News from: CalChamber

Is the California free market sufficiently competitive, or should the Legislature and courts make new rules governing the state’s $4 trillion economy? This complex question is under investigation by a state commission and the possible subject of legislation in 2025.

In August 2022, the California Legislature enacted ACR 95, a bill directing the California Law Revision Commission (CLRC) to study “new prescribed topics relating to antitrust law and its enforcement.” The California Chamber of Commerce has been closely monitoring and providing comments on this policy development effort and has urged the Commission to refrain from recommending any new legislation without first establishing a unique need for a separate legal framework and conducting a cost-benefit analysis of the economic effects of such far-reaching proposals.

The Commission already assembled and directed working groups to provide insight on various subjects related to antitrust, such as targeting single firms for new California regulation, and examining the extent of industrial concentration in California. CalChamber strongly urged the Commission to reject separate regulation of single firms, since its proposal fails to distinguish between what is and what is not anticompetitive and rejects over a century of federal and state precedent designed to identify truly anticompetitive conduct.

A just-released report by a national economic firm undermines a key argument defining the “monopoly problem” in California. The report cites a “deeply flawed” principal talking point used by those who advocate for new, sweeping regulation of business organization.

According to experts with NERA, the mistaken premise of “industrial concentration” is a misleading and an unworkable benchmark of monopoly power. These experts assert that trends in industrial concentration “should play no role in guiding antitrust policy in California, any other state, or the United States” because concentration is neither a growing phenomenon, nor has been demonstrated to itself reduce competition in markets or harm consumers.

The Motion Picture Association recently released an economic report also repudiating the Concentration Working Group’s conclusion that the audiovisual sector is implicitly uncompetitive because it is “overly concentrated.” In fact, the report found, “The audiovisual industry is a dynamic and highly competitive industry with numerous participants providing an increasingly diverse array of content across new and innovative delivery platforms, benefitting consumers.”

The NERA report dug deeply into the trend by advocates to point to industrial “concentration” as evidence that markets are not competitive. Far from it, concludes NERA. The experts found that:

• No evidence exists suggesting that concentration in the U.S. has risen to “excessive” or “harmful” levels.
• Industrial concentration is not a useful benchmark of monopoly power.
• No empirical evidence exists demonstrating industrial concentration trends in California.

The authors conclude that:

Trends in industrial concentration should play no role in guiding antitrust policy in California, any other state, or the United States. We also caution that anecdotal or ad hoc claims regarding concentration are not a substitute for rigorous empirical analysis and should be rejected. Basing policy decisions on unfounded claims of increasing and excessive concentration has the potential to do serious harm to the California and U.S. economies.