Antitrust: The Case for Repeal

January 11, 2003 • Commentary

More than 30 years ago, Federal Reserve chairman Alan Greenspan described U.S. antitrust laws as a “jumble of economic irrationality and ignorance.” That assessment is especially applicable to today’s information‐​driven, high‐​tech economy. Here are eight reasons why antitrust should be repealed, root and branch.

#1: Antitrust debases the idea of private property.
Too often, when government enforces antitrust laws, it transforms 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 rivals who are bent on the market leader’s demise. Some advocates of the free market endorse that process, despite the destructive implications of stripping private property of its protection against confiscation. If new technology is to be declared public property, future technology will not materialize. If technology is to be proprietary, then it must not be expropriated. Once expropriation becomes the remedy of choice, the goose is unlikely to continue laying golden eggs.

The principles are these: No one other than the owner has a right to the technology he created. Consumers cannot demand that a product be provided at a specified price or with specified features. Competitors are not entitled to share in the product’s advantages. By demanding that one company’s creation be exploited for the benefit of competitors, or even consumers, government turns a blind eye to core principles of free markets and individual liberty.

#2: Antitrust laws are fluid, non‐​objective, and often retroactive.
Because of murky statutes and conflicting case law, companies never can be quite sure what constitutes permissible behavior. If a company cannot demonstrate that its actions were motivated by efficiency, conduct that is otherwise legal somehow morphs into an antitrust violation. Normal business practices — price discounts, product improvements, exclusive contracting — become violations of law. When they are not accused of monopoly price gouging for charging too much, companies are accused of predatory pricing for charging too little or collusion for charging the same!

#3: Antitrust is based on a static view of the market.
In real markets, sellers seek to carve out mini‐​monopolies. Profits from market power are the engine that propels the economy. So what might happen in a utopian, perfectly competitive environment is irrelevant to the question whether government intervention is necessary or appropriate. The proper comparison is with the marketplace that will evolve if the antitrust laws, by punishing success, eliminate incentives for new and improved products. Markets move faster than antitrust bureaucrats could ever move. Consumers rule, not producers. And consumers can unseat any product and any company no matter how powerful and entrenched. Just ask WordPerfect or Lotus or IBM.

#4: Antitrust remedies are designed by lawyers who do not understand how markets work.
Economic losses from excessive regulation can do great damage to producers and consumers. But government moves forward in the name of correcting market failure, apparently without considering at all the possibility of government failure.

Proponents of antitrust tell us that government planners know which products should be withdrawn from the market, no matter what consumers actually prefer. The problem with that argument is that it leads directly to paternalism — to the idea than an elite corps of experts knows our interests better than we do, and can regulate our affairs to satisfy those interests better than the market does. The real issue is not whether one product is better than another, but who gets to decide — consumers, declaring their preferences by purchases in the market, or specialists in government rating the merits of various goods and services. When we permit government to make such decisions for us, and we allow those decisions to trump the subjective choices of consumers, we abandon any pretense of a free market. In the process, we reduce consumer choice to a formalistic appraisal centering on technical features alone, notwithstanding that products are also desired for quality, price, service, convenience, and a host of other variables.

#5: Antitrust law is wielded most often by rent‐​seeking businessmen and their allies in the political arena.
Instead of focusing on new and better products, disgruntled rivals try to exploit the law — consorting with members of the legislature, their staffers, antitrust officials, and the best lobbying and public relations firms that money can buy. Soon enough, the targeted company responds in kind. Once upon a time, Microsoft conspicuously avoided Washington, D.C. politicking. No more. Look at their beefed up Washington offices. Meanwhile, America’s entrepreneurial enclave, Silicon Valley, has become the home of billionaire businessmen who use political influence to bring down their competitors. That agenda will destroy what it sets out to protect. Politicians are mostly order takers. So we will get the kind of government we ask for — including oppressive regulation. Citizens who are troubled by huge corporations dominating private markets should be even more concerned if those same corporations decide that political clout better serves their interest — politicizing competition to advance the private interests of favored competitors.

#6: Barriers to entry are created by government, not private businesses.
Under antitrust law, the proper test for government intervention is whether barriers to entry foreclose meaningful competition. But what is a “barrier”? When a company advertises, lowers prices, improves quality, adds features, or offers better service, it discourages rivals. But it cannot bar them. True barriers arise from government misbehavior, not private power — special‐​interest legislation or a misconceived regulatory regimen that protects existing producers from competition. When government grants exclusive licenses to cable, electric, and telephone companies, monopolies are born and nurtured at public expense. When the legislature decrees targeted tax benefits, subsidies, insurance guarantees, and loans; or enacts tariffs and quotas to protect domestic companies from foreign rivals, that creates the same anti‐​competitive environment that the antitrust laws were meant to foreclose. The obvious answer — which has little to do with antitrust — is for government to stop creating those barriers to begin with.

#7: Antitrust will inevitably be used by unprincipled politicians as a political bludgeon to force conformity by “uncooperative” companies.
Remember when President Nixon wanted to browbeat the three major TV networks, he used the threat of an antitrust suit to extort more favorable media coverage. On a tape released a few years ago, Nixon told his aide, Chuck Colson, “Our gain is more important than the economic gain. We do not give a goddamn about the economic gain. Our game here is solely political.… As far as screwing the networks, I’m very glad to do it.” If Nixon were the only culprit, that would be bad enough. But former New York Times reporter David Burnham, in his 1996 book, Abuse of Power, shows that U.S. presidents from Kennedy through Clinton routinely demanded that the Justice Department bend the rules in pursuit of political ends. The threat of abusive public power is far larger than the threat of private monopoly.

#8: A narrow definition of the “relevant market” can make any firm a “monopolist.”
In the Microsoft case, for example, the Justice Department stacked the deck by defining all of Microsoft’s rivals out of the market. Microsoft competes, so we were told, only against other single‐​user desktop PCs that run on an Intel chip. Thus, Apple’s market share did not count because Apple runs on a Motorola chip. Nor did Sun Microsystems’ share count because Sun, too, is not Intel‐​based — except Sun’s Solaris system, which is not single‐​user. As for Linux, its market share came too late to be included in the government’s complaint, so it did not count either. Then there are hand‐​held computers, sub‐​notebooks, set‐​top boxes, and other consumer electronics products, most of which also are not Intel‐​based. And finally, 15 percent of PCs are marketed “naked,” without a new operating system. Economist Alan Reynolds estimates that Microsoft’s real market share is closer to 65 percent. If that constitutes a monopoly, the Justice Department had better investigate Quicken, AOL, and Intel — each of which has a larger share than Microsoft.

Yet those companies, like Microsoft, have acquired market power by relying primarily on human intellect, which economist Julian Simon called the “ultimate resource.” No company monopolizes ideas. The history of free enterprise is that better ideas mean better products, and better products win in the market.

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 advocates to justify all manner of interventionist mischief. Those same advocates conveniently omit 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.”

Antitrust is bad law, bad economics, and bad public policy. It deserves an ignominious burial — sooner rather than later.

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