CompetitionThe cost of errors in antitrust

Jonathan Baker earned a J.D. from Harvard and a Ph.D. (in Economics) from Stanford, served as Chief Economist at the Federal Communications Commission, and now teaches antitrust and economic regulation at American University’s Washington College of Law.

He’s also written an important article on how an obsession with avoiding “false positives” in antitrust litigation systematically biases courts against cases unless they involve price-fixing or market division, horizontal mergers resulting in duopoly or monopoly, or a narrow range of exclusionary conduct.

Baker’s article — Taking the Error Out of “Error Cost” Analysis: What’s Wrong with Antitrust’s Right, 80 Antitrust L.J. 1 (2015) (SSRN version available here) — starts with he observation that the Chicago School‘s critique of antitrust law produced some healthy changes in doctrine since the 1970s. But he quickly points out that “the receptivity of the Supreme Court to conservative antitrust arguments” has generated “what are likely the most favorable antitrust rules for defendants in at least seven decades”. Id. at 37. Those rules make winning a Sherman Act claim that challenges most efforts by single firms to thwart rivals extraordinarily difficult.

More conservative reform?

Although Baker believes that the pendulum has swung too far in the conservative direction, he doesn’t focus his argument on showing mistakes in existing precedent. He instead looks to the future, stressing that Chicagoans and their acolytes “call for additional reforms to limit the application of antitrust rules” and “often justify their proposals by invoking error cost analysis.” Id. The problem with doubling down on the Chicago approach arises from the fact, Baker urges, that the conservatives make assumptions that “systematically overstate the incidence and significance of false positives, understate the incidence and significance of false negatives, and understate the net benefits of various rules by overstating their costs.” Id.

“False positive” refers to “finding violations [of antitrust law] when the conduct did not harm competition”. Id. at 7. Conservatives highlight the “social costs” of allowing false positives but minimize the social costs of permitting “false negatives” — finding no violations when the behavior did injure competition.

The heart of the article reviews five “erroneous assumptions about markets” and four “erroneous assumptions about institutions”. Id at 8 & 23. I’ll summarize Baker’s views on each below.

Wrong ideas about markets

1. Markets self-correct through entry. Barriers to entry and the ingenuity of incumbents often make entry or the threat of entry by new competitors ineffective. Monopolies and cartels often persist for a decade or more “even when antitrust enforcement cuts short their duration.” Id. at 11.

2. Markets self-correct because oligopolies compete and cartels are unstable. Studies show that oligopolies compete as little as possible, and “many cartels have been long-lasting.” Id. at 13.

3. Markets perform well because monopolies innovate. The argument “ignores several important ways that greater competition enhances incentives to innovate.” Id. at 14. The spur of competition — not monopoly profits — maximizes innovation.

4. Monopolists cannot obtain more than a single monopoly profit. The single-monopoly-profit thesis holds only if the monopolist “has literally no rivals and faces no potential entrants” and if “buyers have literally no alternative to the monopolist’s products”. Id. at 16. Otherwise, a monopolist can and will use its market power to deter or crush fringe competitors and upstarts.

5. Business practices prevalent in competitive markets cannot harm competition. Tactics that may produce benefits in a competitive market may do harm in the hands of a firm or group of firms that wield market power. Id. at 20-22

Mistakes about courts and agencies

1. Erroneous judicial precedents are more durable than the exercise of market power. Cartels keep their potency as long as or longer than the (small number of) bad decisions that conservatives point to. Id. at 23-25.

2. Antitrust institutions are manipulated by complaining competitors.  Conservatives offer no reason to think that small upstarts fare better in enlisting the support of agencies than large incumbents do or that courts do not sniff out unworthy cases by whiny competitors. Id. at 25-29.

3. Courts cannot tell whether exclusionary conduct harms competition or promotes it. Courts do fine with figuring out if collusive behavior injures competition and can do just as well with exclusionary conduct. The remedy in any event involves making clearer rules instead of abandoning the effort to protect against exclusionary strategies and tactics that reduce competition. Id. at 29-32.

4. Courts cannot control the costs of private litigation. The Supreme Court made antitrust cases — especially class actions — harder to bring out of “concern with the transaction costs of private litigation” but “adopted these measures with little evidence that lower courts are unable to manage private litigation, and without attempting to show that the benefits, if any, that society derives from reduced transaction costs exceed the social costs of restricting both private and public (federal and state) antitrust enforcement.” Id. at 33.

Does antitrust enforcement justify its costs?

Baker believes that “[t]he benefits of antitrust enforcement as a whole almost surely exceed costs by a wide margin, creating a strong presumption in favor of robust enforcement.” Id. at 36. He estimates that “the benefits are, at a minimum, 50 times the costs. Id. at 36 n.158 (citing Jonathan B. Baker, The Case for Antitrust Enforcement, J. Econ. Persp. at 43-45 (Autumn 2003)).

Baker makes a powerful case for questioning the current orthodoxy around Sherman Act cases involving exclusionary conduct. Let’s hope a good many judges, lawyers, and economists read his compelling critique.

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Photo of Barry Barnett Barry Barnett

Clients and colleagues call Barry Barnett an “incredibly gifted lawyer” (Chambers and Partners) who is “magic in the courtroom” (Who’s Who Legal), “the top antitrust lawyer in Texas” (Chambers and Partners), and “a person of unquestioned integrity” (David J. Beck, founder of Beck…

Clients and colleagues call Barry Barnett an “incredibly gifted lawyer” (Chambers and Partners) who is “magic in the courtroom” (Who’s Who Legal), “the top antitrust lawyer in Texas” (Chambers and Partners), and “a person of unquestioned integrity” (David J. Beck, founder of Beck Redden).

Barnett is a Fellow in the American College of Trial Lawyers, and Lawdragon has named him one of the top 500 lawyers in the United States three years in a row. Best Lawyers in America has honored him as “Lawyer of the Year” for Bet-the-Company Litigation (2019 and 2017) and Patent Litigation (2020) in Houston. Based in Texas and New York, Barnett has tried complex business disputes across the United States.

Barnett’s background, training, and experience make him indispensable to his clients. The small-town son of a Texas roughneck and grandson of a Texas sharecropper, Barnett “developed an unusual common sense about people, their motivations, and their dilemmas,” according to former client Michael Lewis.

Barnett has been historically recognized for his effectiveness and judgment. His peers chose him, for example, to the American College of Trial Lawyers and American Law Institute. His decades of trial and appellate work representing both plaintiffs and defendants have made him a master strategist and nimble tactician in complex disputes.

Barnett focuses on enforcement of antitrust laws, the “Magna Carta of free enterprise,” in Supreme Court Justice Thurgood Marshall’s memorable phrase. “Barry is one of the nation’s outstanding antitrust lawyers,” according to Joseph Goldberg, a member of the Private Antitrust Enforcement Hall of Fame. Named among Texas’s top ten antitrust lawyers of 2023, Business Today calls Barnett a “trailblazer” among the “distinguished legal minds” who “dedicate their skill and expertise to the maintenance of healthy competition in various sectors” of the Lone Star State’s booming economy. Barnett is also adept in energy and intellectual property matters and has battled for clients against a Who’s Who list of corporate behemoths, including Abbott Labs, Alcoa, Apple, AT&T, BlackBerry, Broadcom, Comcast, Dow, JPMorgan Chase, Samsung, and Visa.

Barnett commands a courtroom with calm and credibility and “is the perfect lawyer for bet the company litigation,” said Scott Regan, General Counsel of former client Whiting Petroleum. His performance before the Supreme Court in Comcast Corp. v. Behrend prompted the Court to withdraw the question on which it had granted review. The judge in a trial involving mobile phone technology called Barnett “one of the best” and that his opening statement the finest he had ever seen. Another trial judge told Barnett minutes after a jury returned a favorable verdict against the county’s biggest employer that he was one of the two best trial lawyers he’d ever come across—adding that the other one was dead.

A versatile trial lawyer, Barnett knows how to handle a case all the way from strategic pre-suit planning to affirmance on appeal. He’s tried cases to verdict and then briefed and argued them when they went before appellate courts, including the Second, Third, Fifth, and Tenth Circuits, the Supreme Court of Louisiana, and (in the case of Comcast Corp. v. Behrend) the Supreme Court of the United States.

Barnett is a sought-after public speaker, often serving on panels and talking about topics like the trials of antitrust class actions and techniques for streamlining complex litigation. He also comments on trends in commercial litigation and the implications of major rulings for outlets such as NPR, Reuters, Law360, Corporate Counsel, and The Dallas Morning News. He’s even appeared in a Frontline program about underfunding of state pensions, authored chapters on “Fee Arrangements” and “Techniques for Expediting and Streamlining Litigation” (the latter with Steve Susman) in the ABA’s definitive treatise on Business and Commercial Litigation in Federal Courts, 5th, and commented on How Antitrust Enforcers Might Think Like Plaintiffs’ Lawyers.

Clients and other hard graders have praised Barnett for his courtroom skills and legal acumen.

A client in a $100 million oil and gas case, which Barnett’s team won at trial and held on appeal, said Barnett and his team “presented a rare combination of strong legal intellect, common sense about right and wrong, and credibility in the courtroom.” David McCombs at Haynes and Boone said Barnett “has a natural presence that goes over well with juries and judges.”

Even former adversaries give Barnett high marks. Lead opposing counsel in a decade-long antitrust slugfest said “Barry is a highly skilled advocate. He understands what really matters in telling a narrative and does so in a very compelling manner.”

Barnett relishes opportunities to collaborate with all kinds of people. At the Center for American and International Law (CAIL), founded by a former prosecutor at Nuremberg in 1947 and headquartered in the Dallas area, he has served on the Executive Committee, co-chaired the committee that produced CAIL’s first-ever strategic plan, supported CAIL’s Institute for Law Enforcement Administration and other development efforts, and proposed formation of a new Institute for Social Justice Law. CAIL’s former President David Beck said “Barry is extremely bright” and is “very well prepared in every lawsuit or professional task he undertakes.”

Barnett is also a Trustee of the New-York Historical Society, a Sterling Fellow at Yale, a member of the Yale University Art Gallery’s Governing Board, a winner of the Class Award for his work on behalf of his college class, and a proud contributor to the Yellow Ribbon Program at Harvard Law. Barnett’s pro bono work includes leading the trial team representing people who are at greatest risk of severe illness and death as a result of being exposed to the novel coronavirus SARS-CoV-2 while being detained in the Dallas County jail—work for which he received the NGAN Legal Advocacy Fund RBG Award.

At Susman Godfrey, Barnett has served on the firm’s Executive Committee, Employment Committee, and ad hoc committees on partner compensation, succession of leadership, and revision of the firm’s partnership agreement. He also twice chaired the Practice Development Committee.

Barnett understands that clients face many pressures. Managing the stress is important, especially in matters that take years to resolve. He encourages clients to call him whenever they have a question or concern and to keep the inevitable ups and downs in perspective. He wants them to know that he will do his level best to help them achieve their goals. He also strives to foster trust and to make working with him a pleasure.

Cyrus “Skip” Marter, the General Counsel of Bonanza Creek in Denver and a former Susman Godfrey partner and client, said Barnett is “excellent about communicating with clients in a full and honest manner” and can “negotiate for his clients from a position of strength, because he is not afraid to take a case through a full trial on the merits.” Stacey Doré, the President of Hunt Utility Services and a former client, said that Barnett is “an excellent trial lawyer and the person you want to hire for your bet-the-company cases. He is client focused, responsive, and uniquely savvy about trial and settlement strategy.” A New York colleague said, “Barry is a joy to work with as co-counsel. He tackles complex procedural and factual hurdles capably, efficiently, and without drama.”

Barnett’s wide-ranging experience and calm, down-to-earth approach enable him to connect with clients, judges, jurors, witnesses, and even opposing counsel. He grew up in Nacogdoches, Texas. He co-captained his high school varsity football team as an All-East Texas middle linebacker while also serving as the Editor of Key Club’s Texas-Oklahoma District, won the Best Typist award, took the History Team to glory, and sang in the East Texas All Region Choir. As Dan Kelly of client Vistra Corp. put it, Barnett is “a great person to be around.”

Barnett is steady and loyal. He has practiced at Susman Godfrey his entire career. He and his wife Nancy live in Dallas and enjoy spending time in Houston and New York. Their daughter works for H-E-B in Houston, and their son is a Haynes and Boone transactions lawyer in Dallas.

As a member of Ivy League championship football teams in his junior and senior years at Yale and a parent of two Yalies, Barnett has no trouble choosing sides for “The Game” in November. And he knows how important fighting all the way to the end is. On his last play from scrimmage, in the waning minutes of The Game on Nov. 22, 1980, he recovered a Crimson fumble.

Yale won, 14-0.