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Restraint, Humility Needed at Federal Trade Commission

As President Trump works to fill the top ranks of his administration, several key posts in the executive branch are still occupied by officials serving in an acting capacity. One important agency to which the President has yet to select a permanent head is the Federal Trade Commission. Empowered to regulate U.S. companies under antitrust and consumer protection laws, the FTC’s authority is remarkably broad in scope—even for a federal agency. Yet only two commissioners currently serve on the five-member FTC: a Republican and a Democrat, both of whom were appointed by President Obama.

Shortly after his inauguration, President Trump designated Maureen Ohlhausen, the Republican member of the FTC, as the agency’s Acting Chairman. But the President is reportedly still deciding who will lead the FTC on a permanent basis. If he wants to stay true to his pledge to cut federal regulation and curtail the administrative state, selecting the right person to chair the FTC will be crucial. An ideal FTC Chairman would exercise restraint in bringing enforcement actions against firms and resist political pressure to intervene in competitive markets.

The 103-year-old FTC has an uneven track record when it comes to regulating the nation’s economy. At times, the agency has acted overzealously, seeking to remedy nonexistent harms with burdensome demands. Perhaps most notably, in the late 1970s, the FTC’s excesses led the Washington Post’s editorial staff to sharply criticize the agency, calling it the “national nanny.” Shortly thereafter, a Democratic Congress frustrated by the FTC’s overregulation withheld funding from the agency, leading it to shut down for several days. Although the FTC has tended to exercise greater restraint since 1980—in part due to statutory constraints Congress has placed on the agency—it still possesses broad powers that could, if misused, seriously hinder innovation and growth. And no individual matters more in charting the agency’s course than its Chairman.

The FTC is tasked with enforcing the Clayton Act (which addresses anticompetitive conduct) and the FTC Act (which addresses “unfair or deceptive acts or practices”), among other statutes. Over the years, federal courts have increasingly recognized the dangers of enforcing the antitrust laws in a way that condemns too many business practices as unlawful. Moreover, as an administrative agency, the FTC has significant discretion in deciding whether to intervene when a merger is proposed or a firm is accused of acting in an anticompetitive manner. Thus, the FTC can generally fulfill its statutory mandate while at the same time declining to block companies from merging or behaving in a particular way. Indeed, the FTC can faithfully uphold the law by allowing businesses to experiment with novel structures, pricing policies, and other arrangements—often the best approach.

Bringing high-profile lawsuits, strong-arming companies into signing consent decrees, and extracting multi-million dollar fines from alleged wrongdoers are all sure-fire ways for the FTC to garner splashy headlines and plaudits from skeptics of large corporations. As such, it’s especially important that the agency’s Chairman appreciate that its proper role is to act only when government intervention is necessary to remedy harms that the marketplace is unable to correct on its own. When the agency is uncertain as to whether an allegedly anticompetitive practice is harmful, it should err against intervening. As Judge Frank Easterbrook explained in a seminal 1984 law review article, it is costlier to punish a company for behavior that turns out to be pro-competitive than it is to let a company get away with conduct that turns out to be anti-competitive. “[T]he economic system corrects monopoly more readily than it corrects judicial errors,” he explained. The same is true for administrative errors: it’s better for an agency to intervene in the marketplace too infrequently than too often.

As the FTC confronts allegations of unlawful conduct, it should view self-interested claims against a company by its competitors with skepticism. The purpose of the antitrust laws is to benefit consumers, not protect companies from their rivals. As the U.S. Court of Appeals for the Seventh Circuit once noted, ”[c]ompetition is a ruthless process,” and “[t]he antitrust laws are not balm for rivals’ wounds.” Thus, when a firm is accused by one or more of its competitors of wrongdoing, chances are the accused firm is doing something right for consumers. This phenomenon is especially commonplace in the Internet and tech sectors, where a handful of companies that enjoy a high share of their respective markets are regularly accused of anti-competitive behavior. Yet these supposedly “dominant” firms—including Apple, Facebook, Microsoft, Google, and Amazon—have given the world some of the most innovative, game-changing products and services. It should come as little surprise to regulators, then, that these disruptive businesses have provoked the ire of their competitors.

Whenever the FTC is considering taking action, it should carefully consider concrete evidence of competitive effects while avoiding novel, untested theories, as former FTC Commissioner Joshua Wright has urged. Companies should not be assumed to be improperly exercising market power simply because they operate in a concentrated industry. At the same time, the agency should resist the urge to label unfamiliar business practices as anti-competitive. As the economist Ronald Coase famously quipped, “[i]f an economist finds something ... that he does not understand, he looks for a monopoly explanation.” “Regulatory humility,” Commissioner Wright wrote, “is always important but particularly in fast-moving industries characterized by dynamic competition.”

As President Trump evaluates candidates to chair the FTC, he should be mindful of these principles and look for a person who appreciates the importance of letting markets evolve free from governmental distortions.