothing in there about what econometric analysis to use. There’s been choices about what types of analysis to privilege.”
While the consumer welfare standard is not explicit in the law, it is surely more implicit than any other potential standard. Khan seems to be saying that since we are not 100% certain that the framers of antitrust law wished to protect consumers from rapacious monopolists, it is perfectly acceptable for her to substitute some other policy goal, which is not written into the law.
And how were the companies that supposedly violated the law in the 2010s to know that Lisa Khan would be appointed FTC chair in 2021? Should companies obey the law as it existed at the time they made decisions on company policy, or should they look into crystal balls and attempt to obey the law as it will be reinterpreted by unelected future bureaucrats? And if the law is to change, shouldn’t it be Congress that decides how?
HT: Tyler Cowen
READER COMMENTS
Rajat
Jul 31 2021 at 8:31pm
Although I strongly disagree with Khan’s move away from the consumer welfare standard (which is capable of also capturing changes to quality and innovation), she (and others in the ‘hipster antitrust’ brigade like Tim Wu, who’s joined Biden’s National Economic Council) would likely respond by saying that the framers of antitrust law intended to capture behaviour well beyond harm to consumers – including harm to small business suppliers and rivals – and that it was the Chicago School of Robert Bork et al who inappropriately narrowed antitrust’s focus in the 1970s. In any case, couldn’t one make the same point about many areas of law? Presumably this type of ex post interpretation of illegality happens in tax law all the time.
Scott Sumner
Jul 31 2021 at 10:39pm
I’d make two points:
There was some interest during the 1930s in using antitrust law against “predatory pricing”, which could be viewed as a technique for preventing small businesses from being driven out of business. But if you asked people why that would be a bad thing, they’d generally argue that once the monopolist had driven out the competition, they’d raise prices and rip off consumers. So I believe these laws have always been about consumer welfare, at least in terms of the public statements made by legislators (in private they may have favored protecting small firms even if it hurt consumers.) I very much doubt that the framers of the various antitrust acts would have been upset by Google providing free search on the internet.
Second, it would be one thing if Khan had said that people like Bork had misinterpreted the law and that she had the correct interpretation. But that’s not what she is quoted as saying. She’s saying the law is vague and thus she can interpret it as she likes. That’s not the “rule of law”, that’s arbitrary prosecutions.
Again, it’s really weird to have a prosecutor almost bragging that the law she is trying to enforce is really vague. How is that an argument in favor of prosecution? What happened to “void if vague”? I understand that this problem occurs in many areas (i.e. the IRS), but government officials usually deny the law is vague; she seems to embrace the vagueness. She’s basically admitting that the process is corrupt.
Rajat
Jul 31 2021 at 11:04pm
On your first point, the ‘big is bad’ interpretation of antitrust law goes back well before the 1930s. On your second point, Khan’s language was loose, but most antitrust scholars would concede that the wording of the antitrust statutes is quite open. I realise that’s not the same thing as saying that the law itself is vague, but it’s perhaps a more honest way for the head of a regulatory agency (as opposed to a judge) to make the point that there is much room for interpretation – and reinterpretation. Here are some extracts from a paper by Joshua Wright (former FTC Commissioner) and others who are strong supporters of the CWS:
MarkW
Aug 1 2021 at 7:06am
Just seven years after the Sherman Act was passed, the Supreme Court in United States v. Trans-Missouri Freight Ass’n, for instance, held the goal of antitrust law is to protect “small dealers and worthy men.”
So the ‘Anti Dog Eat Dog Rule” that Shapiro apparently intends to reintroduce has a storied history then? The law is so flexible that its polarity can be completely reversed — flipping from consumer protection against monopoly pricing to protecting stodgy small companies against innovative big ones that insidiously offer consumers deals that are just too good?
What other anti-consumer measures shall we reinvigorate? Certificate-of-need laws? Occupational licensing? How about bringing back the Civil Aeronautics Board to make sure airfares aren’t too low? Maybe as a part of the same package, we could recreate the Interstate Commerce Commission to make sure shipping isn’t too inexpensive. There are so many possibilities.
Scott Sumner
Aug 1 2021 at 2:32pm
Rajat, You said:
“On your second point, Khan’s language was loose, but most antitrust scholars would concede that the wording of the antitrust statutes is quite open. I realise that’s not the same thing as saying that the law itself is vague, but it’s perhaps a more honest way for the head of a regulatory agency (as opposed to a judge) to make the point that there is much room for interpretation – and reinterpretation.”
This is what I don’t get. Why isn’t it the same thing as saying the law is vague? And if it is vague, on what basis do we have for prosecuting firms for violating the law? To be fair, the various laws do mention certain specific activities that are outlawed, such as collusion, and it makes sense to prosecute firms for those specific violations.
As far as “bigness”, the antitrust laws do not forbid bigness, they forbid anti-competitive practices.
Evan Sherman
Aug 2 2021 at 2:38pm
I can pretend to know little to nothing on the underlying legal subject matter, but in simply terms of langauge: There are differences between ‘vague’ and ‘open-ended’. Vague laws, per the generic use of the word, would fail to define criteria, purpose, targeted behaviors, etc. Open-ended laws (e.g. open ended laws delineating powers for government) can be very clear about how much power they establish.
Hyperbolic example for fun: A legislative body might make a law that states, “The supreme leader can do anything he/she wants at any time, and the legislature shall make no law to abrogate any decisions made by the supreme leader.” Very open-ended in terms of results for the citizens/subjects, but there is no question what the law means.
If I understand correctly, Scott is pointing out that law that written to be open-ended (allow for wide prosecutorial discretion), even if it is not “vague” in the generic sence of the word, must trigger “Void for Vagueness” issues per item (2) in the provided Cornell definition. (And obviously, law deliberately written to be open-ended in this way is bad/worrisome/corrosive to ‘rule of law’ principles, etc.)
BC
Aug 1 2021 at 2:20am
It’s also interesting to hear her concede that she plans to go against longstanding precedent: “Antitrust over the last few decades has become…” Especially when the text of a law is vague, I would think that precedent becomes even more important in understanding and applying the law consistently. And, hasn’t that precedent been set primarily by the courts rather than by agencies’ policies in every successive administration just happening to be consistent with each other, without courts ever having weighed in? I can understand why a new agency head can break with predecessors. But, can an agency head overrule the courts?
Scott Sumner
Aug 1 2021 at 2:34pm
Good points. I expect her to lose in the courts.
Matthias
Aug 2 2021 at 12:15am
Alas, losing in the courts is less important than we might hope.
Many cases are settled before they go to court and the regulators can annoy a business they don’t like without any court cases.
zeke5123
Aug 2 2021 at 4:18pm
It is also the case that sometimes courts come to the wrong answer. Are you willing to bet the firm even if you have the right answer on the 10-15% change the court gets to the wrong answer?
We see this come up in the tax law often. Guidance is issued. It might be invalid under the APA, but the in terrorem effect is large enough that taxpayers avoid doing the “thing” even if the “thing” on the merits is permissible.
Dale Doback
Aug 1 2021 at 9:51am
She said “sparse” which is not a synonym of “vague”. As an analogy to criminal law, there could be a sparse law that is not vague, say against littering. The old prosecutor only decided to seek punishment for especially egregious acts of littering. The new prosecutor decides to seek punishment for all cases of littering.
Scott Sumner
Aug 1 2021 at 2:34pm
In the context of the other points she makes, it certainly seems like she is suggesting the law is vague. She also says the laws are “very general”.
Ken P
Aug 1 2021 at 11:02pm
Nice post Scott. It hasn’t been that long since Google was just a search engine, Amazon was just a bookstore, and Facebook was just a college social site. I wouldn’t be surprised for any of these to be overtaken by new companies. So apart from being vague, and there being no price impact to customers, I’m not convinced that they will continue to dominate in the absence of a breakup.
Matthias
Aug 2 2021 at 12:10am
Why would it be Congress that decides on a new law?
Congress doesn’t make laws in the US any more. Hasn’t for a while.
It’s mostly the Supreme Court, and occasionally the president’s executive orders and bureaucrats.
Scott Sumner
Aug 3 2021 at 5:31pm
Unfortunately, there is a great deal of truth in what you say.
Sean
Aug 2 2021 at 7:34pm
Good article.
I agree vague should be thrown out.
What we really need is new antitrust laws if we want to be tougher against trust.
I think it’s obvious big tech has monopoly rent extraction. Many think it’s a problem either for consumer welfare, political power, or wealth inequality. Consumer welfare is thru the back door. The firms advertiser on the platforms have to pass on their advertiser costs to consumers. Most of the advertisers live in constant cost industry’s and pay a ton in advertising. If the advertising costs fell they would compete on price, I know a jean manufacturer who spends sometimes 10% of revenue on ads. Early in he was spending his entire margin for a customers first order to fb and hoping to earn later on second orders.
It would be better to legislate these things rather than use vagueness to prosecute. I think academics have a role to play here as I don’t think anyone knows how to regulate tech platforms as there nothing like horizontal integration of standard oil.
robc
Aug 3 2021 at 9:35am
That is what was said about IBM in the 80s and Microsoft in the 90s. Maybe it was true, for both, for a few years, but it worked itself out.
And even if it is true, I don’t trust the courts to split companies properly. In the 90s, the push was to split apart Microsoft into, say, 3 companies, and OS company, an Office company, and a SQL server company (with assorted other tools going wherever appropriate).
That was clearly wrong, IF they were going to do it (which I didn’t support), the clearly right way would be to split it in 3 in the other dimension. Create 3 companies that each own a current copy of the OS, Office, and SQL server code and let them diverge and compete from there.
But back to the original point, lets use Amazon as an example. Amazon doesnt make profit from selling stuff (or not much), there profit comes from areas like AWS. And in that, they have big competition with GCP and Azure (and lots of smaller cloud services). So the area of their big profit is exactly the area where they have competition. That doesn’t sound like monopoly rent extraction to me. They have something close to a monopoly in a low margin business that they can’t leverage to get rent extraction without losing their monopoly and they have a high margin business with a bunch of competition.
Sean
Aug 3 2021 at 6:46pm
I don’t necessarily think breaking up is the solution. I think productivity wise the companies are at efficient size/scope but that their still able to collect economic rents that harm consumers.
D.O.
Aug 3 2021 at 2:43pm
In case of Google (and maybe Facebook), it is not clear who are the consumers. Google can theoretically charge everyone for searches, but it doesn’t do it. It makes money by charging the advertisers. I would argue that in economic sense it’s advirtesers who are the “consumers” of the Google product. Maybe what Khan and Co. need is to convince the courts that with Google business model they have to protect a new class of consumers?
robc
Aug 3 2021 at 4:39pm
If its free, you aren’t the consumer, you are the product.
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