Myths of Antitrust Progress

by Prof. Dominick T. Armentano

Prof. Dominick T. Armentano wrote Antitrust and Monopoly: Anatomy of a Policy Failure (Independent Institute). On the 25th anniversary of the publication of that classic, the author offers his observations.

 

Antitrust fashions come and go. Current antitrust enforcement appears more rational than in decades past. Insights from the Austrian and Chicago schools, and public choice studies concerning the actual workings of the competitive process have impacted regulatory policy and court decisions. No doubt it is more difficult today for federal officials to successfully litigate merger cases or those involving predatory practices or price discrimination.

 

Still Poor Policy

However, opponents of antitrust laws should not declare victory and go home. Horizontal price agreements and resale price maintenance are still illegal per say. And although private antitrust activity has fallen from record levels, it still supports a small army of attorneys. The basic antitrust paradigm survives. In the next century, it will likely damage sectors that may lose their antitrust exemption, such as professional baseball and insurance.

All antitrust laws should be repealed. The most important argument against antitrust is that laws designed ostensibly to restrict monopolization have been repeatedly employed by the government to restrict and restrain the competitive process. Businesses that innovate, market aggressively, and increase production while lowering prices have been a primary focus of antitrust enforcement. Comparatively, government licensing, certificates of public convenience, legal franchises, and foreign and domestic quotas (the real monopolistic abuse in the system) have been almost entirely immune from antitrust scrutiny.

 

No Golden Era

Antitrust enthusiasts have never re-solved the massive economic irrationalities buried in the case law. Some belatedly admit that specific cases like Alcoa (1945) and Brown Shoe (1962) were a mistake. Rulings in those cases found companies guilty of monopolistic practices not because they raised prices but merely because they took ad-vantage of every opportunity to expand capacity and meet customer demands. The rulings were blatant attacks on economic efficiency.

Most antitrust supporters continue to believe in some golden age of enforcement when antitrust was magnificently pro-consumer. Yet a review of two of the most influential early cases in antitrust history, Standard Oil (1911) and American Tobacco (1911), reveals that neither of the accused firms monopolized or "restrained" trade; on the contrary, both firms expanded outputs enormously, innovated continuously, and generally lowered prices for consumers. Thus, the antitrust assault on successful firms like Microsoft is not a recent policy aberration. It is entirely endemic of the history of antitrust regulation.

 

Scholarly Support

Revisionist case analysis nicely corresponds with recent scholarship concerning the actual origins of antitrust law. The original rationale was that before the Sherman Act of 1890, monopolistic abuse laced the economy. Yet Thomas DiLorenzo, Thomas Hazlett, and others have shown that market outputs were expanding and prices falling relative to the rest of the economy in many of the "trust" industries prior to 1890. Thus, antitrust laws and antitrust cases are more accurately seen as special interest legislation designed to protect less efficient organizations and redistribute income.

The irrationalities of antitrust enforcement are also rooted in problematic theorizing. The "perfect competition" economic model is still the reference point for "resource misallocation" analysis that backs many antitrust actions. Yet it has little demonstrable real-world relevance. Cost-benefit analysis employed in merger guidelines methodology is pseudo-science at best. And alleged "barriers to entry" and "raising rivals cost" confuses genuine legal barriers, which are harmful, with legitimately earned cost and performance advantages, which clearly are not harmful to consumers and require no antitrust fix.

The torrid pace of technological change in open markets and the trend towards less restrictive international trade offers the latest reason to doubt the efficacy of antitrust laws. Rapid technological change coupled with historically low tariff barriers clearly invigorates the competitive process. The monopoly power feared by antitrust enthusiasts is far more a function of government legal restraints. Free markets, competition, and consumer opportunities will not emerge from antitrust laws but, rather, from their abolition.


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