Antitrust Law and Regulatory Gaming

Antitrust law promotes competition in the service of economic efficiency.Government regulation may or may not promote either competition orefficiency, depending on both the goals of the agency and the effects ofindustry "capture." Antitrust courts have long included regulatedindustries within their purview, working to ensure that regulatedindustries could not use the limits that regulation imposes on the normalcompetitive process to achieve anticompetitive ends. Doing so makes sense;an antitrust law that ignored anticompetitive behavior in any regulatedindustry would be a law full of holes.The role of antitrust in policing regulated industries appears to bechanging, however. A cluster of Supreme Court decisions in the past decadehave fundamentally altered the relationship between antitrust andregulation, placing antitrust law in a subordinate relationship that, somehave argued, requires it to defer not just to regulatory decisions butperhaps even to the silence of regulatory agencies in their areas ofexpertise.Absolute antitrust deference to regulatory agencies makes little sense as amatter either of economics or experience. Economic theory teaches thatantitrust courts are better equipped than regulators to assure efficientoutcomes in many circumstances. Public choice theory - and long experience- suggests that agencies that start out trying to limit problematicbehavior by industries often end up condoning that behavior and eveninsulating those industries from market forces. And as history has shown,relying on regulatory oversight alone without the backdrop of antitrust lawwould leave both temporal and substantive gaps in enforcement, whichunscrupulous competitors could exploit to the clear detriment of consumers.The mere existence of a competition-conscious regulatory structure cannotguarantee against abuses of that structure, or against exclusionarybehavior that falls just beyond its jurisdiction. Indeed - and perhapsironically - the very regulatory structure that exists to promotecompetition can create gaming opportunities for competitors bent onachieving anti-competitive goals. Such "regulatory gaming" undermines boththe regulatory system itself and the longstanding complementaryrelationship between regulatory and antitrust law.We argue that the risk of regulatory gaming provides an important exampleof the need for ongoing antitrust oversight of regulated industries. Wedefine regulatory gaming as private behavior that harnesses pro-competitiveor neutral regulations and uses them for exclusionary purposes. We identifythree possible instances of regulatory gaming: (1) product-hopping, inwhich the branded company makes repeated changes in drug formulation toprevent generic substitution, rather than to improve the efficacy of thedrug product; (2) manipulation of government standard-settingorganizations; and (3) claims of price squeezes by partially regulatedindustries.Our goal in this paper is not to persuade the reader that these particularexamples of regulatory gaming do or do not violate the antitrust laws.Rather, our point is that whether or not particular acts of regulatorygaming harm competition is and should be an antitrust question, not merelyone that involves interpreting statutes or agency regulations. Some levelof antitrust enforcement - with appropriate deference to firm decisionsabout product design and affirmative regulatory decisions that affectmarket conditions - provides a necessary check on behavior, such as producthopping, that has no purpose but to exclude competition.