Want Recovery? Remember Antitrust is Anti-Economy

by on August 10, 2009 · 23 comments

More restraint is in order when it comes to the Obama administrations intent to escalate “antitrust” enforcement against business and enterprise in America.

A skeptical interpretation of antitrust’s realities—up to and including recent campaigns targeting Intel, Google, XM-Sirius; and earlier campaigns against Microsoft and the AOL Time Warner merger, as well as rejected mergers like Echostar/DirecTV—is that antitrust often advances the well being of various species of political predators rather than consumers.

Antitrust is a form of economic regulation. And like all economic regulation, it transfers wealth from somebody to somebody else, often in response to special-interest urging. Partly in recognition of such shortcomings, many economic sectors like transportation and telecommunications were (partly) deregulated and liberalized during the last quarter of the 20th century. But antitrust regulation typically gets a pass. Even in the “new economy,” this century-old smokestack era concept is used to justify constraints and conditions imposed on vigorously competitive modern companies. Antitrust is wrongly seen as being in the public interest, as having a superior role to play in policing markets relative to the alternatives.

In antitrust cases, targeted companies’ rivals have a direct financial interest in the outcome. Appeals to antitrust as a public interest law do not change the fact that private motives of rivals, and even ambitious enforcers, are not simply lurking in the background, but running the show. The idea that antitrust helps consumers and that it has a role to play in the new economy deserves reexamination and challenge.

Under antitrust law, a laundry list of business practices (tying, bundling, discrimination, exclusive deals, and so on) are regarded suspiciously, some outlawed altogether. But business transactions are fundamentally voluntary, non-coercive dealings—unlike the forced antitrust interventions that rivals often seek. From this fresh perspective, one finds that even the most “despised” business behaviors—even collusion and mega-mergers—can be pro-competitive and pro-consumer. To the extent that antitrust regulation strikes down practices that have misunderstood or ignored efficiency justifications, especially in an information-based economy, individuals and society are made unnecessarily poorer.

The list of vilified business practices is long, but needn’t be, and we often try to explain why. If anyone cares about economic recovery and jobs, today’s aim should be to “deregulate to stimulate,” so a list of vilified trustbuster practices would be far more advantageous to consumers.

  • http://gnuosphere.wordpress.com/ Peter Rock

    Does it not depend on each case and what the result of an antitrust suit is? For instance, let's say a software company in a monopoly position uses a networking protocol that is kept secret to actively prevent other companies from developing interoperable software. If the result of a lawsuit is to force the monopolist to reveal details better allowing a free market to thrive, then how is this bad?

  • http://www.aheram.com Jayel Aheram

    Well, maybe. I actually do not mind seeing the government go after the monopolies they help create.

    What do I mean by that? Some of the software companies you mentioned created their monopolies using their state-granted monopoly or copyrights and patents.

    In a truly free market, anti-trust is indeed anti-economy. Though, if you take into account that these monopolies are not natural, then it is merely self-correction (or self-destruction!).

  • dmarti

    Jayel, this is TLF–where special interest groups advocating for large companies pretend to be Libertarians. Yes, antitrust is less of a problem for most people's employers than the copyright and patent systems, and many other forms of regulation, but most other regulators are already subject to Regulatory Capture by TLF sponsors.

  • http://www.openmarket.org/author/alex-harris/ AlexHarris

    I'm not sure you're really using “Regulatory Capture” in quite the right way here… Wayne's post is describing a form of regulatory capture, whereby competitors try to use the government's antitrust enforcement arms to delay or prevent a beneficial new deal or to impose new fines on a rival that customers, on the whole, like better. Regulatory capture is when businesses capture regulatory actions and use them as tools, backed by the force of government, for imposing burdens on their competitors. Businesses banding together to oppose government intrusion is not “capture.” Fighting an enemy is not the same as capturing him and using him to do your bidding…

    (Of course, I may be misinterpreting your comment. You may mean that some of the companies that indirectly contribute to TLF, e.g. by funding the thinktanks that hire our writers, engage in regulatory capture on certain issues. No question. I'd love to hear who never plays the game in that way that's offering to fund libertarian think-tanks.)

  • dmarti

    Regulatory capture is a better strategy than advocating for deregulation, since it helps keep barriers to entry high. So companies generally prefer regulatory capture. Generally companies only advocate for deregulation when regulatory capture looks too hard, and regulators won't play ball, as in the case of the current US antitrust system.

    TLF tends to make a big deal out of less captureable regulators and ignore the ones that its supporters already have safely captured.

  • dm

    Wow.

    You guys really don't remember the anti-trust case against ATT, do you?

    Go read your history books, and contemplate the communications revolution that took place as a result of the Bell breakup, and then come back and try to push the line that “anti-trust is anti-economy” with a straight face.

    What a joke.

  • http://www.techliberation.com Adam Thierer

    DM, perhaps it is you who should read your history. If you care to understand how the Bell system monopoly developed, I encourage you to begin by reading my 1994 study, “Unnatural Monopoly: Critical Moments in the Development of the Bell System Monopoly.” (I cite all the additional relevant literature you need to read). As you will see, it was government intervention that drove the monopolization process beginning right from the start of the telephone patent and well into the next century. Generally speaking, these three government actions drove the outcome:

    1. The intentional elimination of what was considered wasteful or duplicative competition through exclusionary licensing policies, misguided interconnection edicts, protected monopoly status for dominant carriers, and guaranteed revenues for those regulated utilities;

    2. The mandated social policy of universal telephone entitlement, which implicitly called for a single provider to easily carry out regulatory orders; and

    3. The regulation of rates (through rate averaging and cross-subsidization) to achieve the social policy objective of universal service.

    Thus, at some point, it became essential for our government to take steps to reverse the mess it got us into. Of course, the Baby Bell divestitures and resulting artificial separation between local and local distance service probably wasn't the best way to do it. It set up a truly insane regulatory process that took us another decade and a half to dig ourselves out of.

    The REAL reason communications is more competitive today has very little to do with the AT&T breakup. It's about technological innovation. The rise of wireless + the microchip + personal computing + the Internet + other digital devices & services. The best argument for antitrust in the context of communications is that (perhaps) it kept AT&T out of some of these fields and let them develop a bit quicker. But the old AT&T was never much of a player in these fields and posed little threat to innovation within them.

  • dm

    You begin by begging the question — you assume the situation prior to the Bell breakup was a “mess”. It wasn't. The phone system worked extremely well. It was ubiquitous — which your paper acknowledges was only possible through cross-subsidization. I suspect that the wastefulness of stringing multiple strands of copper down the street had as much to do with geographic-based monopolization (the only real monopoly we had in phones — there were lots and lots of phone companies, just typically one per town or region) as your regulators. Or can you cite a similar study for regional gas and power monopolies? I'm sure a libertarian road system would rapidly converge on regional monopolies, too.

    Another side effect of that monopoly was the creation of Bell Labs and GTE Labs — they existed because state regulators did not want profits generated in their state to be used for capital improvements in other states. The research labs were created, and given such loose reins as a place to put the phone companies' profits. The research labs didn't last very long after the breakup.

    The REAL reason communications is more competitive today has very little to do with the AT&T breakup. It's about technological innovation. The rise of wireless + the microchip + personal computing + the Internet + other digital devices & services.

    Prior to the breakup, you couldn't plug a modem into the phone system, unless you bought it from Western Electric. We were limited to acoustic couplers that cradled a telephone handset, which limited data rates to what you could squeeze through the acoustic network. When the breakup occured, we had the freedom to plug modems directly into the phone net, which meant better connections, and allowed higher data rates through signal processing magic. In other words: the Internet and digital services were liberated by the anti-trust breakup. (The old ATT was not much of a player in those fields because it was prohibited from doing so — it's monopoly in copper wire to the home was seen as too great an advantage in such services; as a result, UNIX was given away nearly for free until after the breakup.) So, yes, the breakup had an immediate effect.

    The Internet also grew in the US through the legacy of that nasty monopoly and that horrible universal service. The legacy of phone subscriptions instead of the usage-time-based fees adopted in other countries meant that people could spend hours plugged into the net. The ubiquity of phones meant that the US had a communications infra-structure that nurtured the net (though of course those phone-engineers were horrified at the idea of packet-switching).

  • Ryan Radia

    What captureable regulators should we be focused on? I mean this seriously — if there are regulators that we ought to be delegitimizing, by all means let us know and we'll listen. Despite the fact that some of us TLFers are connected to business interests that have incoherent, occasionally anti-consumer agendas, I think we're generally pretty consistent about advocating the elimination of artificial entry barriers. Unlike many pundits, we don't change our positions when the political winds change. Since the beginning, TLF has been skeptical of antitrust — even as the focus of antitrust regulators has shifted from software firms to Web giants. We've also long pushed for policies that reduce entry barriers for potential telecom last mile entrants. But again, we don't claim to be perfect, and any suggestions on how we can better advocate an open, unfettered market are welcome.

  • titipau

    Well I think that the goverment should increase the regulation that protect us for instance I bought a couch from a place called Scott Jordan furniture here in Manhattan while i was at the store the owener(not just a sales person) provided us with information regarding the way the delivery was going to be, the way we were going to paid the 50% of the cost of the couch on delivery. The company not only did not follow what they had promise but harrased me and were not polite when i brought to their attention that they were not delivering what they promise. I tried to get some assistance from the better business bureu but they could not help . I think we need better protection for the consumer

  • dmarti

    In IT, the biggest two government problems are probably anticircumvention law, which lets incumbents use the power of the state to exclude competitors, and the patent system, where patentability creep driven by bureaucrats and judges, not legislation, has extended the system to cover algorithms and business methods.

    Good for _a_ business does not necessarily equal good for business.

  • dmarti

    In IT, the biggest two government problems are probably anticircumvention law, which lets incumbents use the power of the state to exclude competitors, and the patent system, where patentability creep driven by bureaucrats and judges, not legislation, has extended the system to cover algorithms and business methods.

    Good for _a_ business does not necessarily equal good for business.

  • titipau

    Well I think that the goverment should increase the regulation that protect us for instance I bought a couch from a place called Scott Jordan furniture here in Manhattan while i was at the store the owener(not just a sales person) provided us with information regarding the way the delivery was going to be, the way we were going to paid the 50% of the cost of the couch on delivery. The company not only did not follow what they had promise but harrased me and were not polite when i brought to their attention that they were not delivering what they promise. I tried to get some assistance from the better business bureu but they could not help . I think we need better protection for the consumer

  • dmarti

    In IT, the biggest two government problems are probably anticircumvention law, which lets incumbents use the power of the state to exclude competitors, and the patent system, where patentability creep driven by bureaucrats and judges, not legislation, has extended the system to cover algorithms and business methods.

    Good for _a_ business does not necessarily equal good for business.

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