Antitrust and the Perils of Mission Creep

by tim brennan
 

tim brennan, a former chief economist at the Federal Communications Commission, is a senior fellow at Resources for the Future and professor of public policy at the University of Maryland, Baltimore County.

Illustration by Michael Morgenstern

Published May 25, 2018

 

A hot topic for antitrust policy types these days is whether competition regulators should be pursuing goals other than economic efficiency. The idea has even acquired a disparaging Trump-era nickname — “hipster antitrust.” Leading candidates for nouveaux goals include reducing economic inequality and increasing competitive fairness, but a number of others are out there, too. I found a dozen (for an article recently published in the Antitrust Bulletin), including environmental sustainability.

Much of this revisionism seems to stem from concerns that both market concentration and income inequality are increasing in the American economy. Greg Werden and Luke Froeb at the Justice Department’s Antitrust Division have recently critiqued these competing claims, but I do not want to get into the specifics here. Rather, I want to highlight some considerations in expanding the goals of antitrust beyond efficiency.

First, though, it’s fair to ask why this is a legitimate question — don’t the antitrust statutes specify their goals? 

In a word, no. The three main statutory provisions prohibit “restraint of trade,” acts to “monopolize” and mergers and acquisitions where the effect “may be substantially to lessen competition, or to tend to create a monopoly.” 

That’s it. What constitutes trade restraint, monopolization and anticompetitive mergers is pretty much left to the courts (and precedents set by previous courts) to decide. Even price-fixing cartels are illegal only because the courts determined that they fit in the restraint-of-trade box. In the end, then, adding or subtracting goals or changing priorities only takes convincing five Supreme Court justices.

 
There’s been a loose consensus for about four decades that economic efficiency is the core objective of antitrust. That consensus has left plenty of wiggle room for debate about what constitutes efficiency.
 

Despite the ambiguity of our century-old competition laws, there’s been a loose consensus for about four decades that economic efficiency is the core objective of antitrust. That consensus has left plenty of wiggle room for debate about what constitutes efficiency, in particular whether benefits to firms from cost savings should be allowed to count against harms to consumers from higher prices. And some scholars, it’s worth noting, flat out assert that free entry to markets and the potential for innovation make antitrust enforcement unnecessary — and potentially an impediment to achieving economic efficiency.

But back to the current debate over whether other objectives should count. Stepping back from the give-and-take over the merits of these potential goals, those who advocate broadening the scope of antitrust should keep four things in mind. 

The reality of tradeoffs. If a new objective for antitrust is worth pursuing, it must involve some practical tradeoff with the conventional focus on efficiency. Some business practices that would have been illegal under the old objective would be legal because it promotes the new objective. For example, a merger that is deemed anticompetitive nonetheless might be approved because it creates jobs. By the same token, a merger that would promote economic efficiency might be barred because it would reduce employment. 

If some tradeoff with efficiency isn’t there, the assertion of a new objective amounts to a disguised excuse for expanding or contracting antitrust enforcement. The reach of antitrust is always worth debating, but it can and should be done without introducing additional objectives. 

Adding complexity. Even if the sole objective of antitrust remains economic efficiency, the merits of antitrust cases have become ever more difficult to assess as analysis of markets has become more technically sophisticated. For example, courts now generally rely on state-of-the-art econometric methods to simulate the likely impact of a proposed merger. The problem of comparing potential improvements in service quality from a practice derived from a merger to the costs of, say, a reduction in the range of products available appears to remain pretty much intractable. All too often, litigants simply dismiss what they can’t calculate.

In short, antitrust is already too complicated. Adding the weight of new objectives would make it harder for courts, enforcers, businesses and the public to ascertain what is legal and what isn’t. 

Better tools for the task. Reducing income inequality, creating jobs (especially during recessions), increasing wages or encouraging innovation are all arguably worthwhile. But antitrust, which is subject to the happenstance of cases and narrow range of legal remedies, is a lousy way to achieve these backdoor goals. Equality is much better promoted by economy-wide progressive taxation and various income support programs. Employment responds to fiscal stimulus, innovation to R&D tax credits. Using antitrust rather than these better-targeted policies is a problematic waste of political capital.

Diversion from the mission. On the other side of the coin, antitrust is the best policy tool we have to protect and promote competition. Indeed, other than price regulation that is narrowly targeted on public utilities, antitrust is all we have to control the creation and expansion of market power. To the extent that antitrust becomes a tool for fixing a wide assortment of social ills, its role as the protector of efficiency through competition will be diluted. And there’s nothing left to take its place.

•••

Most people (including me) view many objectives other than efficiency to be legitimate objectives of economic policy. It’s thus easy enough to see why policymakers are tempted to piggyback other goals on antitrust when it gives them political leverage. But there’s a price to pay in muddying these waters — a price, I suspect, is higher than is generally understood.

main topic: Competition Policy
related topics: Markets