Zack Wittman/The New York Times

Time for a Truce with Gun Makers

by ian ayers and abraham l. wickelgren
 

ian ayres and abe wickelgren teach at the Yale Law School and the University of Texas School of Law, respectively. This article is adapted from their article posted on the Brookings Institution website.

Published March 22, 2018

 

Is federal gun control reform once again doomed to fail, victim of the gun lobby and its principal client, the gun manufacturers? Not necessarily. We think there is a straightforward, if seemingly perverse, way to co-opt the industry into supporting some restrictions: provide an antitrust exemption to gun makers that allow them to collude to maximize collective profits by limiting sales.

Turning Antitrust Law on Its Head

This, of course, would turn antitrust law on its head, which, after all, was designed to prevent firms from agreeing to limit supply to raise prices. But with products that cause harm to third parties, the general public as well as sellers could benefit from higher prices and reduced supply. Indeed, just as OPEC has some interests in common with environmentalists who care more about reducing oil consumption than curtailing oil profits, a gun manufacturers cartel would serve the interests of the broader society by reducing sales.

Remember three years ago when Turing Pharmaceuticals realized the firm had a virtual monopoly on a critical anti-malarial drug and responded by raising the price more than 50-fold? By contrast, the market for guns is pretty competitive, so it doesn’t pay individual manufacturers to try similar tricks; if they did, they’d lose most of their sales to rivals.

Consider, for example, the AR-15 rifle. The AR-15 is no longer a brand sold by a single manufacturer (originally Colt), but a generic sold by more than a dozen — and sometimes at prices below $600. But if the manufacturers were able to collectively determine output and price (and enforce the deal), it would pay them to charge much more — and in so doing, arguably price this weapon of war beyond the reach of the young killers in the Parkland, Newtown and Aurora shootings.

One catch: foreign gun makers could choose to “free ride” at the cartel’s expense by undercutting its inflated price in order to gain market share. But this could be prevented by raising import tariffs sufficiently to close the cost-price gap. Such a move would no doubt be challenged as discriminatory under treaties to which the United States is a signatory. It is hard to imagine, though, that our trade partners would not accommodate us in light of the purpose of the initiative — or, at the very least, cooperate by allowing their own manufacturers to join the cartel.

 
Seeing gun control through the lens of economics helps to identify the sorts of measures for which arms-makers’ opposition is likely to be weak.
 

Simply ceding the multi-million-dollar gift of antitrust immunity might save a substantial number of lives, but we think the carrot of antitrust immunity would give the government the leverage to soften the industry’s resistance to other gun control measures. Indeed, seeing gun control through the lens of economics helps to identify the sorts of measures for which arms-makers’ opposition is likely to be weak. For example, banning possession of bump stocks or high-capacity magazines would negligibly affect the industries’ revenues or profits. In fact, the industry might quietly welcome efforts to reduce the stock of special-purpose equipment for existing semi-automatic rifles because this would increase willingness to pay for new gun models that met the new regulations. More generally, as long as the package deal of an antitrust exemption and additional gun control measures resulted in a net increase in gun industry profits, it should tempt the gun industry.

First Baseball, Now Guns?

The idea that government might act as cartel ringmaster seems far-fetched. But there is precedent: Washington explicitly exempted Major League Baseball and the insurance industry from parts of the Sherman Act. More to the point, the 1998 multi-state tobacco settlement aimed to reduce harm to the public by facilitating huge price increases on tobacco products. Under this deal, manufacturers had to pay “damages” of 35 cents a pack on most future sales to offset tobacco-related Medicaid costs borne by the states. The terms of the settlement, however, enabled the tobacco companies to pass the payment along to consumers as a price increase, thereby reducing the quantity of tobacco purchased.  

The multistate cigarette settlement is a clear lesson in how government might serve the public by facilitating market power, sacrificing the interests of consumers in order to advance public health. A strange-bedfellows strategy applied to gun safety would similarly drive a wedge between consumers and producers. Indeed, it would help tease out how much of the political support for gun rights is driven by the passions of gun owners and how much stems from the lobbying might of producers aiming to sustain profits.

The Parkland calamity unleashed a tide of support for gun control legislation. We’ve seen similar groundswells after mass shootings in the past, only to have initiatives for modest reforms evaporate in the face of gun lobby opposition. Instead of settling for outrage-as-usual, we think it’s time to cut a deal. A more-profits, fewer-guns mantra wouldn’t appeal to gun enthusiasts — but it could finally bring the gun manufacturers, and all their lobbying might, to support gun control instead of opposing it. While gun control advocates might not like the idea of gun manufacturers making more money, if this is what it takes to finally pass meaningful reforms that prevent the next tragedy, it seems to us a small price to pay. 

main topic: Gun Control
related topics: Policy