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.

The recently proposed Microsoft-Yahoo deal has rekindled the debate over what role, if any, antitrust regulators should play in the high-tech sector. Adam and Berin have argued that decades-old (sometimes centuries-old) antitrust laws simply cannot keep pace with the relentlessly fast-moving digital economy. And Farhad Manjoo of Slate has concluded that antitrust action against tech companies does more harm than good — even when the facts favor government intervention.

For more on this, check out this excellent column on the future of antitrust enforcement by L. Gordon Crovitz in today’s The Wall Street Journal which quotes my colleague (and fellow TLFer) Wayne Crews:

Markets were so much simpler in the 1890s, when Sen. John Sherman got almost unanimous support in Congress to go after the Standard Oil Co. of Ohio. The Sherman Act and later antitrust laws were supposed to protect consumer interests. That’s not so easy when regulators have to deal with industries as different as oil, with its cartels and long product cycles, and technology, where fast change is a constant necessity for survival… The bottom line is that by the time regulators can assess a technology market, the market has often moved on. Not long ago, Google was the upstart and the search leaders included names like AltaVista and Excite. “Regulatory intervention in the high-tech sector thwarts the natural evolution of the market,” argues Wayne Crews of the Competitive Enterprise Institute. “Worse, it distorts the response of competitors. Antitrust investigations steer the market in unnatural directions, creating instabilities in entire industry sectors.”

Read the rest here.

Wired Magazine editor Chris Anderson has an important new book out, “Free: The Future of a Radical Price.” He focuses on the economics of free services, building on the excellent analysis of thinkers like Mike Masnick (whose 2007 essay, “The Grand Unified Theory on The Economics of Free,” succinctly sums up the concept).

Following up on his book, Anderson has a new op-ed up on CNN.com in which he explores how the emergence of free services in the digital age has raised new challenges for antitrust regulators:

Now Google has Microsoft-like dominance in search and search advertising. What should it not be allowed to do? That question may come to define this era of antitrust law. When [Christine] Varney was confirmed, she withdrew the Bush administration’s report setting relatively conservative standards of antitrust enforcement and declared, “The Antitrust Division will be aggressively pursuing cases where monopolists try to use their dominance in the marketplace to stifle competition and harm consumers…

Varney and her team of economists and lawyers are no doubt tangling with the question of how to enforce antitrust laws in a way that ensures an “even” playing field for competition without causing consumers to lose access to free services that are growing more abundant by the day.

But there’s a more important question that Varney should be asking: what actually constitutes market dominance in the age of free? Is the fact that a firm has a substantial share of a distinct marketplace a reliable indicator of dominance? And if the result of firms achieving high market share is an explosion of free goods and services, is it even in consumers’ interests for government to go after “dominant” firms?

Recent happenings in the tech world suggest that even markets often considered to be dominated by a single firm may be a lot more contestable than we think. Today’s hottest tech news item is that Google is “planning a direct attack” on Microsoft’s venerable Windows operating system. And just a few weeks ago, Microsoft launched its new search engine Bing, accompanied by a massive $100 million dollar advertising blitz.

Hold on a minute. Doesn’t Microsoft have a stranglehold of the operating system market? And isn’t Google in control of the search engine market? Antitrust regulators on both sides of the Atlantic certainly seem to think so, if recent investigations are any indicator.

Yet the top brass at Microsoft and Google must think otherwise, or else neither firm would be devoting such resources to breaking into the search and operating system markets, respectively. Rather than resting on their laurels, Microsoft and Google are competing aggressively, rolling out new and improved services all the time. Consumers are benefiting along the way — even from actions that are allegedly “anti-competitive,” such as Microsoft’s inclusion of bundled software with Windows or Google’s plan to digitize volumes of orphan works.

This dynamic is exactly the opposite of what one would expect from a market in need of “saving” by government trust-busters. In fact, despite Google’s 65% share of search and Microsoft’s 88% share of operating systems, both markets appear to be highly contestable.

Google recently experienced failures of its core services — a phenomenon that quickly spawned the hashtag “googlefail” on the popular social networking platform Twitter.  These failures show that a company once thought of as the odds-on favorite for dominating the global market in all things web — the monolith of Mountain View — is looking more and more like a search-only player.

Big firms consistently fail to use their “market dominance” to take over adjacent markets, something that should give antitrust warriors in the Obama administration reason for pause.  The renewed call for tough antitrust enforcement comes at a time when Google, a poster-child for market dominance, simply can’t leverage its position at all.

Google Apps Google’s most recent outages, along with past outages of Google’s “GMail” email service, show that Google is not yet in a position to use its popularity in search to take on the likes of Microsoft Office and other productivity suites.  Only last year outlets such as USA Today, ABC News, and PC World speculated that we may see a war between the GooglePlex and Redmond over the productivity space.  Continued outages, not to mention the failure to improve Google Apps functionality, makes this seem very unlikely today. #dominancefail

Streaming Video YouTube was also part of today’s #googlefail.  When Google bought YouTube in 2006 the purchase had to be approved by the FTC.  Looking back, this seems just silly.  Not only has YouTube failed to become a money-making behemoth, it’s failed to make a money at all.  It seems clear now that while consumers absorb a lot of YouTube clips, the real money — the only money — is in premium content such as Hulu’s ad-supported video, iTunes’s piecemeal sales, or Netflix’s  subscription model.  While Hulu’s profitability is unknown, none of these competing video sites seem to be as incredible a loss-leader as YouTube.  The FTC may have approved the Google-YouTube merger more quickly had it known YouTube would turn into a video money pit — one that could be seen as a competitive disadvantage to Google. #dominancefail

Smart Phones While not part of the recent #googlefail problems, the G1 phone has failed to become a strong competitor to RIM’s Blackberry line or the iPhone.  Granted, RIM has been around for years and the iPhone has been on the market for nearly two full years, yet the G1 has still experienced dismal sales considering Google’s considerable clout and credit with the tech set.  Piper Jaffrey projects that iPhone sales will top 45 million units this year.  Compare that to the G1 — heralded as the first of many phones using Google’s Android operating system — which is trailing at a distant 5th in the smart phone sales rankings. #dominancefail

Google’s failures aren’t the result of failings specific to Google, but rather evidence that companies that become excellent in one field aren’t necessarily capable of achieving excellence in another.  Rewiring even a portion of a multi-billion dollar company to provide a totally new product is a near impossible task.  The incentive structures, hiring practices, corporate culture and myriad other factors necessary to be world-class in one endeavor may be very different for another.  In short, market advantage is not much of an advantage in today’s economy, but instead can prove to be an incredible hindrance to expanding into new markets.

This is especially true in the tech industry where barriers to entry are low, investor eagerness is high, and new competitive spaces are opening constantly.  This is why big players emerge so quickly — like Google — and fade so fast.  Think AOL, AltaVista, Compuserve, etc.

So, rather than focus on how to punish big players in a given market, the Obama administration should focus on how to free up capital markets to allow money to flow to the best technologies so that competition remains vibrant.  Repealing onerous regulations like Sarbanes Oxley that make it harder for companies to go public would be a good start.  Refraining from locking-up capital markets further by layering on morepseudo-accountability rules is also key.  Additionally, as the Cato Institute’s Jim Powell points out, allowing venture capitalists to do their jobs — something Mr. Obama’s budget discourages — is key for competition and furthering innovation.

If any additional evidence is needed that big firms don’t always stay big and can even fail, members of the administration need only visit Google News…if it’s up.