A Conversation With Lina Khan: Antitrust, Innovation, and China’s Competitive Challenge

FTC Chair Lina Khan discusses anti-trust, innovation, and U.S.-China competition.

This meeting is part of CFR’s China Strategy Initiative.
 

DOSHI: Well, good evening, everybody. Welcome to the Council on Foreign Relations. I’m Rush Doshi, director of the China Strategy Initiative here at the Council. And we’re excited to welcome you all and our distinguished speaker, FTC Chair Lina Khan.

The China Strategy Initiative, which just launched three months ago, is one of four crosscutting initiatives launched by CFR President Mike Froman around which CFR is organizing its work. It might seem a bit odd or unusual for an initiative on China to host a discussion on antitrust, but the policy issues, as you will soon see, in each domain intersect with each other in ways that are increasingly urgent. Domestic policy and foreign policy interact. We all know that. And that’s why, as part of our China Initiative, we’re launched a China Policy Accelerator to think through how to improve the U.S. competitive position not just abroad, but also at home. It's in that spirit that we’re excited for a truly unique discussion that ties together antitrust innovation and China’s competitive challenge with Chair Khan.

Chair Khan needs no introduction, but let me provide one anyway. She leads the FTC, where she works to enhance the nation’s antitrust and consumer protection laws. As FTC chair, she has exercised the full suite of the FTC’s statutory authorities, and worked to update agency tools to tackle new market realities and next-generation challenges. Her priorities include rules to ban noncompete clauses, scrutinizing dominant middlemen across sectors, protecting people’s data, and fighting for Americans’ rights to access affordable high-quality health care. Before joining the FTC, Chair Khan was an associate professor at Columbia Law School and served as counsel to the U.S. House Judiciary Committee’s Subcommittee on Antitrust, Commercial, and Administrative Law. She began her career in antitrust as a reporter and researcher examining consolidation across markets from airlines to chicken farming.

Our moderator, CFR President Mike Froman, also needs no introduction. As you all know, Mike Froman is the president of CFR, has from 2013 to 2017 served as the U.S. trade representative, where he led the conclusion of the Trans-Pacific Partnership and negotiations towards the Transatlantic Trade and Investment Partnership with Europe. Before serving as USTR, Mike was deputy national security advisor for international economic affairs and served as U.S. sherpa to the G-20, among other roles. Mike has also spent time in the private sector at Citigroup, and most recently as vice chairman and president of strategic growth at Mastercard.

Today’s event has attracted quite a bit of attention, I think owing to our very unique topic. We have several hundred people online—more than 500—and almost 200 in the room. So all of you will have a chance to ask questions, although not all of you will be able to ask questions. (Laughter.) In terms of run of show, Chair Khan and Mike Froman, I’ll invite you to the podium in just a moment to engage in a moderated discussion. After that portion is finished, again, it’ll be open for questions.

And with that, let me turn it over to our guest and moderator right now. Thank you. (Applause.)

FROMAN: Well, thanks very much, Rush. Rush joined us just six months ago or so—or, three months ago; only seems like six months—and is the father of his first child, born ten days ago. So welcome. (Applause.)

Welcome, Chair Khan. Thank you so much for joining us. I haven’t gone back into the archives, but I would venture to say you are probably the first FTC chair to appear at the Council on Foreign Relations, and it’s a great subject, as Rush laid out, to really tie together domestic and international relations in a meaningful way.

I wanted to start by giving you an opportunity to talk a little bit about the new approach you brought to antitrust from the traditional sort of Chicago school to the—what do they call it, the neo-Brandeisian Lina Khan school of antitrust, where more focus on competitive markets than just consumer welfare. And I guess my question is, how do you know when you’ve achieved success? With consumer—when consumer welfare was the measure prices were an indication, whether consumers were getting low-priced goods, ultimately through competition. How do you know when a market is sufficiently competitive? And what metrics do you look for in determining whether you’ve achieved success or not?

KHAN: Well, first of all, let me say thanks so much for having me here. Really appreciate the introduction, Rush. And I understand we owe this event to an Amtrak meltdown a few months ago—(laughter)—that resulted in Rush and one of my colleagues finding themselves on a Megabus on some odd hour, and—(laughter)—this event happened. So very grateful for that—(laughs)—

FROMAN: U.S. infrastructure. We’re—(laughter)—

KHAN: —for that fortuitous occurrence. And thanks so much to President Froman for having me—

FROMAN: Mike is fine, I think.

KHAN: —for this very timely and interesting conversation.

So the Federal Trade Commission enforces the nation’s antitrust and consumer-protection laws. And over the last three years under the Biden-Harris administration, we have been revisiting how do we make sure that we are being maximally effective as enforcers.

To go all the way back, lawmakers passed the antitrust laws because they wanted to favor competition over consolidation, the basic idea being that when businesses have to compete they generally produce better outcomes in terms of lower prices, better quality, better innovation. And as a general matter, there was also just a deep aversion to concentrations of economic power, and a fear that if we allowed unchecked concentration in our economic sphere that could really undermine people’s liberties and freedoms. And so in the same way that we have our Constitution and checks and balances in our political sphere, we needed an analogous set of laws for our commercial sphere to really protect those core liberties.

A lot of the reorientation that you are seeing is a direct response to market realities and a recognition that there are a whole set of empirical indicators that suggest that the way we’ve been doing antitrust, we’re not producing optimal outcomes in terms of competitiveness. Just to give a few examples, there is a whole set of empirical research showing that not only are various markets much more concentrated today than they were several decades ago, but margins are higher and markups are higher. And so even if what you’re looking at is a purely consumer-welfare-based metric, some of the outcomes that we’re seeing are even failing on their own terms.

We’ve also seen over the last few years in a very raw way some of the other harms that can result from extreme consolidation and extreme concentration. So, you know, just a couple of years ago we saw shortages nationally of infant formula because we had a single contamination in a single factory in a market that’s become much more consolidated. And across the board we’ve seen how concentration of production can also concentrate risk, and so when you have a single outage or a single cyberattack or some other type of disruption the system as a whole is much more fragile and much less resilient.

And so these are just some of the real-world indicators that have prompted policymakers and enforcers to take a fresh look and make sure that we are tuning our tools to really meet the moment.

FROMAN: I mean, historically the concern about consolidation and predatory pricing was some company would push all the competitors out of the market and then raise prices again on consumers. You wrote—I had—on law review, I had trouble writing a twenty-page note; you wrote a hundred-page opus which I read over the weekend on Amazon, really quite an amazing piece of scholarship. But Amazon’s an interesting case because it is, obviously, a big consolidator, a big platform, but prices are still cheap, and there is competition with Walmart or with other importers of inexpensive goods. To what degree is big itself bad? And to what degree, again, if there’s not the predatory pricing, if you’re not seeing prices go up in a way that hurts competitors, if consumers aren’t getting what they’re needing at the right price, where is the harm?

KHAN: So the antitrust laws in the United States don’t create some kind of cap on a company’s size or on growth; they really distinguish between fair and unfair methods of competing. And so there are certain methods of competing that are totally fair game. And so if you’re becoming dominant in a market because you are bringing the best product to market at the best price, that’s exactly what we want our markets to deliver. If, instead, you are gaining a dominant position through elbowing out your rivals in, you know, unseemly or anticompetitive ways, that’s what, ultimately, the antitrust laws prohibit.

FROMAN: It’s as much process as it is outcome.

KHAN: Yes, and certain outcomes can be indicators for the process. But this really is the heart of the question, is how do you assess what it means for, you know, a merger to substantially lessen competition, for example? And it’s very market-dependent. It’s very fact-specific. You need to understand, you know, in a particular market what are the dimensions on which firms are competing. Sometimes the dimension absolutely is price, but in other markets we see—you know, especially in digital markets—the whole game, especially in the early stages, is to chase scale and build up as much of a userbase as you can, because that’s what’s needed to really activate the flywheel, and really enjoy the accelerated momentum and growth that digital markets can provide. And so in those markets, for example, we do sometimes see firms, you know, saying I’m not going to worry about making a profit right now; I’m going to really focus on chasing scale, building that userbase, and then once I achieve that—you know, that customer base the entry barriers can kick in, and the network effects can kick in; and the self-reinforcing advantages of data can kick in in ways that can create my moat. And then I can worry about, you know, how do I start recouping, how do I start really enjoying this market power that I’ve amassed.

And so, really, the reorientation that we’re seeing right now is in part, yes, responding to some of the empirical realities that we see that suggest we may have missed things in the past, but it’s also about making sure that we are using the right analytical tools and frameworks to map onto the markets and to market realities, and so really have a deep command of: How do digital markets work? What is the business strategy? And how do we make sure that our analysis is actually matching onto those business strategies as opposed to relying on outdated theories or assumptions that just don’t meet what’s happening?

FROMAN: I want to get back to that, and particularly in this context of China. But before we do, maybe we could touch base briefly on Europe. We have a live case of two geographies that went down different paths for antitrust for a while. In 2008, the U.S. and the eurozone economy were exactly the same size, $14 trillion. We’re now 70 percent larger than the eurozone economy. Europe has a growth problem. They have a productivity problem. Mario Draghi came out with his report last week, recommends more consolidation, more mergers in order to compete. Riber, who—Manuela (sic; Teresa) Ribera, who I think is the next commissioner for antitrust or could be proposed for the next commissioner, she gave a speech this week saying that we need to have further consolidation and be able to compete more globally with stronger—with stronger firms. They seem to be heading more back towards the traditional U.S. approach precisely when we’ve been heading a little bit more towards their more robust enforcement approach of Vestager and the rest. What does the European experience tell us about regulation and about antitrust enforcement? And what lessons do you draw about how we have done versus they have done in their economy, accordingly?

KHAN: Well, I might have to disagree with you about what we call—

FROMAN: Please.

KHAN: —the traditional American approach, because the traditional approach has been a deep commitment to vigorously competitive markets. And across U.S. history, we’ve actually seen certain inflection points where there was a debate in the United States as to whether we wanted to coddle our monopolies and really boost our national champions so that they could fight it out on the global stage, or whether instead we wanted to double down on competition. You know, decades ago when the Justice Department was considering one of its lawsuits against AT&T, you had the Defense Department actually say, well, you know, this may weaken us globally.

What, instead, we saw at some of those critical moments was that the United States kept its faith in competition. If you look at the antitrust lawsuit against IBM, the antitrust lawsuit against AT&T, the antitrust lawsuit against Microsoft, each of those ended up unlocking incredible waves of innovation. I mean, we saw the development of the personal computer, the telecom revolution, the whole wave of incredible companies in the early 2000s. And so, you know, compared to companies—compared to countries that instead did follow the national champions model, we ended up coming out much further ahead. I mean, at various points Europe instead decided to double down on national champions. Japan decided to double down on national champions. And across those periods, it was the U.S. economy that was much stronger, that was actually leading to the breakthrough innovations that have allowed us to stay ahead globally. And so, you know, I would say I think we’ve seen other countries flirt with competition and kind of go back to a greater preference for consolidation. The U.S., I think, was, you know, basically experimenting over the last four decades, and now we’re restoring and going back to the more original approach.

FROMAN: Right. But in Europe, as a result, there are hardly any leading tech companies. If you look at—we’re at the Council on Foreign Relations; we look at national security. We produce—we have five major defense contractors. They have dozens across the countries, so more competition. But the result is we’ve got three air defense systems, they have twelve, and they can’t scale them up. They can’t—their defense industrial base is even more difficult than ours to scale up. So it’s a real case where having a difference and having more competition in Europe hasn’t necessarily produced better outcomes, has it?

KHAN: Well, it’s really interesting that you mention the defense industrial base because that’s an area where we’re seen a lot of senior military leaders, senior Defense Department officials really raise the alarm about the ways that industry consolidation is actually creating strategic risks for us. And you know, when you look at the consolidation that we’ve seen in the defense industrial base, we’ve gone from upwards of fifty defense and aero prime contractors back in the ’90s to now, as you mentioned, five.

In certain specific product markets like certain types of missiles, it’s actually closer to three. And we really see how that can create major challenges. The deputy secretary of the Defense Department, Secretary Hicks, has been a real leader in noting the major challenges this creates in terms of being able to ramp up production. The Defense Department has put out reports noting that, you know, they just are less nimble when they have, you know, fewer companies to be able to pick from.

We’ve also seen various reports of significant overcharging of the government and of the public. TransDigm famously was overcharging by thousands of percent for certain spare parts.

We’ve also seen major resiliency challenges. You know, you have situations like a single factory in Louisiana had an errant explosion and overnight the U.S. lost domestic production of a critical type of gunpowder that is a key input into all of these key weapons.

We’ve also seen, interestingly, challenges with the military being able to repair its own equipment and, you know, real impediments to that right to repair, which has also coincided with fewer and fewer players being able to call all of these shots.

So, you know, I would really question whether that degree of consolidation is serving us well. And certainly, you know, top leaders in the Defense Department are really questioning it, too.

FROMAN: There certainly are lots of concerns about our defense industrial base. I’m not sure any of them would trade Europe’s alternative for what we have in terms of the capacity of being able to produce scalable, interoperable weapons systems and defense systems, you know, in the kind of timeframe that we need. And we’re seeing it right now in the context of Ukraine and support for Ukraine. We’re having trouble providing support, but Europe is not being able to step in either.

Let me go to—let me go to China because it relates to that and really depends—goes to the question of how you define the market that we are seeking to compete in. China doesn’t seem to have a problem with big and they don’t seem to have a problem with national champions. And when we’re competing against China, for example, in the race on AI, and the companies that are racing are the—tend to be the big platform companies here who can put tens of billions of dollars into research development and to infrastructure development, how do you view the nature of competition when, if they can’t compete—if they’re not permitted to compete on those terms—we’re going to lose the race to China? And that has broader implications not just for our market and our competitiveness, but potentially for our national security as well.

KHAN: So historically what has allowed us to outcompete globally has been the breakthrough innovations that America has produced. And there’s a longstanding historical debate around what’s better for innovation. Is monopoly better for innovation or is competition better for innovation? And there’s a lot of empirical research around this question, and it really ends up boiling down to: What type of innovation do you want to promote? And it turns out that monopolists and incumbents can be quite good at more incremental improvements, incremental innovations, but historically the breakthrough innovations—the, you know, paradigm-shifting innovations—have come from the disruptors, the outsiders—the startups, the entrepreneurs, the entities that are positioned to see a unique opening in the market or don’t have, you know, the incentives that dissuade them from going in a certain direction because they would cannibalize existing very successful lines of revenue. And so that’s why I think we’ve seen that when we have doubled down on competition and making sure we have markets where the best ideas can win, that’s really what has allowed us to catalyze and get ahead.

Now, look, that doesn’t mean, especially in some of these AI markets, that competition is going to mean a hundred companies or 200 companies in each of these markets, right? We see that some of these markets require just enormous investment, enormous fixed costs, and so we’re not going to necessarily see the same type of flourishing of just the sheer number of businesses as we do in other sectors. But that also doesn’t mean that we kind of need to give up and say, well, monopolization needs to be the way to go.

FROMAN: Right. But a lot of those disruptors, if successful, become these mega-platforms. All the companies we’re talking about who are leading in the area of AI were disruptors within the last two decades, and now they’ve been successful, and now they are, you know, very significant global players that have those resources. It’s that, as you described it, you know, they create the network effect, they create the platform effect. There’s strategic value to a platform effect vis-à-vis a competition of—against China, where it then is a race to see who can build the most compute, who can do the most innovation on algorithms, and AI, and on training in order to win that race. So how—I mean, I get the point that there won’t be a hundred firms, but are we satisfied that with four firms we have enough competition in order to compete with China?

KHAN: Well, look, antitrust is not about some type of central planning exercise where you’re picking the right number of firms and then engineering that, right? I mean, I think that’s more what we associate with countries like China. Antitrust is really about making sure that companies are succeeding by competing on the merits. And so absolutely, you know, celebrating success when it is earned and achieved through producing better products and better services, but wanting to make sure that once companies become dominant they’re not pulling up the ladder behind them, and closing up the market to the next generation of entrepreneurs and innovators that decades from now could similarly scale up to enjoy that success, right?

I mean, if you think about the United States’ case against Microsoft two decades ago, you talk to people at Microsoft and they will point to that antitrust lawsuit as being absolutely critical in dissuading Microsoft from engaging in anticompetitive ways as the Googles of the world were coming onto the market, right? And so that’s what this is really about, is making sure we’re enforcing the laws of fair competition so the next set of founders and entrepreneurs have a shot to bring their great products to market.

FROMAN: Let’s talk about some of the cases. We had Gary Gensler here back in September, I think, of last year. He talked about some of the cases that he’s been bringing. And wins and losses aren’t necessarily the measure of success, because if you’re not pushing the envelope you’re probably not being creative enough as a—as a regulator or a law enforcement agency. But you’ve had some pretty big successes. You’ve had some pretty big challenges in the courts—Microsoft, Meta, et cetera. How does—to go to the management and the FTC and the role, how do you take those, the setbacks? How does that effect how the FTC does its work going forward? And do you worry that if you push the envelope too far either Congress will act or the courts will act in such a way that could set back the evolution of antitrust policy?

KHAN: So I think you’re absolutely right that there are different ways to account for how an agency is being effective, how successful it’s being, and so on, a whole range of metrics. You know, the FTC is being not just historic/reactive, but getting historic number of wins. And so if you just look at our merger portfolio, for example, we’ve racked up over forty abandonments. We have over a 93 percent win rate. If you look programmatically at the types of cases we’re bringing and the types of cases we’re actually winning in litigation, it’s also pretty remarkable.

So, you know, as of a few years ago, the idea of challenging what are known as vertical mergers—or mergers between, you know, companies at different points in a supply chain rather than horizontal competitors—it was viewed as almost kind of exotic, right? One of the kind of shift in assumptions in the ’80s was that these types of vertical deals are presumptively benign, they’re probably going to deliver efficiencies that will be passed on to consumers, and so, you know, we should—we should have a presumption in favor of these deals. Under the Trump administration, the DOJ brought a lawsuit against the AT&T-Time Warner deal, which was the first time in several decades that a vertical merger was challenged. They ultimately were unsuccessful. But since then, I mean, there have been, you know, a half-dozen challenges to vertical mergers, most of which have been at the FTC. We got a historic win in the Fifth Circuit in our case against Illumina-GRAIL. It was the first time in fifty years that the government has won a litigated challenge to a vertical merger. Since then, we’ve seen two additional victories, we’ve seen a couple of abandonments, and then one case is currently being litigated. And so if you just look at that area of law, of the law relating to vertical mergers, just in a matter of you know, under four years we’ve already seen significant advances in how the courts are thinking about these deals.

Last year, the FTC also brought a lawsuit against what are known as some of these serial acquisitions, these rollup strategies. We’ve seen, especially in areas like health care, some of these rollups effectively monopolize markets, but because these dominant positions are achieved through a series of sometimes smaller deals rather than one major deal they can sometimes fly under the radar. So the FTC brought a lawsuit against this anesthesiology rollup scheme that resulted in all of the major anesthesiology providers in Texas being bought up by a single private-equity firm and then the prices being jacked up. We brought that lawsuit in Texas, defeated the company’s motion to dismiss, and now that’s proceeding to trial.

So those are just a couple of examples. I mean, I could name a half-dozen others on our consumer-protection side. But if you look at not just the number of wins but the significance of the wins in terms of how we’re actually advancing the law, you know, I’m pretty thrilled with the progress we’ve already made.

FROMAN: And do you feel you’ve got sufficient bipartisan support in Congress for the approach you’re taking, or do you fear that Congress might act to try and constrain your ability to pursue these kinds of cases?

KHAN: I mean, it’s been really striking to see the degree of bipartisan concern about monopoly power and the bipartisan agreement that we need to invest in vigorous antitrust enforcement. And you know, we hear concern from members on both sides, be it about consolidation among dominant technology platforms that people worry are resulting in squeezing out of entrepreneurs or even stifling of speech. We hear a lot about concern relating to consolidation in the health-care space, be it how it relates to how much people are paying for medicines or whether independent pharmacies can get a fair shake in the market. And so there is, you know, a bipartisan—significant bipartisan agreement around that. Of course, there are also, you know, deeply pocketed and vested interests against this work, and so we see some of those ramifications as well.

FROMAN: Last term, the Supreme Court undid the Chevron doctrine. I know—as I understand it, the FTC hasn’t really relied on Chevron to defend its actions, but what do you think the impact of that decision could be—and other decisions like that—could be on the nature of the administrative state, of which FTC is a part?

KHAN: So we’ve certainly seen over the last few years the courts and the Supreme Court, you know, visit decades-old, sometimes century-old precedents around the role of the administrative state. And so, you know, for federal agencies across the board, we’re having to monitor that very closely. Overall, we are seeing, you know, more skepticism around just assuming that agencies can do certain things and a greater desire to see Congress be very explicit in its delegation to agencies. And so, you know, I imagine we’re going to have to see a shift in Congress in terms of needing to be much more specific when they’re legislating about what they want agencies to do.

You know, when the FTC Act was passed back in 1914, there was a debate among lawmakers about how specific they should be about what types of business practices are prohibited under—prohibited under the FTC Act. Lawmakers ended up going with a prohibition on unfair methods of competition. And as they were debating do we, you know, specify what counts as an unfair method of competition or not, they ultimately decided against it because they wanted the law to be able to evolve and stay relevant even as there were, you know, evolutions in business models and technologies and markets. And so they wanted that institutional durability. If, instead, we’re going to now have courts second-guess that type of broader delegation, then that’s ultimately going to be something that Congress has to revisit.

FROMAN: And do you think Congress can develop the consensus necessary to revisit?

KHAN: You know, it’s an—it’s an open question, and we’ll see how that goes. (Laughter.)

FROMAN: Do they—very diplomatic. Excellent.

One last question and then I’ll open it up to the audience, so please be ready for your questions.

In the case of antitrust, like trade policy, like industrial policy, this administration has sort of questioned some fundamental assumptions of previous approaches and introduced some innovative, you know, strategies. For a long time, all those areas were really founded on the notion of efficiency. And indeed, the whole kind of economics profession was founded on the notion of efficiency. And now we have come to the conclusion that efficiency is one important value, but so is resilience or redundancy or diversification or national security, and how do we think about balancing those different values.

As you look across antitrust and these other areas, what do you think the limiting principles ought to be or the guardrails ought to be in terms of how we balance efficiency against these other values? Because by definition anything other than efficiency is going to be more expensive for somebody, ultimately for the consumer.

KHAN: Yes, though I think what we’ve seen in antitrust is that, you know, certain consolidation that was allowed premised on efficiency ultimately—

FROMAN: Turned out not to be.

KHAN: —didn’t deliver on the efficiency. Or even if it did, it didn’t actually get passed on to consumers because you had eliminated the competition that would incentivize firms to pass on those savings. So I think there are a bunch of assumptions even embedded in the idea that if you promote efficiency it’s always going to lead to lower costs.

Ultimately, this is a policy determination, right? If you have different values, different goals, what does it look like to balance those? How do you manage these tradeoffs? Thankfully, that’s not my job; that’s something for Congress to—

FROMAN: But it’s implicit in each of your decisions, right, because you’re deciding a certain—or do you think that all your decisions ultimately deliver efficiency?

KHAN: Well, ultimately, we are limited by the laws that we enforce. And the laws that we enforce focus on: What’s an unfair method of competition? What’s a merger that may substantially lessen competition? What’s monopolization? And so it’s really about competition. And there are different benefits of competition, one of which can be certain types of operational efficiencies, but it’s not the only one. And so what we don’t use is use—you know, what we don’t do is use a certain single metric of efficiency as a proxy for competition. We seek to understand how is competition manifesting in a particular market and how do we make sure it’s not being illegally diminished.

FROMAN: Terrific.

All right, let me—let me open it up. Yes.

Q: Thank you very much. Joseph Gasparro, Royal Bank of Canada. President Froman, great conversation as always.

FROMAN: Could you stop calling me “President Froman,” Joe? (Laughter.)

Q: FTC Khan, thank you for—

FROMAN: You know, as I said, only my children are required to call me “Your Excellency,” so. (Laughter.)

Q: On, you know, one end of the, you know, broader spectrum, you want global, you know, regulatory harmony, international cooperation when it comes to regulation. But on—at the other end of the, you know, spectrum, is there some importing of potential European regulation where the U.S. has the, you know, most liquid capital markets, the biggest? Or potentially, are there, you know, sometimes sort of like SEC disclosures that the U.S. is, you know, importing what the European Union is doing as opposed to setting their own standards? Thank you.

KHAN: So I can speak to antitrust and competition, where the United States has been a global leader, right, in terms of originating the antitrust laws, and that then being followed across various parts of the world. We have seen other jurisdictions adopt more regulations in particular areas, including in digital markets, and I think that’s because there’s been a recognition in some areas that competition alone may not be sufficient to discipline the market power.

And historically, we’ve had at least two paradigms for thinking about markets. One is that competition is going to be sufficient to discipline any achievement of market power; and the other is the recognition that there are certain markets and industries that are so prone to economies of scale that it’s—competition is not going to be sufficient, and instead we need certain rules like nondiscrimination rules, like structural separation rules that limit the ability of, you know, railroads to enter certain markets or banks to enter certain commercial markets, interoperability provisions. And so, you know, it’s been interesting to see other countries adopt some of those approaches, but it’s also been interesting to see in the United States lawmakers consider whether we need more of that ex ante toolkit in digital markets as well. Ultimately, that’ll be something for them to decide. But there is also a long American tradition of those types of tools, be it in, you know, railroad thinking or areas like telecom. And so I think this is a debate that’s still happening.

FROMAN: Let’s go to a(n) online question.

OPERATOR: We’ll take our next question from Fred Hochberg.

Q: Thank you, Mike. I won’t call you anything but “Mike” after all these years.

FROMAN: Thank you.

Q: This is a great conversation. And, Lina, you know, I chaired the Export-Import Bank when I was under President Obama. I often thought about competition, as Mike has brought up. If we’re competing with China, do we—should we only be looking at the domestic market? I think about airlines, banks; if we don’t have enough scale, we really aren’t competitive on a global market. That may hurt some of our domestic market, but it may—we have to look at is the market the domestic market or is it the global market, because scale there is very different than scale in our country, whether it be airlines, banking, and so forth. And with—I don’t know, are you looking at things like margin determining whether it’s a(n) efficient market or not? I just—I don’t know how you do this on a global—on a global scale.

KHAN: So that type of analysis is just very market-specific. And so, for example, in, you know, various oil mergers, the FTC has noted that that market can be global, right? And one of the key ways to determine, you know, what is the boundary of a market, which ends up being an extraordinarily technical part of the antitrust analysis, is trying to understand whether certain players, you know, if they had certain kind of power, could end up enjoying price increases without necessarily being disciplined by firms within the contours of those markets. So it’s a very technical analysis and very market-specific as a general matter.

But ultimately, our job as U.S. enforcers is to protect the United States public from things like mergers that may substantially lessen competition. And so it’s true that when we are doing this work we are not thinking about, you know, people outside of the United States as we’re thinking about, well, even if this merger lessens competition in some of these domestic markets maybe that’s OK because globally, you know, things will be better. Unless some of those global players are actually positioned to discipline the exercise of market power in the United States—for the public in the United States, you know, it’s not as relevant.

FROMAN: But don’t you have to? To use—to take Fred’s example of China, if China is going to compete through national champions, including in our market, if the only way to compete is for us to have more consolidated, larger players who can invest, can’t—don’t you have to take into account the China piece of that?

KHAN: So, again, it very much depends on the market. We look at, you know, who are the players in the United States. If there are corporations based elsewhere, that is part of our analysis. But as a general matter, you know, we’re trying to understand if, for example, this merger were to go through, would they be able to exercise any market power in ways that wouldn’t be disciplined by other players in the market. And so that’s at its core the type of analysis we do.

FROMAN: Right.

Yes, gentleman right here.

Q: Thank you, Chair Khan and—President Mike? We OK with President Mike? All right. (Laughter.)

FROMAN: They’re just teasing me.

Q: My name’s Munish Walther-Puri. I’m at the Institute for Science and Technology. Thank you for a robust discussion.

You talked about some of the lessons from railroad, banking, telecom. Could you talk about—in the vertical layers of AI there’s concentration in each of those—semiconductors, datacenters, frontier models, open-source packages, you could go on. There’s concentration in each of those. Could you talk about how you see AI as a market? Is it a new market? Is it part of the others? Is it—is it its own market? How are you thinking about that just in the context of your—what you just said as well? Thank you.

KHAN: Yeah. It’s a really interesting question. And we’ve been really making sure we have the skills internally to ask those questions. So since I joined the FTC, we actually have launched a new Office of Technology and we’ve, you know, hired over a dozen technologists like data scientists, data engineers to make sure we have the technical skill to really dig in and understand some of these issues.

You know, we’re looking at the AI stack layer by layer, and so understanding what are the key inputs, what are the current competitive conditions for each of these inputs. And especially as we see either flat-out vertical integration or certain partnerships and investments vertically, how do we make sure that those are not distorting competition. And so, you know, how do we make sure that some of these partnerships are not going to result in exclusionary or privileged access in ways that may lock out some actors and bake in others? We’re currently doing a market inquiry into that very thing. We have heard concern about, you know, consolidation and concentration at the cloud level and some of the contractual restrictions that come with that. We published some findings of a market inquiry that we did in that vein. And so it’s very, you know, layer by layer to try to understand what are the key economic properties of this input, which also could help us understand what is the optimal, you know, competitiveness of this layer and how do we make sure that it’s not unduly tipping.

FROMAN: Yes, this one right here.

Q: (Off mic)—you very much. Valerie Grant from Nuveen.

I wanted to circle back to the statement you made that part of your remit is to protect the U.S. public. And I wanted you to maybe distinguish the U.S. public from the U.S. consumer, particularly, again, in the area of technology, where many of the services are actually free to consumers. So how do you think about the, quote/unquote, “harm,” and to whom?

KHAN: Yeah. It’s an interesting question. And so we’ve certainly seen that in digital markets some businesses have chosen to price their services at zero dollars. The way they’re monetizing those services is through, you know, deep data collection on specific individuals. And just this week, the FTC released some findings from a market inquiry we did really unveiling a staggering degree of surveillance that happens on each individual and just how that data gets used in all sorts of unexpected ways. So I wouldn’t want to just assume that there is no harm there in terms of some of the data collection that we’re seeing.

More generally, though, you know, the mandate of the antitrust laws is to protect competition, and we assume that competition serves consumers in a host of ways. It can serve them through, you know, lowering prices, through ideally delivering, you know, privacy-enhancing services. But ultimately, it can also serve consumers by promoting innovation, and by making sure that a market is open to the next best and greatest ideas. And so that’s why, you know, you can use particular welfare metrics for particular market participants as inputs into your inquiry, but I think there are risks if you make that the beginning and the end and the whole story because, again, there are going to be a whole set of metrics that you want to look at depending on the market.

FROMAN: Go to an online question.

OPERATOR: We’ll take the next question from Balaji Narain.

Q: Good evening, Chair Khan. Thank you for your time this evening. This is Balaji Narain from the congressional biotech commission.

And my question relates to how you assess the legal landscape and how are you taking that into account. So a few minutes ago you discussed the Supreme Court ruling that’s overturned the Chevron precedent and the potential need for clarity in statutory drafting. But even without further congressional action, you have a job to do. So how does this legal context and the risk of judicial skepticism factor into your thinking about what rules to promulgate or what actions to take? Thank you.

KHAN: So taking stock of the legal landscape and, you know, making sure we are closely reading all of the latest decisions is just a core part of what the agency does, and it is a key input as we’re deciding what are the scope of certain rules, how are we crafting our enforcement actions. You know, we’re monitoring all of that quite closely.

I will say that the FTC promulgates its competition rules. First, it went to the Administrative Procedure Act. But for consumer-protection rules, we actually have a different statutory regime—it’s known as the Magnuson-Moss set of procedures—which require us to jump through more hurdles but also have embedded in the statute greater deference that we are owed from the courts. So, you know, it’s going to be a very statutory provision-by-provision-specific analysis.

We have been promulgating a whole set of consumer-protection rules. Just earlier this year we finalized one that prohibits impersonation of the government or of legitimate businesses. One of the largest sources of fraud that we get reported is people pretending to be an IRS agent or a Social Security administrator and saying, you know, you owe thousands of dollars, and wire it over or we’re going to arrest you. So we finalized a rule that would allow us to levy penalties on those types of fraudsters. We also just finalized a rule that prohibits fake online reviews and testimonials, which has become a scourge, and AI actually risks turbocharging it as, you know, it’s much cheaper and you can do this much more quickly, this dissemination of fake reviews. We’ve proposed a rule that would require that companies make it as easy to cancel a subscription as it is to sign up for one, given that we’ve seen as more and more firms are—

FROMAN: I could use that. (Laughter.)

KHAN: As more and more firms are, you know, depending on some of these subscription-based business models, unfortunately we have seen tendencies for firms to make it more difficult to cancel. So, you know, we’re very confident in our legal authority to be promulgating all of these rules.

FROMAN: Great.

Somewhere in the back. Yes, this one about the fourth row from the back. Yeah.

Q: Hi. Thank you. Emily St. Omer Roy from Davidson Kempner.

I was hoping you could talk a little bit about to what extent your thinking may have evolved as it relates to the willingness to accept remedies on proposed mergers that might have more limited problems than some of the others.

KHAN: Sorry, could you say that last part again?

Q: To what extent your thinking have evolved around accepting remedies on some of the proposed mergers that may have smaller problems than others.

KHAN: So this is a good question and relates to, you know, when we are reviewing mergers, how do we determine if we think the merger is outright illegal or whether there might be some type of fix that we may want to codify through, basically, a settlement. And you know, there’s been a lot of lessons learned over the last couple of decades. There was a period where enforcers were much more skeptical of any type of remedies, then there have been periods where enforcers have accepted remedies. And there are kind of two shorthands for how to think about remedies.

One bucket is known as structural remedies, which usually involves certain types of divestitures. And so you’re spinning off certain assets and basically trying to stand them up as a standalone business.

And then there are what are known as behavioral remedies, which basically don’t structurally change the incentives of the firms but it’s just the business agreeing that it won’t use its power in certain ways.

We’ve, unfortunately, seen remedies in each bucket fail, and sometimes fail catastrophically.

With behavioral remedies, there are a lot of just initial problems with being able to administer those. There are huge information asymmetries between enforcers and these businesses, and so it can become very difficult to ever prove whether those behavioral commitments are actually being violated.

On the structural side, we’ve seen that, you know, sometimes remedies that were done, especially when they were resulting in major restructuring of the underlying transaction, really ended up failing, sometimes catastrophically. And so we’ve seen instances where there were certain spinoffs, and then the firm—the assets that were spun off ended up failing within a few months, and ended up being bought up by the merging companies, sometimes at a discount. We’ve seen that, you know, more than once, unfortunately.

And so we’ve just tried to make sure we’re learning from those experiences. And so think about, you know, as firms are proposing those types of remedies to us, what is our list of red flags? And how do we make sure that this is not, you know, checking off many of those red flags, including, you know, is this basically a major restructuring or is it really a smaller part of the underlying transaction? Is the buyer of these assets going to be, you know, scaling up by 10X overnight, or is this a proven buyer that we know would actually already have the scale and experience to really flourish with these assets? So, you know, we have a full set of questions now in place that we ask that are directly informed by those experiences.

FROMAN: Great.

Yes, right there.

Q: Hi, everyone. My name’s Allie Funk. I’m with Freedom House.

I would love to hear your thoughts about the Digital Market Act in the EU and whether you think folks in Europe got the tradeoffs right under that. And then, also, how do you understand the DMA to reverberate globally, and particularly the impact on U.S. consumers?

KHAN: Yeah. It’s an interesting question. I mean, I don’t—I don’t know the answer to how it’s going to reverberate in the U.S. As part of the study that we just released on the social media and video streaming companies, one of the findings there was actually that the protections that Europeans enjoy under GDPR are actually not extended to U.S. consumers. I think there was a view at the time that, you know, GDPR is effectively going to create a floor globally, and so the U.S. in function will enjoy those protections. Well, we found when we looked under the hood that that’s just not happening. So the protections that Europeans enjoy under their law are not ones that by default are being extended to Americans. So, you know, I don’t know how much to extrapolate from that to this example.

On the DMA, I mean, you know, I think this is a really fascinating moment globally. As we get the chance to meet with enforcement partners across the world, a lot of us are grappling with very similar questions, especially relating to digital markets. And for those regimes and jurisdictions that are able to go forward with certain digital-market-specific rules, it’s just a learning experience, you know, both from a policy perspective but even when it comes to remedies, and what might be administrable, what might work and not work. So I think it’s just a moment of observing how this stuff is unfolding and figuring out what we can learn from that.

FROMAN: Do you all get together, all the antitrust regulators, in some smoke-filled room and—(laughter)—decide what the structure or markets is going to be together? (Laughter.) But in all seriousness, I remember when I was doing trade negotiations sometimes people would put antitrust issues on the table. It’s always very hard to get—in this case it was more DOJ, I think, than FTC—to want to sit down and collaborate with their European or their Japanese counterparts. Is that sort of happening more regularly now?

KHAN: I mean, we have great relationships with partners across the world. And I think some of those partners have been quite struck by the reorientation in the United States, because I do think there were various moments over the last couple of decades where a more vigorous approach by some jurisdictions was actually looked down upon by the United States and there was an effort to, you know, encourage other jurisdictions to follow our model of sometimes being more hands-off. And so I think they’re adjusting now to a newer regime where we’re, you know, actually doubling down on being more vigorous, and so you see that reflected in the relationships.

FROMAN: We have another online question?

OPERATOR: We’ll take the next question from Hani K. Findakly.

Q: Thank you very much. I’m Hani Findakly from Clinton Group.

I have a question about—by the way, it’s an excellent discussion. Thank you so much. I have a question about the proposed acquisition by Nippon Steel of U.S. Steel and I wanted to know—there’s been opposition to that by the administration. I wanted to know what the theory that governs that. Is it antitrust, is it national security, or is it economic? Is there a concern, however, that with only $8 billion in capital that U.S. Steel can remain competitive and innovative?

KHAN: So I’m not able to talk about specific transactions. I will note, though, that one is actually being reviewed by the Justice Department, not the Federal Trade Commission. As has been publicly reported, in addition to the antitrust review, there is also a CFIUS review which takes into account other kind of national security-type factors. So we’ll defer to those colleagues to carry this through.

FROMAN: I probably should have said that up front, that if any of you have a specific case, do not raise it, please. (Laughter.)

Yes, right here, third row.

Q: Hi, Vanessa Gomes from Standard Chartered.

It would be great to hear your views, opinion about the EU Carbon Border Adjustment Mechanism and how that applies here.

KHAN: Any more specific color on that?

Q: Your broad view and how that could impact U.S. economy and organizations.

KHAN: I’m not really sure. I mean, I think there are other parts of the government that are much more focused on those types of questions. You know, one set of issues that we do get asked about sometimes is, how do antitrust enforcers think about environmental goals or sustainability goals? Or are we ever in the business of saying, well, you know, these mergers look problematic from a competition perspective but we think they’ll check the box on certain sustainability goals and so we’re going to allow those to happen. That’s just not part of our remit, our mandate at all. We cannot kind of import climate goals or sustainability goals into our mission. It’s really about competition and making sure competition is not being undermined. If there are other policymakers that think for, you know, other policy goals we need to adjust how we do antitrust or competition, you know, we defer to them. We do sometimes hear concerns about how, in some of these, you know, markets for more sustainable energy—concerns about whether they’re going to be able to really fully compete or whether they’re going to face challenges, given some of the incumbents. So that’s where our works can sometimes end up being relevant. We do also police fraud and, you know, predatory contracting in areas like solar, so as more and more Americans are, you know, wanting to switch to solar, we see, unfortunately, some types of predatory financing and so we’ve brought some law enforcement action there.

FROMAN: Is there a tension between not supporting national champions and what all that means for competition and policies around industrial policy and chips and in EVs of indeed channeling public dollars to specific companies in order to enhance, you know, their investment?

KHAN: Yeah, it’s a very interesting question and I think it depends on how you do it. How do you structure these grants and subsidies? I think it’s been quite notable that in several areas there have been pretty explicit pro-competition measures embedded, and so when you think about, you know, some of the EV charging stations, you know, there’s interoperability that’s being promoted there to make sure they are not going to have that type of lock-in. So I do think it matters, you know, what types of strings are you attaching here, and can you attach strings that are going to promote competition rather than consolidation?

FROMAN: Yes, in the back, the gentleman.

Q: Hi, Dan Katz with the Manhattan Institute.

Can you just quickly give us your reflection on the role of opening U.S. markets to foreign firms and its impact on promoting or hindering competition domestically?

KHAN: Just as a generic matter, opening up the U.S. market to firms globally?

Q: (Off mic)—generally?

FROMAN: I swear I did not pay him. (Laughter.)

KHAN: So I think there’s been a very robust conversation around trade policy these last few years and Ambassador Tai has spoken quite eloquently about how she and the president and the administration are thinking about crafting a trade policy and making sure we’re thinking about, you know, not just how do we make sure things are cheapest but how are we ensuring the overall well-being of Americans? And so when we have, you know, massive hollowing out of certain parts of the United States, how do we make sure we’re accounting for that in some of these trade policies? The idea of wanting to account for resiliency, especially as we think about our supply chains and how that implicates our trade relationships, also seems to be an important theme. So I think those are some dimensions. You know, from an antitrust perspective, there’s some interesting conversations going on, and I think especially with digital markets and some of the surveillance capabilities of these players, I think it raises interesting questions about who is sharing what data with what potential foreign adversary and is that creating certain types of risks that we need to guard against? And so, you know, that’s an area where we see in our work some of these types of questions come up.

FROMAN: Great.

Yes, right here on the aisle.

Q: Good evening. David Nachman from Letitia James’s office.

You mentioned deep-pocketed special interests and you’re a disrupter and it’s understandable that those deep-pocketed special interests whose ox you gore have a response of fear and loathing when they hear the two words Lina Khan—(laughter)—which is—you know, you don’t need to just read the Wall Street Journal for that evidence. But why does the investor class, the hedge funds, why do you think that investors, holders of large capital, also have expressed such hostility to your mission at the FTC over the past two or three years? You would think that investors are neutral and that the values you talk about—competition and the things that it promotes—would be pretty American. But it doesn’t seem to go over that way with large segments of the financial class. Do you want to reflect on that? (Laughter.)

KHAN: Well, that’s probably a question that’s better suited to some of the entities you’re referencing. (Laughter.) Look, as a general matter I think we’ve seen—you know, when you see greater scrutiny of mergers, you can see greater deterrence of illegal mergers. You know, we’ve seen senior deal lawyers go on CNBC and say, you know, several years ago, as we were putting together deals we would not really talk about or think about antitrust, maybe it would come up at the very, very end, but now potential antitrust risk is part of the conversation on day one. As a law enforcer, I want people to be thinking about whether their deal is going to violate the law or not going to violate the law and so that’s progress, but I think if you’re looking at it from, you know, the prism of deal fees and that sort of thing, I can see why it might be upsetting. (Laughter.)

I think more generally—you know, there is this empirical question as to how antitrust enforcement affects venture capital and, you know, you can imagine two hypotheses: one is that greater antitrust enforcement is bad for greater venture capital investment and startups because it’s, you know, closing off exit options. There’s another hypothesis that says, well, actually greater antitrust enforcement could be good because it would mean that the startups would have a greater opportunity to compete in the marketplace and scale and become successful themselves.

Honestly, I haven’t seen a ton of empirical scholarship and assessment of that question. There was a really interesting paper earlier this year that, based off of somewhat of a natural experiment when the Justice Department closed certain field offices found that declines in local antitrust enforcement actually corresponded with declines in venture capital investment and corresponded with a decline in successful exits for the startups. So, you know, I think this is a really interesting area for more scholarship so we can have a discussion based on actual empirics. I also think that even if you are a startup that wants an exit, a market where you have, you know, nine or ten or eleven potential buyers is going to be better for you than a market where you just have one or two. And so, over the long term, creating a more competitive marketplace, I think, is going to serve them too.

FROMAN: Well, I think it’s clear that Chair Khan has demonstrated that to be a regulator and law enforcer, it’s not a popularity contest, but it is an opportunity to have a big impact on the U.S. economy. We are very grateful for you spending time and sharing your perspective. (Applause.)

KHAN: Thank you so much.

(END)

This is an uncorrected transcript.