Antitrust or the Lex Regia of the Market

A classical lens on current debates

The New Digest is thrilled to feature this guest essay by Dr. Alberto Brown. Dr. Brown is a partner at Almeida Guzmán & Asociados, a Quito law firm. Alberto is an attorney with more than 10 years of experience in commercial and antitrust law. He completed his PhD in competition law at the University of Edinburgh (2018 – 2021) and teaches private and competition law at the Pontificia Universidad Católica del Ecuador in the city of Quito. Alberto also has an LLM degree in competition and antitrust law from New York University School of Law and an LLB from the University of Navarra (Spain). He is the American Bar Association Antitrust Law Section International Ambassador for the Republic of Ecuador. 

In a recent paper, Professor Adrian Vermeule explains the expansion of executive power and the constant development of the administrative state in America, as manifestations of the principles and ideas that also underpinned the Roman Lex Regia.[1] However, these same concepts may be extrapolated to explain analogous developments elsewhere in the world, particularly in the West. Broadly speaking, since it is not the immediate purpose of this piece, the Lex Regia may be understood as not one, but a series of legislative enactments in the Roman state (i.e. a branch of Roman public law) that dealt with the people’s delegation of political power or potestas to the emperor.

In this sense, the Roman Lex Regia, as well as the contemporary concentration of legislative (i.e. regulatory), executive and judicial power within single or concentrated administrative agencies, are ways in which people call upon law to enforce popular sovereignty against oligarchic domination. Vermeule refers to an interesting description of the institution by Pomponius in the Digest (D. 1.2.11), where the latter views the “delegation of sovereign lawmaking power from the people in the lex regia […] instituted as a kind of second-best remedy for corrupt misrule by the Senatorial class. […] Given the ceaseless rivalries and chaotic quasi-legal politics of the late Republic under the rule of the optimates, the regime displaced by the lex regia might also be called a constitution of anarchy […]”.[2]

The Sherman Antitrust Act of 1890, as well as many (perhaps most) other antitrust laws around the world, may be understood as a delegation of the people’s sovereign power to allow the relevant administrative agencies and courts to keep in check and deal with the abuses of “quasi-sovereign” dominant corporations.[3] Pre-Sherman Act, pre-antitrust or pre-regulation markets engendered an economic constitution of anarchy, waiting to be displaced by an economic constitution ordered toward the (economic) common good. This state of laissez faire anarchy was supported by the classical economic tenet that vast accumulations of wealth, widespread industry cartelization or monopolies “could persist only under government grants of public privilege”.[4] Corporations unaffiliated with state entities could do no wrong.

In early liberalism, even if competition was conceptually conceived from the perspective of concepts related to the idea of rivalry, it was above all a belief in individualism and independence that were supposed to have a leading role in the dynamics of economic resource allocation.^[5] In this regard, independence is—first and foremost—independence from state power and from individuals or government affiliated corporations.[6] An abstentionist competition enforcement was “classicism’s mechanism for keeping politics out of state decision-making about the allocation of resources—particularly the allocation of entrepreneurial opportunities”.[7]

This is not the time and place to delve into the minutiae of antitrust history, but suffice it to say that the decades that followed the New Deal (1940s through 1970s), a time of prosperity due in large part to deliberate government policies of robust antitrust enforcement and healthy (re)distribution of wealth which required classical liberal laissez faire to be put aside, came to a halt with the Chicago School revolution of neoclassical antitrust of the late 1970s and early 1980s. Coincidentally, such revolution (arrogantly marketed as the ‘New Learning’ of antitrust) heralded the beginning of a period of increasing social inequality and market concentration that can be felt to this day. Prominent New Learning advocates such as Richard Posner and Robert Bork popularized the view that monopoly and inefficiency are generally the result of government regulation, rather than abusive corporate tactics.[8] Neoclassical welfare microeconomics remain the cornerstone of contemporary antitrust and competition regulation.

What is more interesting from a legal historical perspective, is that Chicagoan New Learning repurposed the old pre-antitrust classical liberal laissez faire economic paradigm (‘monopolies can only exist under grants of public privilege’ and ‘corporations can do no wrong’) under new labels. For instance, the theory that markets always tend to self-correct, and the theory of contestable markets under which monopolies and oligopolies only present temporary problems because new entries will always remain possible.[9] The self-correction and contestability hypotheses have now been proved to be demonstrably faulty and cannot simply be presumed.[10] The obvious intended consequence of this strand of legal neoliberalism was to reintroduce a policy of abstentionism in antitrust enforcement and policy.

Consumer welfare is the satisfaction derived by the consumer of goods and services and is generally equated to consumer surplus. The corollary of abstentionist antitrust is the so-called consumer welfare standard. This legal standard requires antitrust agencies and courts to immunize conduct that is not detrimental to consumer welfare. In other words, no matter how unfair, tortious or wrongful anticompetitive actions directed against competitors may be, the law requires plaintiffs to show consumer harm in addition. This makes antitrust actions inordinately difficult to assert.

In this regard, it seems reasonable to interpret neoclassical antitrust as “an unmitigated commitment to freedom of contract”.[11] The idea that competition regulation should be unrelated to the distribution of economic opportunity and that it should be unconcerned with the fate of individual traders, is supported by the belief that no-one should receive special treatment—in the form of isolation from the rigors of unfettered competition. Interfering with the conduct of firms in the pursuit of wealth maximization would be inefficient (hence antitrust abstentionism), which would be tantamount to interfering with the allegedly ‘value-free’ goal of efficiency.

Rodolph Peritz (author of one of the greatest books on antitrust ever written) argued that welfarist theorists, Posner in particular,[12] attempted to provide an ethical ground for wealth maximization by connecting it to the Kantian notion of personal autonomy.[13] Wealth maximization is understood as a liberal value because it is the result of bilaterally agreed market transactions. Because market agents are not coerced into any given bargain, both positive and negative outcomes (for the agents involved in such bargain) are presumed to be consented—therefore, promoting personal autonomy or individual liberty. Together, the promotion of free market transactions and abstentionism of the state in trade activities via the consumer welfare standard, yield optimal wealth maximization.[14]

More than forty years after antitrust was thoroughly refocused on the exclusive goal of consumer welfare (which would yield wealth maximization precisely because it would make it so hard to bring antitrust cases and give dominant corporations a free hand), neoclassical antitrust keeps showing its oligarchic underside. Wealth may have indeed been maximized, but to the benefit of the few. Prices may have been kept low for consumers in a few instances, but to the detriment of entrepreneurs and smaller scale operations (remember the Chicagoan rejection of redistribution through antitrust), only to promote materialistic consumerism.

Wealth maximization produces an aggregation of ‘goods’ but fails to advance a truly ‘common’ good. A ‘common good’ is one of the human values that “can be participated in by an exhaustible number of persons in an exhaustible variety of ways or on an inexhaustible variety of occasions”.[15] It is a “unity of order distinguishable from a mere aggregate of individual goods”.[16] John Finnis referred to the examples of life, knowledge and freedom, which “in practical reasonableness are good for any and every person”.[17]

Amartya Sen argued for a market mechanism—which must include competition regulation institutions—that is predominantly oriented to the production of public goods (i.e. a malaria-free environment, public health) rather than purely private ones (i.e. apples, t-shirts).[18] Ultimately, we should think about ‘markets’, and the opportunity of entering markets, as common goods, rather than—exclusively—as tools to accumulate private goods. As Aristotle remarked, “wealth is not the good we are in search of, for it is only good as being useful, a means to something else.”[19]

Furthermore, the presumption of ubiquitous selfishness and the consequent necessity of assuming self-interested conduct in all market agents are not empirically supported.[20] Understanding markets exclusively from the point of view of low prices yielded by the most efficient monopolies or dominant corporations negates them (markets) as tools for the advancement of the common good, and fosters the creation of goods belonging to hypothetically selfish market agents that in reality are fundamentally interdependent and cooperative.[21]

There are unifying threads between classical liberal and neoclassical abstentionism, such as the naturalistic fallacy of the Darwinian “survival of the fittest”, which attributes “normative content to a phenomenon simply because of being”.[22] In this case, the almost infallible, allegedly natural capacity of markets to select the most efficient and therefore appropriate market structures. This naturalistic approach has also been labelled as creationist. Creationist views of markets support abstentionism based on the belief that individual economic rights (other than property and freedom of contract, that is) are not organic.[23] Therefore, the argument goes, artificially creating and enforcing such rights would suppose an unwarranted interference with natural market processes.

The problem with naturalistic or creationist theories of markets and competition is that they disregard the inherently artificial nature of these man-made institutions. In other words, the fact that they are creations of law.[24] “With humans, the situations in which we find ourselves competing, or even deliberately manufacturing competitions, are so variable, contingent, and incidental that they could not possibly be derived directly from specific genes. Loose talk of ‘competitive instincts’ driving human behavior and explaining a competitive social world is precisely that—loose talk, which sheds little light on the matter”.[25]

In light of the above, it remains to say that the law’s pivot to the consumer welfare standard and wealth maximization as the only goals of antitrust denote an undesirable oligarchic subversion of an economic constitution that ought to be ordered to the common good; beginning with the welfare of the weak and the poor. Antitrust’s myopic concern with these objectives fails to account for its original conception as a law that is a “corpus distilled from myriads of decisions about everyday matters. […] a product of the years rather than of intent. […] an order at peace with confusion, a surge towards diverse objectives”.[26]

To recover its status as the Lex Regia of the market, antitrust needs to place less emphasis on how to “minimize the risk of arbitrary public action” by limiting the range of targets it can hit, thereby fomenting economic concentration, but rather on expanding its reach and having a piece of the action in the effort to “secure overall peace, order, and good government, which requires ample scope for vigorous public action through law, in order to secure the conditions of political flourishing.”[27]

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[1] Adrian Vermeule, The Many and the Few: On the American Lex Regia (forthcoming in Revue Internationale des Droits de l’Antiquité 2023).

[2] Ibid.

[3] James Landis, The Administrative Process, Yale 1938.

[4] Rudolph Peritz, Competition Policy in America, OUP 2000.

[5] Herbert Hovenkamp, "The Sherman Act and the Classical Theory of Competition." Iowa L. Rev. 74 (1988).

[6] Ibid.

[7] Ibid.

[8] https://iusetiustitium.com/antitrust-and-the-common-good/

[9] William Baumol, "Contestable Markets: An Uprising in the Theory of Industry Structure." The American Economic Review 72, no. 1 (1982).

[10] Jonathan Baker, The Antitrust Paradigm, Harvard University Press, 2019.

[11] Peritz, Rudolph J. "A Counter-History of Antitrust law." Duke LJ (1990): 263.

[12] Richard Posner, "Utilitarianism, Economics, and Legal Theory." The Journal of Legal Studies 8, no. 1 (1979).

[13] Peritz, "A Counter-History of Antitrust Law.", p. 305.

[14] Ibid.

[15] John Finnis, Natural Law and Natural Rights, OUP 2011.

[16] George Duke, "The Principle of the Common Good." in Christianity and Global Law, ed. Rafael Domingo and John Witte (Routledge, 2020), p. 255.

[17] John Finnis, Natural Law and Natural Rights, OUP 2011.

[18] Amartya Sen, Development as Freedom, OUP 2001, p. 128.

[19] Aristotle, Nicomachean Ethics, trans. Harris Rackham (Harvard University Press, 1926), p. 17.

[20] Sen, Development as Freedom, p. 118; "Markets and Freedoms: Achievements and Limitations of the Market Mechanism in Promoting Individual Freedoms." Oxford Economic Papers 45, no. 4 (1993), p. 533.

[21] Stucke, Maurice E. "Is Intent Relevant." JL Econ. & Pol'y 8 (2011): 843.

[22] Budzinski, "Monoculture Versus Diversity in Competition Economics.", p. 300.

[23] Oles Andriychuk, The Normative Foundations of European Competition Law, Elgar 2017, p. 20.

[24] Deakin, Simon, David Gindis, Geoffrey M. Hodgson, Kainan Huang, and Katharina Pistor. "Legal Institutionalism: Capitalism and the Constitutive Role of Law." Journal of Comparative Economics 45, no. 1 (2017).

[25] Hearn, Jonathan. The Domestication of Competition, 2023.

[26] Hamilton, Walton. "Common Right, Due Process and Antitrust." Law & Contemp. Probs. 7 (1940): 24.

[27] https://thenewdigest.substack.com/p/the-rule-of-law-without-separation

The Rule of Law Without Separation of Powers