Today the European Union issued the opinion explaining its decision to fine Intel $1.45 billion for offering discounts to large purchasers (see this, this and this).
Although antitrust originated in the U.S., antitrust enforcement has become more active in other parts of the world where awareness of the limitations and dangers of overly-aggressive antitrust enforcement is still in the embryonic stages. This has created regrettable forum-shopping opportunities for less-successful U.S. and foreign competitors.
Does this just sound awful, or not?
The new administration plans more aggressive antitrust enforcement, and it has withdrawn a 215-page report, entitled “Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act (2008),” which was issued by the Department of Justice during the Bush administration. According to Christine A. Varney, who is the new Assistant Attorney General in charge of the Antitrust Division, the report
raised too many hurdles to government antitrust enforcement and favored extreme caution and the development of safe harbors for certain conduct within reach of Section 2[.]
Antitrust enforcement is supposed to prevent monopolists from stifling competition and harming consumers. But the interests of competitors and consumers are not closely aligned.
Obviously, consumers are better off when prices are low and there is a wide variety of products to choose from. But it also stands to reason that competitors are better off when they can produce a minimum number of products and charge high prices.
For antitrust enforcement, the issue boils down to whether it should aim only to prevent conduct by a monopolist which has disproportionately little or no procompetitive benefits, or whether it should go so far as to prohibit a big firm from doing anything which could cause smaller rivals to lose market share, i.e., cutting prices; bundling products; refusing to deal with rivals who seek access to inputs, property rights or resources; or supplying parties who agree to purchase all or a large share of their requirements from one source.
When enforcers employ measures like these to prevent weaker competitors from losing market share, consumers can easily be forced to pay higher prices or accept shoddier or less-convenient products, unfortunately.
Permitting less-efficient incumbent rivals to go under usually doesn’t mean that a big firm will eventually be able to charge whatever it wants anyway. If it charges unreasonable prices (or fails to offer appealing products) in the future it will enable new competitors to profitably enter the market, unless there are unusual barriers to competition – such as physical or legal barriers (not merely brand recognition).
The “Anti Dog-Eat-Dog Rule” in Atlas Shrugged, an indispensable desk reference for the modern age by Ayn Rand, was for the purpose of preventing shippers who were dissatisfied with the deteriorating service provided by an ailing railroad from taking their business to a more efficient rival who offered superior service. The rivalry between the two railroads was attacked for being “destructive,” because the ailing railroad couldn’t take it. The ailing railroad had political connections, however, so a new market was created in which the politically-connected were the winners and the losers were the most competent businesspeople. It’s not as far-fetched as it sounds.
No one wants to see an evil monoply crush a virtuous rival.
But as Professor Joseph Schumpeter once noted, the English-speaking public has acquired a habit of attributing to the term “monopoly” practically everything it dislikes about business.
To the typical liberal bourgeois in particular, monopoly became the father of almost all abuses—in fact, it became his pet bogey.
The alternative is for politicians and bureaucratic allies to attempt to create a utopia for small businesses through regulation – not for the benefit of entrepreneurs who create a better mouse trap or offer superior service, because those who find and exploit a niche can be successful regardless of their size.
It is the smaller potential rivals who merely seek an advantageous street corner as their competitive advantage and offer little additional value who stand to benefit from aggressive antitrust enforcement.
Antitrust enforcement makes sense as a full-employment policy, but it reduces the incentives for innovation. It can channel investment into building gas stations on every corner as it did in the 1960s and 1970s, for example, but it reduces the incentives for innovators to find an alternative to gasoline.
In the computer age, it is doubtful that antitrust enforcement can accomplish what it once did. Consumers can now easily survey offerings not only on the nearest street corner but across the country, or even overseas. FedEx and UPS can efficiently deliver most products.
The Department of Justice report that the new administration is attempting to erase synthesizes views expressed by over 100 academics, businesspeople and antitrust practitioners during a series of hearings over the course of a year which consisted of twenty-nine separate panels. It also encapsulates opinions from scholarly commentary, Supreme Court and lower court opinions and reflects the enforcement policy of the Department of Justice.
When extremists can’t defeat an argument, they attempt to banish it.
The purpose of the report is make progress toward the goal of clear and understandable standards that will lead to more predictability, which is what businesspeople and investors and investors want and need.
The only reason to make antitrust enforcement less clear, less understandable and less predictable is to increase the scope for politicians and allied bureaucrats to substitute their personal preferences for transparent principle.
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.