Federalism and Antitrust Reform

Abstract

Currently the Antitrust Modernization Commission is considering numerous proposals for adjusting the relationship between federal antitrust authority and state regulation. This essay examines two areas that have produced a significant amount of state-federal conflict: state regulation of insurance and the state action immunity for general state regulation. It argues that no principle of efficiency, regulatory theory, or federalism justifies the McCarran-Ferguson Act, which creates an antitrust immunity for state regulation of insurance. What few benefits the Act confers could be fully realized by an appropriate interpretation of the state action doctrine. Second, the current formulation of the antitrust state action doctrine creates approximately the correct balance between state and federal authority where competition is concerned, although both its clear articulation and active supervision prongs need to be strengthened and refined. In addition, basing state action immunity on the degree to which a state imposes the burden of in-state monopoly on out-of-state interests very likely comes with greater costs than any benefit that is likely to result.

Keywords: Antitrust, Immunity, Federalism, Insurance, "state action", Regulation, Local government, Externality

JEL Classification: D42, G22, K21, K23