The Department of Justice recently filed a notice to appeal a federal judge’s decision to permit an $85.4 billion merger between AT&T and Time Warner. Though the judge rejected the government’s argument that the merger will raise prices for consumers and limit competition, the decision to appeal sends a clear signal that the Justice Department plans to aggressively pursue antitrust cases.
The appeal also exemplifies a recent resurgence of antitrust activism. Along with the AT&T and Time Warner deal, over the past year there has been renewed interest in antitrust, particularly in regards to tech giants like Google and Facebook. This resurgence represents a shift away from the consensus that government should not intervene in firm concentration unless it is clear that consumers are being harmed, and towards the conception that “big is bad,” regardless of whether consumer harm can be demonstrated.
But, as University of Chicago law professor and later federal judge Frank Easterbrook outlined in a seminal 1984 paper, a key question at the core of antitrust cases is the impact of Type I (false positive) and Type II (false negative) errors. A Type I error is the incorrect finding that firm concentration is causing consumer harm while a Type II error is the opposite, the incorrect finding that firm concentration is not causing consumer harm. Easterbrook argued that Type II errors are less harmful—though a firm’s practices are causing harm, in a dynamic market competing firms will find ways to offset the harmful advantage. But the government intervention impelled by a Type I error is not as easily offset. Thus antitrust policy should err on the side of allowing practices rather than declaring them illegal.