The New Brandeis Ideology (mid 2010s – Present): On the Dangers of Monopoly Power

Author: Marvin Cheung

Publication date: 5 January 2021

“If you three can't agree on all that, then I don’t really know where we are,” said Daniel “Dan” Crane[1] commenting on the operational principles of the New Brandeis Movement, speaking to Timothy “Tim” Wu, Lina Khan[2], and Sandeep Vaheesan[3] in a townhall discussion on the future of antitrust enforcement at the University of Utah in Salt Lake City in October of 2019[4]. The three represent leading scholars on the New Brandeis Movement. Crane does not identify as a New Brandeisian[5].

Tim Wu, credited for coining the term net neutrality in 2002[6], is the Julius Silver Professor of Law, Science and Technology at Columbia Law School. This section reviews some of the arguments he presents in his popular audience book The Curse of Bigness: Antitrust in the New Gilded Age published by Columbia Global Reports in 2018.

The New Brandeis movement borrows the philosophy of late Supreme Court Justice Louis Brandeis, who was instrumental in drafting antitrust legislation and the Federal Trade Commission Act of 1914[7]. Crane’s remark cut to the heart of the Movement: it is unclear what antitrust arguments is unique to the New Brandeisians and what actionable outcomes can be expected while the United States continue to focus on a “consumer welfare” theory of antitrust law[8].

Under the consumer welfare standard set by Rebel Oil Co. v. Atlantic Richfield Co circa 1995, an act is considered an antitrust violation “only when it harms both allocative efficiency and raises the prices of goods above competitive levels or diminishes their quality” due to earlier monopolies’ tendency to monopolize critical infrastructures by pricing out competitors[9]. As Hatch points out, one of the main disadvantages of using the welfare standard is it does not take into account how the digital economy allows monopolies to price out competitors by offering products at low or no cost[10].

On the 5th of March in 2019, the Senate Judiciary Committee reopened the debate to examine whether antitrust policies should return to Pre-Chicago School era and consider such things as “indirect social or moral effect”, an opinion expressed by Judge Learned Hand in United States v. Alcoa in 1945, rather than short term economic welfare alone[11]. No definitive conclusion has been made as of the day of writing. This, however, does not negate the merits of the new arguments calling for greater antitrust enforcement. Some of these arguments have been included in this section for practical reasons; whether they belong to the New Brandeis school of thought is debatable since the movement is still at its nascent stage and does not have clear ideological boundaries.

The New Brandeisians’ arguments are political.

“The neo-Brandeisians [in the 1930s] thought that the government’s job was ‘to recreate a system of economic democracy as the basis for political democracy’ […] The Frankfurter-Brandeisians also took a view later associated with conservatives like Fredrick Hayek: that excessive concentration and monopoly might lead to a government of dangerous size and power. Created to counterbalance industrial giants, governments might instead form a union with them, combining private and public power.”[12]

While New Brandeisians’ arguments touch upon the idea of economic democracy and hint at the need for universal income, the idea has not been elaborated upon much by antitrust scholars such as Wu. For example, in over a hundred fifty pages from Wu’s The Curse of Bigness and The Curse of Bigness: New Deal Supplement, the phrase “economic democracy” only appears twice.

Most of the New Brandeisians’ arguments focus on the way monopolies by their very nature concentrate power among several individuals and the danger of affording industrial monarchs a disproportionate amount of power. Wu points to the work by Mancur Olson, who in the 1960s, noted that while a group like “the middle class” is great in number and even theoretical economic power, their political influence is limited since lobbying requires organization[13]. Small and organized groups, such as oligopolies, on the other hand, benefit most from the process of lobbying. The more concentrated an industry is, the less coordination and the more reward is available to each member[14]. “After a merger to monopoly, there is no need to cooperate at all.” [15]

“If one simply regards lobbying as an investment in political outcomes, the rewards are copious, and more than justify the money and effort. Consider, for example, the case of the pharmaceutical industry in the United States. In 2003, the industry invested $116 million in convincing Congress to ban America’s largest federal-run insurance program, Medicare, from negotiating for lower drug prices. That $116 million was, to be sure, a major investment. However, the enactment of the negotiation ban has benefited the industry (and cost consumers) an estimated $90 billion per year. As an investment, it returns some 77,500%.” [16]

This disparity in political power is furthered by independent workers and small firms’ inability to organize collective action, notes Sanjukta and Sandeep in 2019[17]. “When Uber engages in price coordination, it’s legal. When gig workers do, they’re considered to be acting collusively.”[18] They called this “Uber’s Antitrust Paradox”, alluding to Khan’s article “Amazon’s Antitrust Paradox” published in 2017 and Bork’s The Antitrust Paradox published in 1978.

Wu builds on the argument for greater antitrust enforcement by quoting Crane’s observation on “the historical relationship between monopoly and mid-twentieth century fascism”[19].

“The main German monopolists [including the Krupp armaments, Siemens railroad and infrastructure, Thyssen mining, and Farben chemicals], over the 1930s, threw their weight behind the Nazi regime when it lacked support among other key groups, and that each ultimately became deeply allied with and enmeshed in the German war effort.” [20]

Crane argues that among the many companies’ contributions to the rise of Nazism, I.G. Farben chemical cartels’ effort has been indispensable [21]. While Farben resisted Nazification in the early 1930s, the firm’s management “acceded to the reality that alliance with the Nazis was critical to the continued success of the Farben enterprise” [22]. Farben, in 1933, donated RM 400,000 roughly equal to $2.4 million today (RM 3.28 = $1 in 1933[23]; to adjust for inflation, $1 in 1933 =  $19.62 in 2020[24]), “the largest donation by any firm by a large order of magnitude” at the time [25]. Further donations provided a source of extra-governmental funding, when Hitler had neither the support of the Catholic Church nor the German Government[26], effectively circumventing democracy.

“Once Farben’s senior managers had made a bet that an alliance with Hitler was critical to the firm’s long-run profitability (particularly given the immense commercial benefits that would come to a chemical monopoly from a program of rearmament and industrial-military independence), they effectively put the firm and its resources at Hitler’s disposal” [27]

By the mid-1930s, Farben “purged its Jewish managers” [28], and acted “as an incubator and disseminator of Nazi propaganda” [29]  through its newspapers and 120,000 employees[30].

“By the late 1930s, Farben controlled almost all German chemical and synthetic production, including 100% of synthetic rubber, 100% of lubricating oils, 100% of serums, 90% of plastics, 88% of magnesium, 64% of explosives, and 75% of nitrogen.” [31] Thereby facilitating Hitler’s consolidation of power.

Crane contends that the current consumer welfare oriented antitrust law from around the 1970s  would be sufficient to prevent the rise of monopolies such as I. G. Farben in the 1930s[32].

“Naked cartel agreements, including the two 1904 pooling arrangements, the 1916 mega-pool, and the 1926 explosives agreement, are considered per se illegal under contemporary antitrust doctrine. […] Similarly, the 1925 merger between the nine largest chemical companies in the country, resulting in a Herfindahl-Hirschman Index figure of a perfect 10,000 in many sectors, would almost certainly be prohibited.” [33]

The New Brandeisians disagree. To be sure, both Crane and the New Brandeisians agree on the importance of antitrust policies. However, whereas Crane believes the current consumer welfare standards are sufficient to rein in monopolies, The New Brandeisians believe the consumer welfare standards are insufficient due to the new business models arising from the digital economy.

“Because of the severe financial repercussions associated with suspension or delisting, many Amazon third-party sellers live in fear of the company[34]. For sellers, Amazon functions as a ‘quasi-state,’ and many ‘[s]ellers are more worried about a case being opened on Amazon than in actual court.’[35] This is because Amazon’s internal dispute resolution system is characterized by uncertainty, unresponsiveness, and opaque decision-making processes. […] The last resort for sellers facing these circumstances is the ‘Jeff Bomb,’ or ‘Jeff Letter,’ in which a seller sends an email to Mr. Bezos to plead their case[36]. As the Online Merchants Guild explained in its submission, ‘a “Jeff Letter” is almost like a Writ of Certiorari within Amazon’s internal kangaroo court system.’[37] But by the time this point is reached, ‘a seller could be locked out of their account, or denied funds, for weeks, losing hundreds of thousands of dollars even if the mistake was Amazon’s’” [38]

The New Brandeisians are narrowing in on Big Tech.

[1] Daniel Crane is the Frederick Paul Furth Sr. Professor of Law at the University of Michigan and was the associate dean for faculty and research from 2013 to 2016. Two of his journal articles that have been quoted in New Brandeisian literature has been referenced in this section.

[2] Lina Khan is an Associate Professor of Law at Columbia Law School. Her essay, “Amazon’s Antitrust Paradox” forms the basis of the next section.

[3] Veheesan is the legal director at the Open Markets Institute. The essay he coauthoered with Sanjukta Paul, “Make Antitrust Democratic Again!”, has been referenced in this section. See Sanjukta Paul and Sandeep Vaheesan, “Make Antitrust Democratic Again!,” November 12, 2019, https://www.thenation.com/article/economy/antitrust-monopoly-economy/.

[4] LexisNexis, “‘New Brandeisians’ Look to Articulate Antitrust Philosophy,” accessed December 14, 2020, https://mlexmarketinsight.com/insights-center/editors-picks/area-of-expertise/antitrust/new-brandeisians-look-to-articulate-antitrust-philosophy.

[5] Ibid.

[6] “Timothy Wu,” accessed December 14, 2020, https://www.law.columbia.edu/faculty/timothy-wu.

[7] Langlois, Richard N., Hunting the Big Five: Twenty-First Century Antitrust in Historical Perspective (January 15, 2018). Available at SSRN: https://ssrn.com/abstract=3124356 or http://dx.doi.org/10.2139/ssrn.3124356  Pg. 12.

[8] “Congress Hears Challenges to the Consumer Welfare Standard | Antitrust Update,” Patterson Belknap Webb & Tyler LLP, accessed December 15, 2020, https://www.pbwt.com/antitrust-update-blog/congress-hears-challenges-to-the-consumer-welfare-standard/.

[9] Ibid.

[10] “Congress Hears Challenges to the Consumer Welfare Standard | Antitrust Update,” Patterson Belknap Webb & Tyler LLP, accessed December 15, 2020, https://www.pbwt.com/antitrust-update-blog/congress-hears-challenges-to-the-consumer-welfare-standard/.

[11] Ibid.

[12] Wu, Tim, The Curse of Bigness: New Deal Supplement (July 8, 2020). Available at SSRN: https://ssrn.com/abstract=3646258 or http://dx.doi.org/10.2139/ssrn.3646258 Pg. 10.

[13] Tim Wu, The Curse of Bigness: Antitrust in the New Gilded Age (Columbia Global Reports, 2018). Pg. 56.

[14] Ibid. Pg. 58.

[15] Ibid.

[16] Tim Wu, The Curse of Bigness: Antitrust in the New Gilded Age (Columbia Global Reports, 2018). Pg. 56.

[17] Sanjukta Paul and Sandeep Vaheesan, “Make Antitrust Democratic Again!,” November 12, 2019, https://www.thenation.com/article/economy/antitrust-monopoly-economy/.

[18] Ibid.

[19] Crane, Daniel A., "Antitrust and Democracy: A Case Study from German Fascism" (2018). Law & Economics Working Papers. 155. https://repository.law.umich.edu/law_econ_current/155. Pg. 2.

[20] Tim Wu, The Curse of Bigness: Antitrust in the New Gilded Age (Columbia Global Reports, 2018). Pg. 80.

[21] Crane, Daniel A., "Antitrust and Democracy: A Case Study from German Fascism" (2018). Law & Economics Working Papers. 155. https://repository.law.umich.edu/law_econ_current/155. Pg. 10.

[22] Ibid.

[23] “Historical US Dollars to German Marks Currency Conversion,” accessed December 15, 2020, http://marcuse.faculty.history.ucsb.edu/projects/currency.htm.

[24] “Calculate the Value of $1.00 in 1933. How Much Is It Worth Today?,” accessed December 15, 2020, https://www.dollartimes.com/inflation/inflation.php?amount=1&year=1933.

[25] Diarmuid Jeffreys, HELL’S CARTEL: IG FARBEN AND THE MAKING OF HITLER’S WAR MACHINE  (2008) Pg. 170.

[26] Crane, Daniel A., "Antitrust and Democracy: A Case Study from German Fascism" (2018). Law & Economics Working Papers. 155. https://repository.law.umich.edu/law_econ_current/155. Pg. 15.

[27] Ibid.

[28] Ibid. Pg. 12.

[29] Diarmuid Jeffreys, HELL’S CARTEL: IG FARBEN AND THE MAKING OF HITLER’S WAR MACHINE  (2008) Pg. 124.

[30] Ibid.

[31] Crane, Daniel A., "Antitrust and Democracy: A Case Study from German Fascism" (2018). Law & Economics Working Papers. 155. https://repository.law.umich.edu/law_econ_current/155. Pg. 13.

[32] John O. Haley, ANTITRUST IN GERMANY AND JAPAN, THE FIRST FIFTY YEARS, 1947-1998 7-9 (2001).

[33] Crane, Daniel A., "Antitrust and Democracy: A Case Study from German Fascism" (2018). Law & Economics Working Papers. 155. https://repository.law.umich.edu/law_econ_current/155. Pg. 17.

[34] Submission from Source 125, to H. Comm. on the Judiciary (July 17, 2020) (on file with Comm.) 

[35] Josh Dzieza, Prime and Punishment: Dirty Dealing in the $175 Billion Amazon Marketplace, THE VERGE (Dec. 19, 2018), https://www.theverge.com/2018/12/19/18140799/amazon-marketplace-scams-seller-court-appeal-reinstatement

[36] Ibid.

[37] Submission from Online Merchants Guild, to H. Comm. on the Judiciary, 3 (Oct. 29, 2019) (on file with Comm.)

[38] Subcommittee on Antitrust, Commercial and Administrative Law of the Committee on the Judiciary, “Investigation of Competition in Digital Markets,” 2020.

Marvin Cheung, Head of Research and Strategy, Board Member, Unbuilt Labs