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The Case Against Antitrust

by Robert A. Levy

This article appeared in Apple Daily, November 17, 2004.

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Antitrust laws -- statutes that supposedly keep any one firm or group of firms from dominating the marketplace -- are thought by some to be the bulwark of free enterprise. Without the continued vigilance of the government, so the argument goes, large corporations would ruthlessly destroy their smaller rivals and then raise prices and profits at consumers' expense.

But antitrust has a dark side; it often is used to the detriment of the consumers it's supposed to protect. Here are seven reasons to repeal existing antitrust laws and reject new proposals:

• Antitrust debases the idea of private property. Too often, government seeks to transform a company's private property into something that effectively belongs to the public, to be designed by government officials and sold on terms congenial to competitors. But if new technology is to be expropriated, future technology will not materialize. The goose is unlikely to continue laying golden eggs if those eggs are taken away.

Robert A. Levy is senior fellow in constitutional studies at the Cato Institute and author of Shakedown: How Corporations, Government, and Trial Lawyers Abuse the Judicial Process (2004).

More by Robert A. Levy
• Antitrust laws are fluid, non-objective and frequently retroactive. Because of murky statutes and conflicting case law, companies can never be sure what constitutes permissible behavior. Normal business practices -- price discounts, product improvements and exclusive contracting -- can somehow morph into an antitrust violation when examined by government antitrust regulators. Companies can be accused of monopoly price gouging for charging more than their competitors, or accused of predatory pricing for charging less, or accused of collusion for charging the same.
• Antitrust law is based on a static view of the market. In real markets, sellers seek to carve out mini-monopolies so they can increase profits. The prospect of extra profits, deriving from market power, is the engine that drives the economy. So what might happen in a utopian, perfectly competitive environment is irrelevant to the question of whether government intervention is necessary. The proper comparison is with the marketplace that will evolve if the antitrust laws, by punishing success, eliminate incentives for innovation.
• Antitrust remedies are designed by lawyers who typically do not understand how markets work. When government moves forward in the name of correcting market failure, regulators commonly ignore the more likely possibility of "government failure" -- poorly made government regulations and policies that harm consumers. Indeed, an elite corps of government experts thinks it knows consumer interests better than consumers do, and that it can regulate consumer activities to satisfy those interests better than the market does. The real issue, however, is who gets to make product choices. Will it be consumers, declaring their preferences by purchases in the market, or specialists in the antitrust agencies of government?
• Antitrust law is wielded most often by favor-seeking businessmen and their allies in the political arena. Instead of focusing on new and better products, disgruntled rivals try to exploit the law by consorting with members of the legislature and antitrust officials. In the U.S. Department of Justice case against Microsoft, for example, America's entrepreneurial enclave in Silicon Valley used its political influence to bring down its Washington state-based competitor. The result is more oppressive, anti-consumer regulation.
• Barriers to entry are created by government, not private businesses. When a company advertises, lowers prices, improves quality, adds features or offers better service, it discourages rivals. But it cannot bar them from the marketplace. True barriers arise from government misbehavior, not private power -- misbehavior like special-interest legislation or a misconceived regulatory regimen that protects existing producers from competition. Instead of using antitrust laws to limit the aggressiveness of incumbent firms, the government should do away with the barriers it erected that keep competitive newcomers from entering the marketplace.
• Antitrust will inevitably be used by unprincipled politicians as a political bludgeon to force conformity by "uncooperative" companies. Former New York Times reporter David Burnham, in his 1996 book "Abuse of Power," documented how powerful government officials routinely direct antitrust regulators to bend the rules in pursuit of political ends. In reality, the threat of abusive public power is far larger than the threat of private monopoly.

More than two centuries ago, in "The Wealth of Nations," Adam Smith observed that "people of the same trade seldom meet together . . . but the conversation ends in a conspiracy against the public or in some contrivance to raise prices." Coming from the father of laissez faire, that warning has been cited ad nauseam by antitrust proponents to justify all manner of interventionist mischief. Those same proponents, whether carelessly or deviously, rarely mention Smith's next sentence: "It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice."

In a nutshell, antitrust is bad law, bad economics and bad public policy. It deserves to be buried -- sooner rather than later.