Reexamining antitrust: can "anticompetitive" business practices benefit consumers? - Law & Justice

USA Today (Society for the Advancement of Education), March, 2002 by Wayne Crews

"Particularly in the new information economy, the conventional thinking regarding antitrust law and the allegedly harmful practices it targets must be challenged."

EVEN IN A DIGITAL information age, most believe antitrust law protects consumers and has an important role to play in policing high-tech markets. Yet, is this popular view really tree?

Part of the impulse for more than two decades of deregulation spanning the transportation, communications, banking, and electricity sectors has been policymakers' willingness to rethink the presumption that regulation benefits consumers. Since economic regulations transfer wealth, they inevitably attract political entrepreneurs seeking entry or price regulation to hobble competition. Antitrust regulation is similarly vulnerable to exploitation by firms hoping to do the same thing.

Thus, a skeptical interpretation of antitrust policy--up to and including recent campaigns targeting Microsoft, Intel, the AOL Time Warner merger, and the rejected WorldCom/ Sprint merger--is that it advances the well-being of political entrepreneurs rather than consumers. Antitrust enforcement, like any economic regulation, often increases price and decreases output by destroying misunderstood or disregarded efficiencies.

Antitrust advocates often compare real-world markets with what economists call "perfect competition" in which large numbers of buyers and sellers for each product exist, and no seller can raise prices since consumers would merely switch to a competitor. Compared to this ideal, strategic rivalry, size, and a commitment to winning--the hallmarks of ordinary competition--can become unlawful. If a firm's prices are higher than everyone else's, that implies monopoly power; if everyone's prices are the same, collusion may be alleged; and prices "too low" can signify cutthroat competition and predatory pricing. No one is innocent.

In defiance of basic notions of property rights and wealth creation, antitrust regards the economic pie as largely fixed and imagines that one firm can grab too much of the "social output." Yet, if business practices targeted by antitrust are actually efficient, that implies that enforcement creates inefficiencies and harm. A range of business practices has been widely regarded as anticompetitive and harmful to consumers, but there may be rational, proconsumer justifications for them.

1. Restraint of trade and monopolization. The stated intent of antitrust law is to police restraint of trade and monopolization. The law also outlaws practices deemed anti-competitive under certain conditions, including tying arrangements, exclusive dealing, mergers, and interlocking boards of directors.

The notion that restraint of trade characterizes the marketplace is suspect, though. As Isabel Paterson wrote in The God of the Machine, "Standard Oil did not restrain trade; it went out to the ends of the earth to make a market. Can the corporations be said to have `restrained trade' when the trade they cater to had no existence until they produced and sold the good?" Yet, similar claims are directed against Microsoft, which caters to a personal computer industry that it largely popularized; at AOL Tune Warner's Instant Messenger service, which it indeed dominates, but also happens to have created; and at cable broadband providers, who allegedly restrict access to the high-speed Internet services that previously hadn't even existed.

The defining characteristic of monopoly is consumer harm caused by lower output and higher prices, but output generally expanded and prices generally fell during the late 1800s, when antitrust law originated. Complaining when rivals' prices are falling and sales are increasing indicates that antitrust law was a protectionist effort.

In the most dramatic modern case, Microsoft was accused of attempting to maintain a monopoly by bundling a Web browser with its dominant Windows operating system, which runs most personal computers. Aside from being dismissive of property rights, trustbusters narrowly and arbitrarily defined the market as single-user desktop machines with Intel processors, which, as economist Alan Reynolds has noted, eliminated chief Microsoft's competitors like Apple, Sun, and handheld computers from the market definition. Ironically, even today, fewer than half have embraced Internet access at home, leaving the rest available to competitors.

Antitrust, as Fred Smith of the Competitive Enterprise Institute put it, operates on the perverse principles that business has "no right in principle to dispose of its property as it sees fit, but only a conditional freedom so long as it helps maximize some social utility function."

2. Horizontal mergers. When firms merge, the number of competitors in a particular line of business falls at least temporarily. However, efficiencies generated may outweigh any decline in output. Moreover, the combination may be necessary to establish a platform from which to expand service.

As economist Murray Rothbard noted, talk of mergers' "substantially lessening competition" is meaningless. Competition is a process, not a quantity. Dynamic efficiency effects are important, yet merger challenges and conditions imposed are widespread.