Culture,Economics,and Antitrust

I. Introduction

“Antitrust” is a word that confuses people. Most of the world prefers, quite understandably, to speak of “competition policy,” and I do, too. ¹ The distinctly American word, “antitrust,” is a historical relic derived from the legalistic form that was used to create corporate holding companies, for example, the Standard Oil Trust or the Tobacco Trust, in the post–Civil War era. Sometimes it was spelled with a hyphen, “anti-trust,” clarifying that this was legislation in opposition to the large trusts that were then appearing on the scene. I will suggest, however, that the originally unintended meaning—treating “trust” as in “trustworthy”—is actually quite useful in thinking about competition policy. Consider for a moment the most widely approved function of antitrust law today: stopping cartels. Cartels are based on trust among the conspirators that they will cooperate with each other rather than compete on certain key terms of trade such as price or output. The antitrust enterprise aims to deter and break down that trust. The extremely effective policy of granting leniency to whistleblowing conspirators is specifically directed at causing distrust and defection. It is literally a policy of anti-trust.

Is this just wordplay? In this essay, I will reflect upon the importance of trust, as an example of a cultural value, in the operations of economic institutions in which competition policy is embedded. This will entail recognizing the intertwining of competition and cooperation, which in turn will lead to a functional appreciation of antitrust as a state’s authoritative determination of the legitimate roles of both competition and cooperation in the economic realm. Recognition of the role of cultural values such as trust will be shown to modify the universalistic concepts of neoclassical economics based on the model of the rational self-interested man. Sensitivity to the cultural aspects of competition and cooperation places constraints on overly optimistic expectations for global harmonization of antitrust enforcement.

Section II of this article begins with a discussion of the meaning of trust as an aspect of culture and its importance in economic life. Section III, “From Darwinistic Competition to Cooperation,” draws on a range of academic disciplines to introduce the relationship between competition and cooperation. Section IV asks whether there can be too much of either competition or cooperation, concluding that some type of a balance is needed. In the Section V, the article reviews the concept of social capital, which includes trust, and its role in economic theory. The sixth section takes a short break from more theoretical considerations to illustrate ways in which the trust factor may be relevant to competition policy involving the Internet. Section VII discusses cross-cultural data, trust, and competition policy. Section VIII—“trust and antitrust”—identifies ways in which trust affects various aspects of competition policy: vertical integration, cartels, mergers and acquisitions, dominance and firm size, the role of the state and “the missing middle,” growth orientation, and trade. Section IX provides the example of Abuse of Superior Bargaining Power (ASBP), an anticompetitive claim within a vertical buyer/supplier context that is recognized by some of our major trade partners but not by the U.S., to indicate how trust and other cultural values can influence the assignments of competition and cooperation. Section X raises complexities that occur in thinking about the relationship between competition and cooperation. It proposes the heuristic value of a spectrum from individualism/competition toward collectivism/cooperation, onto which can be displayed a state’s chosen treatment of various categories of economic behavior. Section XI provides concluding remarks.

II. Trust: Meaning and Importance

I was walking on a beach with an old friend about a dozen years ago and we were discussing our respective retirement plans. He had invested, through an intermediary, in a fund that was paying him a handsome 10% annually, every year. “How could I get into this?” I asked somewhat greedily. “Not so easy. You have to know Someone.” A few years later it turned out that the Mr. Someone he knew was an acquaintance of one Bernie Madoff. My friend is still hoping to recover most of his initial investment. He had trusted his friend, who had what is known as thick trust in Bernie. That is, it was a situation of one individual evaluating the character of another, personally. My own friend’s knowledge of Bernie, however, was indirect, an example of comparatively thin trust. In both cases, however, the direct and indirect trust were misplaced. The problem: Madoff was not trustworthy.

The modern world would not function without high levels of trust, by which we must include not only trust in known individuals but also in systems and institutions. Consider the levels of trust required when one boards an airplane. Potential doubts abound. Will the pilot be a sober, well-trained and quick-witted hero in the image of the legendary Captain Sullenberger, who safely parked his engine-less plane on the Hudson River after flying into a flock of birds on takeoff? Were the mechanics not only technically competent but also resolutely focused as they maintained the plane? Will the air traffic controllers not be distracted or tired? And so on. The levels of trust here, as in so much of modern society, are very thin indeed; some have even referred to this as forced or coerced trust. ²

The efficient functioning of government and the economy often depends on trust, a major facet of the cooperation that underlies common undertakings of all sorts. ³ Tax revenue, rather obviously, is essential to a government’s ability to influence its economy and achieve the government’s public purposes. Institutional factors such as law and its enforcement also clearly affect the collection of taxes, but without citizens’ trust that most fellow citizens are also paying their share, how many would consistently make an effort to pay their own taxes honestly? The trusting assumptions also include that the government is trustworthy in its handling of your money and that the government will identify and prosecute those who cheat. ⁴ Thus, the rule of law, the absence of corruption, the threat of punishment, and the concept of free riders are brought into play as influencers of what we would commonly speak of as trust. We need to admit at the outset that segregating trust from other motivations, aspects of culture, and various sorts of institutions is not always simple.

The very concept of money as a medium for exchange in a market economy depends on trust that a symbol will be backed by consistent value, requiring faith in the issuing authority and the general stability of the social order. ⁵

The social scientist Francis Fukuyama, in a fascinating book titled Trust: The Social Virtues and the Creation of Prosperity, recognizes that trust has been defined in many ways, but chooses the following definition, which can also serve our purposes:

Trust is the expectation that arises within a community of regular, honest, and cooperative behavior, based on commonly shared norms, on the part of other members of that community. ⁶

Economist Joel Mokyr recently observed, “Many mainstream economists are now committed to the significance of culture in the evolution of modern economics.” ¹¹ In a book focused on the cultural underpinnings of the Industrial Revolution, he argues that “culture” affected technology “both directly, by changing attitudes toward the natural world, and indirectly, by creating and nurturing institutions that stimulated and supported the accumulation and diffusion of ‘useful knowledge.’” ¹² Mokyr adopts the following definition of culture, which I will also use:

Culture is a set of beliefs, values, and preferences, capable of affecting behavior, that are socially (not genetically) transmitted and that are shared by some subset of society. ¹³

III. From Darwinistic Competition to Cooperation

The essential problem of cooperation is often depicted in narratives such as the Prisoner’s Dilemma ¹⁶ and the Tragedy of the Commons, ¹⁷ showing (under selected conditions) that what is in each individual’s interest may not be in their common interest. Charles Darwin’s theory of evolution, stressing natural selection and survival of the fittest, assumed a starting point for all of nature, including homo sapiens, to be the competitiveness of all of life in the struggle for survival. And yet, as mathematician and game theorist Martin Nowack observes, “Human society fizzes with cooperation.” ¹⁸

Before going further, we need to consider how cooperation is understood to arise from competition.

A great deal of thought has gone into the origin of cooperation. ¹⁹ Is it hardwired into the brain? Did it evolve through experience? Is this about nature or nurture or some combination?

How do cultural traits like trust or cooperativeness come about? First, let’s further develop what we mean by “culture.” Fukuyama says that culture is “inherited ethical habit.” ²⁰ Put differently, it is a people’s language of good and evil, right and wrong, fair and unfair. It is something that is acquired through education in the family, from friends and neighbors, or in school or religion. And because it is a matter of ethical habit, it generally changes very slowly, though it is critical to observe that not all such habits change at the same pace.

Is an affinity for competition or cooperation built into the human brain? The emerging science of neuroeconomics has identified a brain hormone called oxytocin, which seems to promote cooperation and trust, at least for the in-group. It may also promote aggression toward out-groups. ²¹ As Joshua Greene puts it, our brains may be designed for in-group cooperation and between-group competition. ²²

Aside from our disappointment in recognizing that an oxytocin bomb will not solve the problems of the Korean peninsula, one difficulty with Greene’s generalization is that most people today belong to multiple, overlapping groups, and the priority they give to these groups for self-identification can change. Is my in-group defined by my religion, my race, my profession, my nation, or even my planet? As the particular definition of an in-group enlarges, what had at one time been competition between the in-group and an out-group may become cooperation within the larger group, with competition now aimed at a differently defined out-group. The opposite would also be true. In the world of antitrust, many mergers eliminate some competition by extinguishing a rival, but are defended in terms of enlarging the surviving firm to allow it to become a stronger competitor against the other remaining firms.

Study of the brain’s connection to competition and cooperation is at an early stage. We might speculate on whether one day we will find that the presence of oxytocin or some other chemical or chemicals varies by society in a way that is correlated with more or less competitive behavior, but there will still be a challenge to demonstrate whether causation runs in a particular direction (that is, would we be able to determine whether oxytocin is the cause of cooperative economic behavior or is oxytocin caused by a cooperative culture, or both?).

For the present, whether cultural traits are biologically inheritable is a controversial topic. ²³ Thus far, we have not found a gene that allows us to answer the question, but this does not mean that a cultural trait cannot evolve and in a social sense, at least, be inherited via collective learning. Darwin himself suggested that the most cohesive and cooperative groups generally beat the groups of selfish individualists. ²⁴ Evolutionary theories of cooperation tend to start with the selfish individual, and move outward to the family, kinship, lineage, clans, tribes, and nations. The engines for this outward movement are reciprocity and reputation.

The evolutionary view of cooperation begins with the individual and the individual’s genes. The individual is assumed to behave in ways calculated to enhance survival, and this is often explained in terms of the individual’s genes seeking to survive through her or his own replication. ²⁵ In the case of the individual, the initial principle might be direct reciprocity: “I’ll scratch your back and you scratch mine,” which assumes expectation of repeating interactions. ²⁶

A nuclear family of at least two parents and their children contributes to the sustenance of life and provides social comfort. In the long era of foraging, it became habitual for the family members to work closely together to provide food and shelter. Thus, the members count on each other to function interdependently as a team. To do this, each must sacrifice some aspect of independence in return for the indefinite but anticipated reciprocity of the others. The sacrifice is also referred to in the cooperation literature as altruism.

Summarizing, cooperation would seem to have first arisen within the nuclear family in the context of providing a survival advantage in the hunting and gathering of food and provision of shelter, leading to the recognition that the reciprocity expected of family members in repeated interactions justifies the sacrifice of some degree of individual independence. Perhaps this also involved the development of emotional attachments in which the individual comes to care for and love the other members of the family. ²⁷

From a genetic perspective, the story seems to be that the individual’s genes want to replicate, and the best strategy for achieving that is for the parent to help the children who carry the genes to survive, thus generating a special protective relationship from parents toward children. The parents would naturally try to inculcate the teamwork approach in the children, passing on the habitual ethic that appears successful.

This can explain how cooperation is generated within a nuclear family and to a lesser extent to near relatives who share a smaller portion of the genes. But how does it spread beyond the family, so that the in-group can be enlarged to incorporate clusters and networks? (Why do soldiers willingly sacrifice their lives for their country or their buddies?) Probably at first, families grew larger, into kinship groups, living together or nearby, sharing some genetic material. As Darwin suggested, when these groups worked together cooperatively, they had a better chance at surviving. For example, hunting larger animals required more hunters cooperating in the capture or killing, and also the sharing of the meat. This process probably evolved to include nonrelatives. In addition, when out-groups and in-groups became confrontational, the size of the group and its ability to coordinate and cooperate would determine who came out on top, which often meant survival.

As the group became larger—lineage groupings, clans, tribes, nations—the expectations of direct reciprocity become smaller, but the payoff in terms of competitive potential (e.g., more hunters, more warriors) is greater. ²⁸ Greater size and division of labor as civilization moved into agriculture and urbanization—increased complexity—would entail more social norms, and this would increase the altruistic sacrifices that individuals need to make to conform to the enlarged social norms. Why make these sacrifices? In Yogi Berra’s memorable formulation, “Always go to other people’s funerals, otherwise they won’t come to yours.” This sentiment contains a self-interested basis that operates over a long period, even beyond a lifetime. It assumes repeated interactions in small groups of people who know each other. The fact that “diverse faiths are united by the reciprocity of the Golden Rule” suggests that reciprocity has proven to be a powerful impulse indeed. ²⁹

Trust may have been thick when the community was quite small and people not only knew each other personally, but also interacted repeatedly. The emergence of more complex societies raises this key question: What motivated altruism toward unknown outsiders with whom (1) repeated engagements and the opportunity for receiving a reciprocal favor would be relatively small, and (2) the genetic payoff for survival would be attenuated?

Enter the importance of reputation (also known in the literature as reciprocal altruism or indirect reciprocity), to complement thick trust when the personal relationships are not present. It is said, perhaps contemplating the example of Glaucon’s metaphor of the ring of invisibility in Plato’s Republic, that man doesn’t care so much about being good, as that other people should perceive him as good. ³⁰ We act as if we are being watched because if we happen to be detected defecting from the social norms, we will be talked about and gossip may lead to some form of disadvantage or punishment. ³¹ People may shun us or refuse to do business with us, or perhaps punish us through stoning, imprisonment, exile, or worse. Haidt praises Glaucon as “the guy who got it right—the guy who realized that the most important principle for designing an ethical society is to make sure that everyone’s reputation is on the line all the time, so that bad behavior will always bring bad consequences.” ³²

The story of the development of cooperation is now fairly complete. It is supported by field evidence from cultural anthropology and microhistories of social movements, all pointing away from the Prisoner’s Dilemma and the Tragedy of the Commons in the direction of cooperation. ³³ The components of the story—family, reciprocity, reputation (with gossip and punishment)—have been modeled by game theorists like Martin Nowack, a professor of mathematics and biology at Harvard and director of the Program for Evolutionary Dynamics, who have developed formulae to express these mechanisms and then demonstrate how they could evolve by computer simulations of evolution. ³⁴ Nowack concludes,

Thanks to these mechanisms, the essentially competitive drive of evolution can, in many circumstances, give rise to cooperation. Because our instincts have been shaped in this way over the generations, it is no surprise that one corollary of this is that universal behaviors—such as love, friendship, jealousy, and team spirit—are seen across all human societies. ³⁵

IV. Balancing Competition and Cooperation

If it sometimes sounds as if cooperation is the final teleological objective of evolution and that what must sooner or later come next is an all-inclusive global in-group (the party of All) that would eliminate war and other harmful manifestations of competition, this would be a gross misunderstanding. It is widely recognized that in the absence of an important role for competition, evolution itself would no longer have an engine. Of course there are some who don’t credit the concept of biological evolution or who are sufficiently satisfied with the status quo that they oppose all change as threatening. So let me approach the question from another direction.

From a social, political, or economic point of view, too much or too little cooperation can be as damaging as too much or too little competition. It all depends on context and objectives. Competition in its most extreme form is “every man for himself” as summarized in Hobbes’ famous description of life in the state of nature as “solitary, poor, nasty, brutish, and short.” Cooperation in its most extreme form is the total eclipse of competition, whether political or economic. ³⁶ Monopoly might be thought of as the private mode of maximum cooperation. The state, Hobbes’ Leviathan, represents the public mode of maximum cooperation, although it can take many forms, including democratic, autocratic, and totalitarian. To the extent that a state eliminates all opposition, one could say it represents a coercive form of cooperation, just as certain kinds of trust (where there is no practical choice not to trust) have been described as coerced. To help visualize what I am trying to depict, if a completely fragmented society of individuals is pictured at the competitive pole of a spectrum, then a completely collectivist society would be at the cooperative end. I return to and modify this visualization in the penultimate section of this article.

In the economic realm, the arguments against monopoly, where there is virtually no meaningful competition, are well-known, ranging from the “dead weight loss” resulting from underproduction of goods and services to misallocating wealth, excluding rivals, and abusing employees, consumers, and suppliers. ³⁷ Economic monopoly may on occasion be beneficent in certain respects. For instance, the market may not support more than one efficient firm. The prospect of at least a short-term monopoly may inspire investment in new products. Two common misunderstandings about monopolies also should be mentioned. A monopolist is not compelled to charge the profit-maximizing price, though it has the power to cause damage by virtue of control over price. Also, a monopoly does not necessarily bring all innovation to a halt and may indeed use its surplus to engage in research, but it generally channels innovation into what is best for the monopolist. The absence of competitors therefore deprives the society of new ways of adjusting to changing consumer demand and technology change, thereby restricting the public’s economic potential. ³⁸

With monopoly, life can be very easy for the insiders and less convenient and more expensive for such out-groups as the firm’s consumers or suppliers. Moreover, monopoly power may give the firm resources to influence or capture relevant parts of the government, thereby raising entry barriers even higher and making avoidance of efficient performance easier, as well as undermining democracy.

Perfect monopoly appears to be extremely rare. There are typically potential rivals lurking just outside the monopoly zone and new technology can especially threaten to undermine the basis of the monopoly. Powerful buyers or sellers may reduce a monopoly’s discretion. Once there are such threats, it can be useful to think of the monopoly as just another firm consisting of an in-group community with cooperation operating inside its boundaries and bias operating against out-groups, in contrast to which it defines itself. Internal cooperation is often inspired by the objective of competing more successfully against the outsiders. The individuals and divisions within a firm likely have their own internal aggressive tendencies but the successful firm channels this factor into a desired level of cooperation so that the firm itself can compete more successfully against rivals, thereby facilitating both the firm’s survival and the income and easier life potentially available to the individuals and units within the firm and the firm’s ownership. ³⁹

From a genetic perspective, monopolistic cooperation brings an end to competition, which means that successful evolution becomes less likely. I suppose the selfish gene could view this as a victory, but society should not. The society that permits excessive political and economic cooperation to minimize competition may gain some near-term benefits and stability at the expense of longer-term dynamism.

This logic suggests that some balancing of competition and cooperation is both essential and desirable. This observation, indeed, should define the fundamental function of competition policy: to determine, whether by positive action or passive acceptance of custom, what the mix of competition and cooperation shall be for various patterns of behavior.

V. Social Capital, Trust, and Economic Thought

I have been writing in the belief that culture and especially a particular aspect of culture—namely, trust—influences economics. ⁴⁰ The question of causation requires some comment. Consider the debate on why some poor countries stubbornly remain poor. One institutionalist view holds that at least when focusing on the causes of global inequality, the most influential driver is not cultural but institutional. The debate is highlighted by institutionalist economists Daron Acemoglu and James A. Robinson. ⁴¹ In considering the origins of power, prosperity, and poverty, they discuss why three received theories do not work. First, they say, theories resting on geographical differences fail as an explanation of the causes of world inequality because “history illustrates that there is no simple or enduring connection between climate or geography and economic success.” ⁴² Second, the ignorance hypothesis is also examined and rejected. It asserts that world inequality exists “because we or our rulers do not know how to make poor countries rich. This idea is the one held by most economists.” ⁴³ Ignorance, the authors conclude, can explain, at best, only a small part of world inequality.

Alternatively, the culture hypothesis posits that religion and other types of beliefs, values, and ethics help in the understanding of world inequality. The authors say it is useful in the sense that social norms, which are related to culture, do matter and can be hard to change, and they also sometimes support institutional differences,

But…those aspects of culture often emphasized—religion, national ethics, African or Latin values—are just not important for understanding how we got here and why the inequalities in the world persist. Other aspects, such as the extent to which people trust each other or are able to cooperate, are important but they are mostly an outcome of institutions, not an independent cause. ⁴⁴

Second, in their discussion of how China switched from a failed communist economy to a much more successful market economy, Acemoglu and Robinson conclude, “It was politics that determined the switch…not better advice or a better understanding of how the economy worked.” ⁴⁶ My question (and perhaps Mokyr’s) is, Why did the politics happen to move in the same direction as was suggested by a better understanding of markets? What values and beliefs, within the elite community that made the critical political decisions in China, were drawn upon, and what values within the larger community were understood to be available to support the decisions?

The relationship between culture and institutions is so close that the details of the relationship and the direction of causation are difficult to specify and may very well depend on whether one is talking about the causes of the Industrial Revolution or the replacement of communism by relatively free markets in China. In some contexts, culture may simply be an informal institution. I am satisfied to explore how aspects of culture, here focusing mainly on trust, influence (rather than cause) the institutional context of economics generally and antitrust more specifically. I don’t dispute that institutions can help shape culture, as well.

Economics normally focuses on three forms of capital (i.e., assets): financial (e.g., the resources needed to invest in projects), physical (e.g., tools and machinery), and human (e.g., primarily skills and education). A fourth form, of more recent vintage, is social capital, which captures the idea that there is value in the social ties among individuals and the norms of reciprocity and trustworthiness that arise from those ties. ⁴⁷ The concept of social capital had been mentioned at various times in the past, but was popularized in the 1990s by Robert Putnam, especially in a bestselling book about the collapse and revival (mostly the former) of American community. ⁴⁸ Social capital reflects the observation that we are not merely individuals but members of groups and organizations where we work together for common purposes. “The core idea of social capital theory,” said Putnam, “is that social networks have value.” ⁴⁹

Should trust be included in the category of social capital? Cook, Hardin, and Levi say that would be a mistake: ⁵⁰ “Your trusting does not do much for you when you need to call on a network of associates to help you resolve some family or broader social problem.” ⁵¹ What is at stake, they say, is not trust, but the trustworthiness of the people in your network. On the other hand, they say that social capital may be taken to mean the social value that inheres in the connections within groups. In this sense, too, they say, the issue is not one of trust. Social capital is “merely a means to do things” which can be beneficial or the opposite. Discussions of declining social capital must be wrong, they say, because individual access to social capital in general is increasing for many people in modern societies, not decreasing. Despite these caveats, based on a narrow definition of trust as “embedded interest,” the concept of social capital makes little sense without the culture’s level of trust being centrally included.

Putnam and others in his wake argue that individualism began to eclipse community in the U.S. during the 1960s, and the system has been increasingly out of balance ever since. ⁵² Fukuyama, for example, points to the rise of violent crimes; breakdown of family structure; decline of churches, neighborhoods, unions, clubs, and charities; and a general sense of a lack of shared values and community. ⁵³ He points to surveys that trace questions like “Do you agree that most people can be trusted?”—to which the “yes” response in 1960 was 58% but only 37% in 1993. ⁵⁴ A more recent Pew Research Center survey (prior to the presidency of Donald Trump, incidentally) reported that only 19% of Americans trust the government “always or most of the time.” Pew notes that current trust levels are among the lowest in surveys of the past 50 years. In 2016, Pew said, “The trust level today is a big change from 15 years ago, right after the terrorist attacks of Sept. 11, 2001. At that time, 60 percent of Americans said they trusted the government.” ⁵⁵

Cook, Hardin, and Levi report studies that suggest that the generality of these survey measures of trust is problematic for predicting actual behavior. ⁵⁶ Trust, in their view, involves power relationships, which can only be understood in the context of specifics:

It is hard to say what could be the cooperative endeavors that a whole society wishes to share in—perhaps winning a war. Hence, some of the concern with so-called social or generalized trust—meaning universal trust in the random other person in our society—is surely misplaced. It would be pointless for us even to assess the trustworthiness of most people, and it often clearly would not benefit us to trust the general other. It is only beneficial for us to trust those who are trustworthy in their interactions with us, and these people constitute nowhere near all of the society. ⁵⁷

While political conservatives tend to blame the turn from community in the U.S. on hippies and individualistic liberalism that seemed to permeate the 1960s and 1970s, the focus on social capital since the 1990s may instead reflect an under-recognized dissatisfaction with the neoclassical economists’ model of the greedy, self-interested, and coldly rational economic man—often referred to as “The Chicago School” model—which came into a dominance over national policies along with the election of Ronald Reagan in the 1980s. In any event, the world of economic thinking has not been standing still since the eighties. Increasingly recognized specialties within or touching the field of economics brought forth thinking about the role of institutions (including culture), psychology (behavioral economics), evolution, game theory, and strategic management. Five Nobel Prizes were awarded to institutional or behavioral economists—Elinor Ostrom, ⁵⁹ Daniel Kahneman, ⁶⁰ Ronald Coase, ⁶¹ Oliver Williamson, ⁶² and Robert J. Shiller. ⁶³ Some of the newer economic thinking questioned the neoclassical model’s underlying assumption of rational economic behavior. Authors such as the neoconservative Francis Fukuyama who have given special attention to “trust” recognize explicitly that economics cannot be divorced from culture. ⁶⁴ Geoffrey Hosking says the rational choice model of trust itself is inadequate: We must include a moral element that cannot be deduced from rational choice alone. ⁶⁵

For the fields of antitrust and economic regulation, the defection from the model of rational economic man is important because it undercuts the Chicago School’s ⁶⁶ fundamental footing that was established in antitrust policy during the Reagan Revolution in the early 1980s, and in the so-called Washington Consensus ⁶⁷ and its projection of universalistic rules for national economic development. A more culturally attentive learning opens the way for alternative models that legitimize deviations based in cultural heritage, including ethical aspects of social capital. ⁶⁸ For example, Section 5 of the Federal Trade Commission Act ⁶⁹ prohibits “unfair methods of competition,” but the neoclassical world has essentially pressed the delete button on “unfair,” in effect substituting the idea that efficiency-producing methods of competition are—or at least should be—legal. But fairness is a meaningful concept, albeit difficult to quantify with precision, that grows out of a society’s cultural values. Arguably, it deserves an explicit place in the determination of what types of competition or cooperation are to be bolstered or prohibited by government intervention in the market.

In the next section, to further illustrate the relationship between culture and economics, I will describe several current industrial organization issues that will be particularly influenced by the role of a particular cultural value, trust.

VI. The Internet and Trust: Three Examples

Changes in technology interact with culture, economics, and regulatory policies. Trust will likely play a central role as we develop antitrust and regulatory policies toward the Internet generally. Here are three illustrations (B2C retailing systems, the emerging “sharing economy,” and blockchain technology) of ways in which trust affects economic policies toward the Internet.

The Internet has changed so much of modern social and economic life that it is difficult to overestimate our dependence on it. ⁷⁰ Business-to-Consumer (B2C) commercial interactions on the Internet depend on the consumer’s trust that goods and services promised will be delivered in accordance with the agreement and that the payment system will function correctly. As a retail jeweler in the early 1990s, I couldn’t imagine that people would actually buy on the Internet something as small, expensive, or subject to fraud as diamonds; today, however, they do (in still modest numbers) and apparently do it with a high degree of trust based on a familiarity with the Internet and a variety of institutional inventions or adaptations of brick-and-mortar promises, such as insured and free secure shipping, discreet packaging, free returns, competitive price guarantees, professional appraisals, lifetime warranties, and so forth. Diamond merchants as well as their customers need to have trust in the absence of face-to-face dealings. How can they make their customers feel comfortable that they are making the right purchase? How can they minimize rip-offs? Insurance is a large part of the answer, but that merely pushes trust questions back onto the insurers. How secure is all this trust from attack?

In all online transactions, trust is increasingly vulnerable. The Internet is highly dependent on a network of users and operators, any one of whom can potentially create scams, viruses, privacy breaches, and payment abuses that challenge the trustworthiness of the entire system. Whether security and privacy can be protected and fraud deterred will affect peoples’ willingness to utilize the web for commercial transactions, and thus have a large impact on the Internet’s ability to continue to reshape our economy.

With these concerns, companies are hard at work trying to build and establish trust for Internet-based commercial activities that create new efficiencies and threaten the status quo. Antitrust issues could potentially arise depending on how Internet Service Organizations (ISOs) and others in the industry attempt to work together—through standard-setting, joint ventures, or other alliances—to fashion effective cybersecurity standards or practices to build or preserve the public’s trust in the system.

Many of the Internet’s potential efficiencies can be found in what is called the sharing economy. Consider the role of trust in determining Uber’s future by comparing with taxi service the customer’s choice in hailing an Uber—that is, a privately owned car operated part-time for a fee by its owner, who is generating income by sharing what would otherwise be an underutilized asset (both time and car). (Keep in mind that in former times the taxi driver had an advantage over other car drivers because of superior knowledge of the urban map. This advantage disappeared with the advent of GPS and Internet traffic and navigation applications such as Waze.) Trust plays a role on both the demand and supply sides. From the passenger’s perspective, trust is gained in the standard taxi because the taxi company is heavily regulated, resulting in what is probably perceived, rightly or wrongly, as carefully screened, experienced professional drivers who are typically employed by companies that must provide insurance and have an obvious investment in reputation to protect. On the supply side, the taxi driver must trust a stranger picked up on the street to pay, add a tip, and not commit a crime against the driver or harm the car.

The Uber company, on the other hand, has a business model that assumes minimal, if any, government regulation. Its drivers may or may not be less expert than standard taxi drivers. Their cars are privately owned and maintained. The putative passenger contemplating stepping into a stranger’s car may worry about a fraudulent charge or an unsafe, perhaps criminally dangerous driver. The driver may worry about passengers who are unknown and possibly criminals, whether a passenger might damage the car, whether the trip will be paid for, and whether there will be a tip. The business model thus far could involve a large trust deficit on both sides of the transaction.

Uber’s trust-building strategy on the supply side is (1) to use precommitted payment via the Internet to assure the driver of payment ⁷¹ without risk to either party of money physically changing hands in the car; and (2) to ensure that the passenger will be rated by the driver, providing the passenger with an incentive to behave, at the risk of not being picked up by Uber drivers in the future. To develop the passenger’s trust, Uber (1) notifies the customer of the price in advance; (2) provides the description of the car and its license number to relieve anxiety about who the driver may be; (3) specifies almost to the minute when the car will arrive, with the driver’s progress to the pickup point tracked on a cell phone application; and (4) requests the passenger to rate the driver, giving the passenger some additional leverage over the service. The model rests on the Internet in many respects. The entire system is designed to establish mutual trust of driver and passenger in ways that Uber hopes will prove sufficiently trustworthy that passengers will return and, perhaps more immediately important to Uber’s business model, local taxi cab regulation will be avoided or minimized. (The minimal regulation model provides a price advantage over standard taxis, but taxi companies can replicate the convenience advantages of the Internet.)

Central to Uber’s strategy is the mutual creation of reputations through the feedback mechanism, which is used similarly by Airbnb, in a business where mutual mistrust may prevent people who have excess residential space to rent from sharing their space with potential renters. Says the owner: “Here is a photo of my available space that you can view on the Web and you can see how other visitors have rated my offering.” Replies the renter: “You can see how other hosts have rated me as a guest and be comfortable that I am not a home-wrecker.” None of this is foolproof, of course, but it is likely that mutual rating systems will only improve with experience. Welcome to the emergent world of Internet-based trust building. ⁷²

It comes as no surprise that the established taxi and hotel industries see these sharing economy entrants as competitors who ought to be regulated to the same degree that the incumbents are regulated. In this regard, Section 1 of the Sherman Act could possibly be invoked in at least two different ways. Uber’s system might be considered a form of price fixing if their drivers (Uber argues they are independent contractors rather than employees) are disabled by the business model to compete with each other on price. Additionally, if taxi companies or hotel groups were to create some type of boycott aimed at excluding their emerging online rivals, this could be an unreasonable restraint of trade under Section 1.

Note that antitrust authorities function as competition advocates as well as law enforcers and thereby become involved in ways other than litigation. For example, although the members of an industry have the First Amendment right to work jointly to lobby regulators for regulatory decisions that are anticompetitive, the FTC or the DOJ as well as state antitrust officials may try to influence the competition policies of state regulators. Generally, the federal authorities have advocated that taxi regulators and hotel regulators should not side with incumbents against innovations, provided the public safety can be adequately protected. In the competition policy process of balancing between the value of competition and the value of cooperation, the effectiveness of the private trust-inducing mechanisms may be a determining factor on how much regulation is required.

Next consider a cutting-edge computer software advancement that can transform many parts of the economy, starting with the financial sector.

Blockchain technology underlies the Bitcoin phenomenon. Blockchain is a distributed ledger, an online record of transactions that is shared and authenticated through a series of cryptographic steps. The Economist calls blockchain “the trust machine” ⁷³ because of its potential for fixing some economic inefficiencies that respond to the absence of trust. A trusted register has the potential to cut fraud by verifying who actually owns an asset, whether it be a “wodge” of digital currency (as in Bitcoin) or a plot of land or luxury goods or works of art. The Economist reports that 80% of banks will have started work on blockchain-related projects in 2017. ⁷⁴

Blockchain has the potential of revolutionizing industries that created institutions for the purpose of establishing mutual levels of trust (e.g., banks, clearing houses, governmental units). The creation of blockchains within industries will likely require coalitions within an industry or industry-wide standard-setting to agree upon the necessary rules for cooperation, raising antitrust questions about the extent to which there should be limits on such cooperation. ⁷⁵

In a globalized world, some countries will adopt sharing economies and blockchain technology more or less quickly and extensively than others, as a result of cultural variations reflected in attitudes toward cooperation and competition. The next section explores what we know about such variations.

VII. Cross-Cultural Data, Trust, and Competition Policies

When it comes to how a nation decides to strike the appropriate balance between competition and cooperation, cross-cultural surveys reveal the range of attitudes on various factors that may enter that calculus. Unlike some of the surveys about trust that directly questioned how much people trusted the government or each other, ⁷⁶ this type of cross-national reporting is indirect. It would be interesting to have cross-national surveys that ask direct questions such as, “On a scale of one to ten, rate how favorably disposed are you to monopoly/oligopoly/cartels/mergers, etc.” I haven’t come across such a survey and would hardly know how to evaluate the responses if they came from nonexperts. Rather, available materials tend to seek out attitudes toward certain cultural value dimensions that may, in varying ways, relate to the competition/cooperation scale.

One possible source is the advice that international businesses are given on how to negotiate in various cultural contexts. For instance, here are international business consultant David Livermore’s seven cultural dimension scales for clusters of states demonstrating similar profiles: ⁷⁷

*Individualism/Collectivism: Individualism (“Individual goals and rights are more important than personal relationship”); Collectivism (“Personal relationships and benefiting the group are more important than individual goals”).

*Low Power Distance/High Power Distance: Low Power Distance (“Status differences are of little importance; empowered decision-making is expected across all levels”); High Power Distance (“Status differences should shape social interactions; those with authority should make decisions”).

*Low Uncertainty Avoidance/High Uncertainty Avoidance: Low Uncertainty Avoidance (“Focus on flexibility and adaptability; tolerant of unstructured and unpredictable situations”); High Uncertainty Avoidance (“Focus on planning and reliability; uncomfortable with unstructured or unpredictable situations”).

*Cooperative/Competitive: Cooperative (“Emphasis upon cooperation and nurturing behavior; high value placed upon relationships and family”); Competitive (“Emphasis upon assertive behavior and competition; high value placed upon work, task accomplishment, and achievement).

*Short Term Time Orientation/Long Term Time Orientation: Short Term (“Values immediate outcomes more than long-term benefits (success now)”); Long Term (“Values long term planning; willing to sacrifice short term outcomes for long-term benefits (success later)”).

*Low Context/High Context: Low Context (“Values direct communication. Emphasis on explicit words); High Context (“Values indirect communication. Emphasis on implicit understanding”).

*Being/Doing: Being (“Social Commitments and task completion are equally important; diffuse boundaries between personal and work activities”); Doing (“Task completion takes precedence over social commitments; clear separation of personal and work activities”). ⁷⁸

To what extent can we generalize from trust to cultural effects on competition and cooperation? It can be argued that markets will likely be more popular in cultures associated with Individualism in that individualism suggests that individual competitive advantage must be sought. Competitive cultures are by definition more competitive. Cultures characterized by Long Term Time Orientation would probably be more favorably disposed to patient investment and to more speculative predictions of competitive effects in antitrust cases, both of which requires trust in the ability to forecast the future. Aggressive governmental intervention in markets may reflect High Power Distance, which implies trust in governmental authority. High Uncertainty Avoidance would indicate a competition policy that is predictable, with rules one could trust.

As enticing as these speculations may be, they leave too many questions unanswered. First, of course, there are questions about the validity of national stereotypes. While stereotypes usually contain at least some truth, the types of generalizations discussed above tend to be more subjective than objective. Moreover, they assume that nations have one culture, whereas most nations are composed of diverse populations with a mixture of cultural backgrounds.

Are all Americans equally competitive? Would they all want the same degree of competition to apply in education and recreation as well as in commercial markets? Would they all have similar opinions about regulatory policies aimed at monopolies and research joint ventures? No. And given the prevalence of subgroups with varying interests within a nation, which subgroups’ opinions would we consider most relevant in characterizing a national culture?

Second, these are only generalizations, polar scales, whereas in the real world cultures will normally be somewhere between the poles, not “either/or.” There may be inconsistencies in how national cultures are placed within the various scales. We’ve already seen, for instance, that competition and cooperation coexist within the firm and within markets, making it difficult to stereotype even a highly capitalistic economy. Americans are remarkable joiners who are characterized by their eagerness to participate in community endeavors, but they also believe that businesses should compete aggressively—that Macy shouldn’t talk to Gimbels (at least prior to 1987 when Gimbels passed away). Does this make Americans more competitive or more cooperative? (Does Ben Franklin, the iconic entrepreneur and creator of projects to benefit the commons, stand for competition or for cooperation?) We need to think of competition and cooperation less as opposites and more as simultaneously present but in varying proportions.

In this regard, note that individualism may be typical of market-driven economies, but individualism can also characterize a highly cooperative culture. For example, Livermore places the Nordic cluster of nations within the extreme Individualism end of the Individualism/Collectivism scale alongside the Anglo and Germanic cultures, but he also places the Nordic cluster within the extreme Cooperative dimension and the extreme Being Orientation dimension, whereas the Anglo and Germanic clusters are not only located within the extreme Competitive end of the Cooperative/Competition scale, but also in the Doing extreme of the Being Orientation/Doing Orientation scale. The interplay of value dimensions is complex, at best.

Third, while cultural values are generally slow to change, they do change and not all values change at the same pace. Generations may grow up wanting to purchase a car “that is not your father’s Oldsmobile.” Change in one area may impact on other areas. Lawrence Rosen argues that law is a cultural domain. ⁷⁹ Law is enacted through politics and political power can shift rather swiftly, through election, coup, or conquest. Law also affects other cultural values. Placing nations on cross-cultural scales must keep pace with changing values and their changing interactions.

Where does this take us? First, when nations are grouped into cultural clusters (e.g., Germanic), the cross-cultural methodology is premised on the idea that cultural dimensions (e.g., individualism) vary from one cultural cluster to another. Second, placing a given country (or, even worse, its cultural cluster) on a given cultural dimension scale is highly subjective. Third, when applied to a particular country, different cultural dimensions may point in contrary directions, making it difficult to ascertain which dimension prevails in the battle of multiple aspects of culture to influence a nation’s institutions. Fourth, because trust is not broken out as a cultural dimension in the Livermore approach, its role in any of his seven dimensions can only be speculated. Fifth, it would appear that trust can be an aspect of each of the seven categories, and thus not easily assignable as a cause of any particular policies toward competition or cooperation, much less toward antitrust policy. And finally, it is not clear that the role of trust in a given society is the same when one focuses on education, recreation or the economy, so how trust would be ranked in a cross-cultural context will require specification of how it is being defined and measured. All in all, a very tall order.

Can we come closer to describing a relationship between trust and various manifestations of antitrust policy?

VIII. Trust and Antitrust

It is a truism that “business relationships are built on a foundation of trust.” ⁸⁰ Market exchange is typically viewed as a widespread form of voluntary cooperation among more or less self-regarding individuals that provides mutual benefits. Market exchange is governed by a variety of institutional forms in the world, such as antitrust and sectoral regulation laws, which reflect political, historical and cultural factors. Trust is only one of the cultural factors tracked by cultural anthropologists that contribute to these institutional forms, ⁸¹ but it nevertheless plays a role in competition policy. The following discussions highlight trust within several areas of competition policy: vertical integration, cartels, mergers and acquisitions, dominance and firm size, role of the state and the “missing middle,” orientation toward growth, and trade.

IX. Importance of Trust in Assigning Roles to Competition and Cooperation: The Example of ASBP

How might the concept of trust fit into a nation’s decision on whether a desired end result should be treated as subject to competition or cooperation? Let’s examine the case of abuse of superior bargaining position (ASBP). ¹²⁴

Through most of America’s antitrust history, retail companies were relatively small and their markets fragmented, whereas manufacturers tended to be much larger and more powerful. Consequently, it was the concept of manufacturer monopoly that received primary attention from antitrust theorists and enforcers. The growth of the power buyer, such as Walmart or Amazon, is of recent vintage, with the power buyer now frequently in the superior bargaining position. ¹²⁵ While the concept of monopoly on the seller side has been applied to the buyer side through the concept of monopsony, which is usually portrayed as the buyer-side mirror image of monopoly—a large buyer who does not qualify as having enough market power to be deemed either a monopolist or a monopsonist can often have very substantial advantages over smaller suppliers—and there is ample reason to recognize that these advantages are often abused. The modern imbalance between nonmonopsony power buyers and their suppliers has been recognized by law in Austria, Bulgaria, France, Germany, Italy, Japan, Korea, the Slovak Republic, and Taiwan, but not in the U.S. ¹²⁶

The International Competition Network (ICN) issued a factual report on what is known as Abuse of Superior Bargaining Position in conjunction with its 2008 conference. ¹²⁷ Of the thirty-two jurisdictions responding to a survey, seven reported specific legal provisions relevant to the questionnaire’s definition of ASBP. ¹²⁸ Our major trading partners—Germany, Japan, and South Korea—employed such provisions as part of their competition law, while four others employed ASBP in other contexts such as protecting local suppliers in rural areas, tort liability under a commercial code, a private civil remedy statute, and as an administrative regulation of retail chains. The report simply conveys the survey results without taking a position and although there was discussion of the report at the conference, no action was taken.

Of particular interest here was the conflict between Japanese and U.S. representatives that was revealed.

The eminent Japanese antitrust professor, Mitsuo Matsushita, after comparing the Japanese and U.S. views that were advocated at the ICN, explained the divergence in the context of differing philosophies of the purposes of antitrust law. ¹²⁹ He summarized the Japanese view in this way:

Abuse of superior bargaining position infringes the foundation of the free competition where the parties to transactions determine transaction terms or conditions based on their free and independent business judgment. In cases where a party in a superior bargaining position over the other party, by using that position, restrains the independent business activities of the other party and forces the other party to accept disadvantages that it would not accept if the competition worked properly, its conduct prevents the other party from competing freely and independently. The other party on which the disadvantages are imposed would be in the disadvantageous position in terms of condition of competition with its competitors. On the other hand, the party imposing disadvantages on the other party would be in the advantageous position in terms of condition of competition through the different means from price and quality.

Many countries, including Japan, and many advocates of antitrust do not share the full cup of U.S. devotion to efficiency. Professor Matsushita points out that in Japan the economic structure has long been characterized by the dominance of large businesses over small businesses within severe dependency structures, all of which requires oversight. In Germany, the postwar Ordo-Liberal philosophy heavily influenced emergence of a social market economy, very different from the Nazi period where individuals’ freedom was suppressed. Ordo-Liberals favor unconcentrated markets because they are conducive to freedom and democracy, arguing for private economic powers to be controlled by law while, in other economic areas, the direct state intervention should be kept at a minimum. ¹³² Recognizing freedom to compete as a starting point for competition, they tend to be more suspicious of potentially exclusionary vertical restraints than the U.S.

Thus the controversy over ASBP significantly reflects cultural, political, and historical differences among nations. Professor Matsushita observes:

ASBP is one of the most interesting areas in antitrust law to see how much harmonization and convergence should be pursued among nations and how much indigenous features should be retained. In other words, how much diversity should be kept in diversity when legislators of antitrust laws in the world seek for “unity in diversity.” ¹³³

Appropriately, the U.S. does not want a type of ASBP law that would launch into litigation an avalanche of private contract disputes. If antitrust enforcers were seriously to consider adopting a form of ASBP, lines would have to be drawn to clarify when a contract could be challenged and when not. This is a regulatory task for which the U.S. can likely learn much from foreign experiences, although it seems that the prevailing U.S. culture prefers to shun regulation whenever possible. The periodically high level of trust for business executives in the U.S. compared to low trust for government likely tilts the balance against adopting ASBP in the near term. One may ask, however, whether what I have referred to as “the prevailing U.S. culture” is culturally thick or thin. ¹³⁶ Is this more a matter of politics or of culture? Or are the two, politics and culture, deeply intertwined? If primarily cultural in the thick sense, what prevails today is likely to prevail tomorrow; if primarily political, relative levels of trust could change as soon as the next major political or business scandal or display of intolerable incompetence,

On the other side of the coin, a country that adopts ASBP may reflect greater cultural trust in government; it may esteem hierarchy in the form of civil servants, including judges, more than Americans do and have greater confidence in their ability to draw lines, make predictions, and execute with competence; it may tend to distrust private businesses that have leverage over other less powerful entities.

Ultimately, and not ignoring that cultural and other factors can shift with time and political dynamics, different countries are likely to disagree whether ASBP is needed and politically feasible. Even if they do adopt it in principle, they may disagree on where to draw the lines for enforcement—for example, should ASBP be handled within the competition law framework or through other means such as contract or tort law; should there be detailed codified rules that attempt to define how virtually every conceivable situation should be resolved; how should sufficient dependency be defined, to bring the concept of superior bargaining position into play; what levels of coercion must be demonstrated; what safe harbors might be designated to reduce the frequency of challenges; should there be private rights of action or only cases brought by the government?

None of this is to claim that trust is the only factor that will be considered when a government allocates behaviors along the competition or cooperation scale. Far from it: Decision-makers will likely also weigh political pressures, the competence of particular governmental institutions, estimates of the seriousness of the problem, predicted consequences of various remedies, and other factors. ¹³⁷

X. Culture and Competition: A Basket of Complexities

Today there are approximately 130 jurisdictions in the world that have market-oriented economies, some form of antitrust laws, and whose government competition authorities are members of the ICN. The ICN is committed to reaching out to its member states to help them develop “competition culture.” As our discussion has demonstrated, the prospect for converging toward a universal agreement on the rules for competition and cooperation requires some complex balancing. The following are some of the principal issues that emerge from the foregoing discussion.

XI. Conclusion

The field of competition policy is at core about the authoritative allocation of economic activity into categories of cooperation or competition or, more likely, a mixture in varying proportions. The allocation is made on the basis of a variety of imprecise inputs—cultural, political, historic, economic, and institutional—in addition to neoclassical economic theory, with the result that universal agreement among the market-oriented nations should not be anticipated.

Explicit and implicit evaluations of where trust is warranted and where distrust should be generated by government policies will play a role in the balancing that occurs within sovereign states. Trust is but one component of the cultural influences at play.

Trust participates in the development of economic institutions sufficiently to be embedded in an apt observation by a South American antitrust expert, Julian Pena, which can be extended well beyond any Latin American cultural grouping: “Competition laws in Latin America in theory look identical to those of developed countries but their enforcement differs substantially given different economic, political, institutional, and cultural environments.” ¹⁴⁸ Even where the words are the same, the music will likely be different.

One may predict that cultural impediments to universal agreement, similar to those described in relation to the example of ASBP, will apply to treatment of what the U.S. calls “monopoly” and the EU calls “abuse of dominant position,” as well as to the standards and application of merger controls. With respect to cartels, there is today substantially more agreement (not necessarily irreversible, however) on the negative nature of cartels—more than ever existed in the past. Nonetheless, even with cartel policies, there are cultural differences keeping nations apart on questions of procedure, ¹⁴⁹ remedy, ¹⁵⁰ and penalty. ¹⁵¹ Finally, within the realms of international trade and sectoral regulation, the differences between successive American administrations would appear to emphasize how both the political and cultural shifts that can occur within a single nation are capable of moving competition policies. ¹⁵²

If the history of competition policy in the U.S. reflects continual readjustment of prevailing policies in view of our own dynamics of culture and politics, what can we say about international convergence? It is a stretch to believe that the world’s market-oriented nations will depend upon universalistic economic models of how markets ought to work. The quest for harmonization or convergence through noncoercive persuasion is appropriate and desirable, but we should not anticipate that universal models will lead to full or even substantial agreement on the specific placement of various types of economic behavior on the scale of individualism/competition and collectivism/cooperation.