Silviase/jgov_v1.4_full_ann huggingface dataset:
### I II. Policies That Promote Economic Growth

There are an array of policies that can contribute to the promotion of economic growth in a country. $ ^{7} $ As will be seen, competition policy is both a direct contributor in its own right, as well as an indirect contributor through the enhancement of other policies. In considering this array of policies, the best perspective is to consider that there are tradeoffs among them.

### A. Encouraging saving

Higher rates of saving -- the setting aside of resources that otherwise could have been consumed and that are instead devoted to investment -- clearly are a contributor (cet. par.) to economic growth. Among the things that can encourage saving are sensible tax policies, efficient financial markets (which competition policy can help support), a legal system that embodies property rights (so that savers can be assured that they will retain the fruits of their saving) and a general "rule of law" (so that savers more generally have reasonable levels of certainty as to the consequences of their actions), and favorable cultural influences.

B. Encouraging efficient deployment of savings: investment.

Efficient investment will yield greater output payoffs and thus enhance economic growth. Among the things that can encourage more efficient investments are sensible tax policies, sensible regulatory policies, property rights and the rule of law, efficient financial markets, and efficient markets generally (so that investors receive efficient price signals to guide their investments). Competition policy clearly can contribute to the last two of these influences.

C. Encouraging productivity improvements and innovation.

Since most of economic growth appears to come from something more than just the accumulation of greater amounts of labor and capital in production processes, $ ^{8} $ encouraging
productivity improvements and innovation is important for growth. Among the things that can encourage productivity improvements and innovation are sensible tax policies, an effective intellectual property rights regime (so that innovators can appropriate at least some of the gains from their innovation), policies to encourage saving and investment (since investments in new capital goods are often the vehicle for productivity improvements), policies to encourage education and investments in human capital, and efficient markets (which will send the correct price signals so as to encourage efficient innovation). Again, competition policy can play a role with respect to this last element.

What about Schumpeter? It is clear that Joseph Schumpeter's notion of "creative destruction" -- major "paradigm changing" innovations that disrupt and destroy existing markets and in their stead create new markets -- has a role to play in economic growth. The revolutionary improvements in data processing, electronics, and telecommunications over the past few decades are testaments to this power. But the conditions that Schumpeter thought were necessary for such improvements -- large enterprises (so as to take advantage of economies of scale in research and development and in the exploitation of the advances emerging from the R&D) that also had monopoly market positions (so as to be able to appropriate the fruits of the R&D process) -- do not appear to be required and indeed may stifle innovation rather than encourage it. $ ^{9} $ Although an economy filled solely with atomistic competitors would likely also not be ideal for encouraging innovation -- some scale is required, and surely the distinctiveness that goes with branding (as well as the property rights that accompany patents, copyright, and trademarks) is also important -- there is a broad intermediate range of competitive market structures that should be conducive to innovation. Also, it appears that the
incremental improvements that often follow a major breakthrough may be at least as important in the measurement of overall productivity improvements. $ ^{10} $

D. Encourage entrepreneurship.

In addition to product and process innovation as a technological phenomenon, the encouragement of entrepreneurship -- especially the entrepreneurship that accompanies innovation -- is another contributor to economic growth. Among the things that enhance entrepreneurship are favorable cultural conditions, sensible tax policies, educational policies, the rule of law, and competitive markets generally (again, so that entrepreneurs are responding to the right price signals). Competition policy can clearly contribute to this last element.

### E. Encourage efficient markets

Efficient markets have been mentioned repeatedly as supporting the other contributors to economic growth. But efficient markets deserve a mention also as a direct contributor, since an economic system with the correct price signals will be one in which firms are encouraged to make decisions not only with respect to static efficiency but also with respect to the investment and R&D decisions that lead to economic growth. Openness to international trade is one important contributor to efficient markets. And competition policy, by directly encouraging efficient (competitive) markets and also by being a "cultural" influence that encourages other government policies (such as regulatory policies) to be oriented toward markets and competitive outcomes, clearly has an important role to play in this respect. $ ^{11} $
"Industrial policy" often stands in juxtaposition with competition policy as the means by which governments can promote economic growth. Although industrial policy, especially in the U.S., was more actively debated during the 1970s and 1980s, it has not disappeared from the policy debate. $ ^{12} $ Accordingly, some discussion of industrial policy is worthwhile. $ ^{13} $

### A. What is industrial policy?

To start, unlike competition policy, there is no standard definition or general agreement on the meaning of the term "industrial policy". Consider the following:

-- "Industrial policy refers to a set of measures taken by a government and aiming at influencing a country's performance towards a desired objective." (Pitelis 2006, p. 435)

-- "Industrial policy means the initiation and coordination of governmental activities to leverage upward the productivity and competitiveness of the whole economy and of particular industries in it." (Johnson 1984, p. 8)

-- "Industrial policy" refers to all policies designed to affect the allocation of resources between and within sectors of the economy." (Lawrence 1986, p.126)

-- "... the term industrial policy indicates the relationship between business and government on a microeconomic level..." (Wachter and Wachter 1981, p. 1)

-- "Industrial policies are concerned with promoting industrial growth and efficiency." (OECD 1975, p. 7)

At these broad levels of generalities, every country has an "industrial policy". After all, governments in all countries have policies that affect the relationships between business and government, that affect the allocation of resources, and that have some objective, often couched in
terms of efficiency, productivity, and/or growth.

Now consider the following:

-- "In current use, the term 'industrial policy' denotes the promotion of specific industrial sectors rather than industrialization overall... Industrial policies are direct, micro, and selective; they are an attempt by government to influence the decision making of companies or to alter market signals; thus they are discriminating... Industrial policy has sometimes sought to support the losers, delaying or retarding their decline; in other cases the goal is to succor or catalyze maturing sectors or to stimulate advancing sectors." (Driscoll and Behrman 1984, p. 5)

This last definition comes closest to the general sense of "industrial policy", of which a condensed version is often expressed as "the government's picking winners and losers". But in the discussion that follows I make references to both the broader descriptions of industrial policy above and the narrower version just discussed.

B. The tensions between competition policy and industrial policy.

Industrial policy -- whether considered as the general governmental intervention in markets or as the specific "picking winners and losers" -- is basically at odds with competition policy. The latter has a market orientation; the former does not.

The U.S. experience is instructive. Though the U.S. does not have a formal industrial policy in the sense of Behrman and Driscoll (1984), it certainly has a patchwork of intervention policies that would satisfy the Lawrence (1986) description. First there are the formal exemptions from the reach of the antitrust laws, including: $ ^{14} $

- Agricultural and fishing cooperatives;

- Insurance:

- Export associations;

- Cooperative research joint ventures;

$ ^{14} $ This list can be found in AMC (2007).
- Newspaper joint ventures;

- Ocean shipping conferences; and

- Professional baseball.

Next, there are a range of federal government actions that are at odds with the spirit of the antitrust laws, including:

- International trade restrictions (tariffs, quotas, subsidies, etc.);

- International investment restrictions;

- "Buy American" policies for government procurement (including, but not limited to, defense procurement);

- Government technological development programs that favor U.S.-based companies;

- Agricultural policies that subsidize and protect domestic farmers and that inhibit competition; and

- Tax and subsidy policies that favor some industries over others. $ ^{15} $

Further, although less prevalent today than a few decades ago, there are formal federal regulatory regimes for transportation industries (air, rail, truck, pipelines), telecommunications (telephony and broadcasting), energy (electricity, natural gas), and finance (banking and securities). In such instances, antitrust policy is superseded by a broader and more vague "public interest" standard that often justifies anticompetitive regulatory restrictions.

Finally, the 50 states have often (although, again, less today than a few decades ago) placed anticompetitive restrictions on a number of industries, including:

- Banking;

- Intra-state trucking;

- Intra-state long-distance telephone service;
- Insurance:

- Licensing of occupations and professions;

- Local taxicab service; and

- Health care.

There are, of course, legitimate "market failure" arguments for modifying market outcomes. These include problems of significant spillovers or externalities (positive or negative) and significant information asymmetry problems. Competition policy should not be expected to encompass remedies for these types of problems, so additional policies are warranted. However, "industrial policy" interventions -- though their supporters sometimes invoke the rhetoric of externalities or information asymmetries -- are usually (at base) primarily about rent-seeking and income redistribution. And even when policies truly are aimed at dealing with externalities (such as environmental pollution problems), rent-seeking often inhibits the development of programs that would encourage competition and enhance efficiency. $ ^{16} $ Despite their recent popularity, "cap and trade" programs (which do encourage efficiency and competition) are still the exception rather than the rule for the U.S.

In the 1970s and 1980s, as economic growth slowed (and Japan's economic strength seemed based on its adoption of a formal industrial policy $ ^{17} $ ), the U.S. seriously debated the possibility of embracing a more formal version of industrial policy (as compared with the patchwork of policies described above)-- but declined the opportunity. Indeed, this was a period of significant movement in the opposite direction: the economic deregulation of industries that had been subject to the formal regulatory regimes mentioned above. $ ^{18} $ As a consequence, the domain of markets and of the application of the antitrust laws is wider today than was true of the 1930s or even of the early 1970s.
Nevertheless, the tensions remain between antitrust policy and that patchwork of intervention that continues to characterize U.S. (industrial) policy.
### V. Advances in Competition Policy

Competition policy should not be static, and in the U.S. it has not been static. In the past two to three decades, especially, American antitrust policy has accommodated new economics thinking and new forms of analysis -- much for the good. This section will first summarize the ways in which economics and economists have influenced U.S. antitrust policy. Next, three specific important advances in (relatively) recent antitrust policy that have been greatly influenced by economics will be discussed. Finally, four areas that still need improvements (and to which economics could likely contribute) will be outlined. $ ^{19} $

A. The influence of economics and economists.

The influence of economics and economists on antitrust in the U.S. has occurred through three broad channels.

1. The development of microeconomics thought. The economics foundation for antitrust policy has been microeconomics generally and industrial organization (IO) economics more specifically. IO economics has its origins in work by Edward Mason and his colleagues and students in the late 1930s and early 1940s in developing the structure-conduct-performance (S-C-P) paradigm as a theoretical proposition and then providing empirical tests of the theory. $ ^{20} $ Data and monographs from the Temporary National Economic Committee (TNEC) in the late 1930s helped in this endeavor.

Over the following few decades the S-C-P tradition was strengthened by further theoretical and empirical developments, and it began to influence antitrust policy. In the 1950s, however, a second strand of IO economics developed at the University of Chicago, under the leadership of Aaron Director. $ ^{21} $ This approach was more skeptical of the S-C-P paradigm, more sympathetic to vertical restraints, and more supportive of unhindered market outcomes.
In recent decades both strands of IO thinking have clearly influenced U.S. antitrust policy. Some specific influences will be discussed in Part B below.

2. Direct employment of economists by the enforcement agencies. Economists have been directly employed by the enforcement agencies in the U.S. for over 100 years. The U.S. Bureau of Corporations, which was established in 1903 and which had economists on its staff, provided valuable research support for some of the early and important antitrust victories by the DOJ. When the FTC was created in 1914, its Economic Department (which eventually became today's Bureau of Economics (BE)) inherited the Bureau of Corporation's research and investigative role, as well as absorbing its specific office accommodations and personnel (including economists).

Until the 1960s, however, economists at both agencies were largely in roles of simple litigation support, with few opportunities to participate in the development of case theories and the formulation of policy. But in the 1960s the tide began to turn. At the DOJ, Donald Turner (the Assistant Attorney General for Antitrust in the mid 1960s, who had a Ph.D. in economics as well as a law degree) established the position of Special Economic Assistant to the Assistant Attorney General and attracted a series of young IO economists to serve one-year terms in the position. $ ^{22} $ At the FTC, the BE was able to attract Ph.D.-trained IO economists as Bureau Directors. $ ^{23} $ But little was done to strengthen the quality and authority of the permanent economics staff at either agency. Reviews of both agencies at the end of the 1960s commented unfavorably on the quality and role of the economics staffs at the agencies. $ ^{24} $

Beginning in the 1970s, however, concerted efforts were made to improve the quality of the economists at both agencies, as well as to increase their numbers. These efforts have continued to the
present time. As of early 2008, the DOJ has 60 Ph.D.-level economists, headed by a Deputy Assistant Attorney General who is usually a leading academic IO economist and who typically serves for two years in the position. At the FTC, the BE is staffed by 70 Ph.D.-level economists (although they spend about a quarter of their time on consumer protection issues), and the Bureau Director is usually a leading academic IO economist who spends about two years in the position.

3. Economists' participation in and writing about specific antitrust cases.

The participation of economists in antitrust cases extends back at least to the second decade of the twentieth century, when the DOJ used an economist (who had been a Deputy Commissioner in the Bureau of Corporations) as an expert witness at trial in its case against U.S. Steel. $ ^{25} $ But the use of economists was not widespread over the next few decades, nor were economists apparently especially interested in writing about antitrust cases.

With the development of the IO paradigm in the late 1930s and the 1940s, however, IO economists began to take an interest in major antitrust cases, at least as outside observers, and to write about them. An antitrust symposium in the May 1949 "Papers and Proceedings" issue of the American Economic Review provides an example of this newly developed interest. $ ^{26} $ An important instance of direct participation occurred when Carl Kaysen, in 1950 as a Ph.D. student of Edward Mason's, was appointed as a law clerk by Federal District Court Judge Charles Wyzanski, to provide economic counseling to Judge Wyzanski in the DOJ's monopolization trial of the United Shoe Machinery Company. Kaysen served for two years in that position and wrote a lengthy report for Judge Wyzanski, which subsequently became Kaysen's Ph.D. dissertation and a book-length monograph. $ ^{27} $
By the 1970s economists were actively participating in antitrust cases more frequently as consultants and as expert witnesses, and then writing about those cases. The IBM $ ^{28} $ and AT&T $ ^{29} $ cases, which were large and lengthy DOJ cases with some accompanying private cases as well, provided fertile opportunities for such participation and subsequent writings, but other suits and investigations also proved sufficiently interesting to yield publications. $ ^{30} $ Since the 1970s economists' participation in antitrust litigation has become substantially more frequent $ ^{31} $ -- rare is the major antitrust case today that does not have one or more economists engaged on both sides -- and articles reflecting that participation also continue to appear. $ ^{32} $

##### B. Important advances in U.S. antitrust policy

There are three $ ^{33} $ areas of U.S. antitrust policy where economists' achievements in helping

(1953), 347 U.S. 521 (1954).

$ ^{30} $ White (2008b) provides an array of examples.

$ ^{31} $ See, for example, Kovacic (1992), FTC (2003), and Barnett (2007).

$ ^{32} $ See, for example, Kwoka and White (1989, 1994, 1999, 2004, 2009).
bring changes are especially noteworthy: merger analysis, vertical relationships and restraints, and predatory pricing. $ ^{34} $

1. Merger analysis. Almost all of modern antitrust merger analysis takes as its starting point the DOJ-FTC Horizontal Merger Guidelines. The Guidelines -- first published in 1982 $ ^{35} $ and subsequently revised in 1987, 1992, and 1997 -- were strongly influenced by economics thinking and by the inputs of economists at the agencies.

The Guidelines establish two approaches under which a merger might be deemed to have anticompetitive consequences: "coordinated effects" and "unilateral effects".

a. Coordinated effects. This is a direct application of the S-C-P model, with some special emphases derived from the writings of George Stigler. $ ^{36} $ The primary concern is that the oligopolistic sellers in the market, post-merger, will be able better to coordinate their behavior implicitly so as to achieve higher prices (or to effect other changes in conduct variables) and higher profits. Seller concentration is measured by the Herfindahl-Hirschman Index (HHI) and occupies center stage (as it does in the S-C-P model) for at least two reasons: First, seller concentration is the most readily measured structural attribute; and, second, the immediate effect of any horizontal merger is to increase seller concentration.

The Guidelines also bring into the analysis the other important features of the S-C-P
paradigm: conditions of entry; the buyer side of the market; the nature and complexity of the product; the transparency of price and of other market information; and the antitrust history of the sellers in the market.

A particular problem of implementing merger enforcement prior to 1982 had been the issue of defining the relevant product and geographic markets. The S-C-P model is silent on this issue; the model simply assumes that an appropriate market has been specified, so that the market shares of the leading sellers provide a meaningful indication of the likelihood that the sellers (post-merger) will collectively exercise market power. The model provides no guidance with respect to delineating the market itself.

The Guidelines address this problem in the following way: $ ^{37} $ A relevant market is a product or group of products that are sold by a group of sellers who, if they acted in concert (i.e., if they acted as a "hypothetical monopolist"), could achieve a "small but significant and nontransitory increase in price" (SSNIP); that SSNIP is designated in the Guidelines as 5% for one year. This "SSNIP test" is equivalent to defining a relevant market as one in which market power can be exercised (or one in which market power can be enhanced). The smallest group of sellers that satisfy the SSNIP test is usually designated as the relevant market, although sometimes a larger market is chosen. These principles apply equally validly to the delineation of product markets and of geographic markets. In essence, the determining factor is whether a sufficient number of buyers would switch away to other sellers -- sellers of other goods and/or sellers that are located in other geographic areas -- so as to thwart the price increase.

The logic of the SSNIP test approach follows from the goal of preventing mergers that could create or enhance market power. The SSNIP test identifies the smallest group of sellers that could exercise such power. $ ^{38} $
This market definition paradigm has proved enduring, and merger enforcement authorities in other countries have adopted similar approaches.

b. Unilateral effects. The 1992 revision to the Merger Guidelines added "unilateral effects" as a second area of concern with respect to the antitrust analysis of mergers. Under this approach, the worry would be that a significant post-merger price increase could occur solely because of the actions of the merged entity, without the need for implicit coordination among the other (non-merging) firms. This unilateral increase could occur if the two merging firms produced products that were moderately close substitutes for each other -- but not perfect substitutes -- and a significant number of the customers of one or both of the firms had as their runner-up choice the products of the merger partner. If the products of all other firms were distant enough "third choices" for these customers, then the merged entity could well find a general price increase to be worthwhile -- and the price increase would be even more likely if the merged firm could identify and target these "trapped" customers and thereby practice selective price discrimination against them. $ ^{39} $

The anticompetitive effects of this type of merger do not arise because of cooperation or collusion among the firms that are situated alongside the merged entity in this differentiated market. Instead, the competitive harm occurs because the merged firm is better able to internalize the benefits of a price increase. For this analysis, the issues of market definition and of market shares are largely irrelevant; what matters is the extent to which customers have the two merging firms as their first and