Antitrust and Wealth Inequality

Cornell Law Review Volume 101 Issue 5 July 2016 Article 2 Antitrust and Wealth Inequality Daniel A. Crane Follow this and additional works at: http://scholarship.law.cornell.edu/clr Part of the Law Commons Recommended Citation Daniel A. Crane, Antitrust and Wealth Inequality, 101 Cornell L. Rev. 1171 (2016) Available at: http://scholarship.law.cornell.edu/clr/vol101/iss5/2 This Article is brought to you for free and open access by the Journals at Scholarship@Cornell Law: A Digital Repository. It has been accepted for inclusion in Cornell Law Review by an authorized editor of Scholarship@Cornell Law: A Digital Repository. For more information, please contact . \\jciprod01\productn\C\CRN\101-5\CRN503.txt unknown Seq: 1 30-JUN-16 15:42 ANTITRUST AND WEALTH INEQUALITY Daniel A. Crane† In recent years, progressive public intellectuals and prominent scholars have asserted that monopoly power lies at the root of wealth inequality and that increases in antitrust enforcement are necessary to stem its rising tide. This claim is misguided. Exercises of market power have complex, crosscutting effects that undermine the generality of the monopoly regressivity claim. Contrary to what the regressivity critics assume, wealthy shareholders and senior corporate executives do not capture the preponderance of monopoly rents. Such profits are broadly shared within and dissipated outside the firm. Further, many of the subjects of antitrust law are middle-class professionals, sole proprietors, or small business owners who extract rents from households above them in the income distribution. On the consumer side, the monopoly regressivity claim is confounded by the fact that large swaths of overcharged goods and services are purchased by government buyers or third-party healthcare payers, who pass on the incidence of the overcharge progressively, or by other corporate buyers who absorb a share of the overcharge. Even as to household spending, exercises of monopoly power may have progressive wealth redistribution effects to the extent that market power facilitates progressive price discrimination. Finally, antitrust law sometimes stymies private efforts to redistribute income, further casting doubt on the generality of the monopoly regressivity claim. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1172 I. DOES MORE ANTITRUST ENFORCEMENT MEAN MORE WEALTH EQUALITY? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1177 A. The Contingency of Economic Context: The Developing and Developed Worlds . . . . . . . . . . . . 1177 † Associate Dean for Faculty and Research and Frederick Paul Furth, Sr. Professor of Law, University of Michigan. I am indebted to Reuven Avi-Yonah, José Azar, Sherman Clark, Alicia Davis, Julian Mortenson, Steve Ross, and Martin Schmalz for discussions or comments on earlier drafts of this Article. All arguments and errors are solely my own. Selections from this Article were presented at the 2015 Loyola-Chicago Antitrust Conference, the Loyola-Haifa Antitrust Conference, and a faculty workshop at the University of Michigan Law School. Lincoln Wang provided helpful research assistance. 1171 R R R \\jciprod01\productn\C\CRN\101-5\CRN503.txt 1172 unknown Seq: 2 CORNELL LAW REVIEW 30-JUN-16 15:42 [Vol. 101:1171 B. The Positive Claim that Antitrust Advances Wealth Progressivity . . . . . . . . . . . . . . . . . . . . . . . . . 1180 C. Why the Monopoly Regressivity Claim Is Misguided . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1184 1. Who Captures Monopoly Rents? . . . . . . . . . . 1186 a. Shareholders and Senior Managers . . . . 1186 b. The Labor Monopoly Wage Premium and Spillovers Outside the Firm . . . . . . . . . . . . 1192 c. Noncorporate Subjects of Antitrust Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1195 2. Who Pays Monopoly Rents?. . . . . . . . . . . . . . . 1199 a. Taxpayers and Third-Party Payers . . . . 1199 b. Intercorporate Effects . . . . . . . . . . . . . . . . . 1202 c. Wealthy and Poor Consumers . . . . . . . . . 1204 3. Magnitude and Computability of the Crosscutting Effects . . . . . . . . . . . . . . . . . . . . . . 1207 II. HOW ANTITRUST ENFORCEMENT SOMETIMES IMPEDES PRIVATE EFFORTS TO ADVANCE EQUALITY . . . . . . . . . . . . 1209 A. The Arc of Competition Does Not Bend Toward Equality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1209 B. Private Efforts to Redress Competition’s Bent Toward Inequality . . . . . . . . . . . . . . . . . . . . . . . . . . . 1211 C. Three Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1213 1. College Financial Aid . . . . . . . . . . . . . . . . . . . . . 1213 2. College Athletics . . . . . . . . . . . . . . . . . . . . . . . . . 1215 3. Sweatshops in the Global Supply Chain . . . 1217 III. RECALIBRATING ANTITRUST TO ADVANCE INCOME EQUALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1219 A. Limitations to Addressing Income Inequality Through Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . 1220 1. Is a Narrower Version of the Monopoly Regressivity Claim Sustainable? . . . . . . . . . . 1220 2. Individualized Proof of Regressivity and Comparative Institutional Advantage . . . . . . 1223 3. A Modest Role for Prosecutorial Discretion . 1225 B. Antitrust and Private Redistributive Efforts . . . 1226 CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1228 INTRODUCTION In recent years, wealth inequality has reemerged as a popular political issue. President Obama has made reducing R R R R R R R R R R R R R R R R R R R R R R R R R \\jciprod01\productn\C\CRN\101-5\CRN503.txt 2016] unknown Seq: 3 ANTITRUST AND WEALTH INEQUALITY 30-JUN-16 15:42 1173 wealth inequality the signature issue of his second term,1 and the topic is shaping up as a potentially defining focal point for the 2016 presidential election.2 Important recent scholarly work has reignited academic discussion on the incidence, causes, and cures for wealth inequality.3 Amid this broad debate, a particular claim has emerged regarding the relationship between market competition and inequality. A wide array of scholars and public intellectuals, including such notable figures as Nobel Laureates Joseph Stiglitz4 and Paul Krugman5 and former Labor Secretary Robert Reich,6 among others, have claimed that monopoly and anticompetitive market conditions are among the root causes of wealth inequality.7 Some of these commentators blame the 1 See Barack Obama, U.S. President, Remarks by the President in State of the Union Address (Jan. 20, 2015), https://www.whitehouse.gov/the-press-office/2015/01/20/remarks-president-state-union-address-january-20-2015 [https://perma.cc/E2TT-9WC8]; Barack Obama, U.S. President, Remarks by the President on Economic Mobility (Dec. 4, 2013), http://www.whitehouse. (...truncated)