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Size Does Count

Rethinking Business Concentration

bill galston is a senior fellow and clara hendrickson is a research assistant at the Brookings Institution in Washington. This article is adapted from a Brookings Institution report that can be found here:

Published April 27, 2018


The past few years have witnessed an upsurge of academic interest in antitrust, with research centers and policy-oriented journals releasing a slew of briefings and symposia focused on the topic. But antitrust is not merely an object of increased scholarly concern. On the campaign trail during the 2016 U.S. presidential race, both candidates called for strengthening enforcement.

The half-life of campaign promises is often vanishingly short. But events of the past year suggest that antitrust does have traction. Last November, the new head of the Justice Department’s Antitrust Division blocked the planned merger between AT&T and Time-Warner — a corporate marriage that had widely been viewed as passing muster because it was a “vertical” merger between firms that did not directly compete.

Since then, other deals have kept mergers on the front burner. In December, CVS, the drugstore retailer and pharmacy benefits manager, agreed to buy the health insurer Aetna for $69 billion. Days later, a $52 billion deal between entertainment giants Disney and 21st Century Fox was announced.

As these dominant players take steps that would entrench their market positions, recent developments on Capitol Hill suggest a serious re-evaluation of the purposes and powers of antitrust law and enforcement has begun. Bills seeking to bolster antitrust enforcement have been introduced in both chambers. Several members of Congress have even come together to form an Antitrust Caucus. And just this past December, the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy and Consumer Rights of the Senate Judiciary Committee convened a hearing to probe the adequacy of the “consumer welfare” standard that has guided antitrust enforcement and the judiciary for the past four decades.

The Monopoly Moment

A glance at history offers perspective on what’s been happening. During the past 125 years, there have been three great waves of mergers and acquisitions that increased market concentration, each followed by a political and legislative reaction.

The emergence of the corporate-industrial economy

In a recent study, Carl Bogus of Roger Williams University, noted:

in just a nine-year period beginning in 1895, more than 1,800 companies were eliminated through mergers and acquisitions. That merger wave created scores of firms with more than 40 percent of their respective markets, and 42 firms with more than 70 percent of their markets.

This provoked stepped-up enforcement of the Sherman Antitrust Act of 1890 — the first major antitrust legislation — during the presidencies of Theodore Roosevelt and William Howard Taft. And it was followed under Woodrow Wilson by the passage of the Clayton Antitrust Act, which strengthened the Sherman Act, introduced merger controls and created the Federal Trade Commission to advance a pro-competitive agenda.

World War II and Its aftermath

Between 1940 and 1947, some 2,450 manufacturing and mining firms were swallowed up by mergers and acquisitions. This second wave of concentration also produced a governmental response. The Celler-Kefauver Act in 1950 and the Hart-Scott-Rodino Act in 1976 both expanded government discretion to review and block mergers. Meanwhile, the Supreme Court grew more inclined to an expansive interpretation of key antitrust statutes.


Nonetheless, concentration continues apace. Over the past two decades, over 75 percent of U.S. industries have seen an increase in concentration, with the number of firms competing against one another in precipitous decline. The Fortune 500 largest companies’ revenue as a share of GDP has increased from 58 percent to 73 percent. In 1954, the top-60 firms accounted for less than 20 percent of GDP. Now, the top-20 firms alone account for more than 20 percent. And there’s no sign that the trend is leveling off.

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Drilling Down

A sectoral analysis confirms the obvious. During the past decade, Monsanto, the chemical and biotech giant, has purchased 30 potential rivals, Oracle at least 80 and Google more than 120. Between 1994 and 2000, in the wake of a defense spending drought at the end of the Cold War, some 80 aerospacedefense firms merged into four. In a field once densely populated with independent book publishers, just five conglomerates now account for two-thirds of all the books commercially produced in the United States.

The list goes on and on. After a flood of mergers and acquisitions, Anheuser-Busch InBev and SABMiller today control 80 percent of the U.S. beer market. Between 1980 and 1994, there were more than 6,000 bank mergers. And in 1988, eight of the largest of them consolidated into just four megabanks.

These figures speak for themselves. But there are various, more rigorous ways to measure market concentration. Concentration ratios indicate the market share of the four largest firms relative to the rest of the industry. Concentration ratios can be measured by using sales concentration or employment concentration, or by determining the firms’ share of total industry revenue.

Antitrust enforcers generally rely on a wonkier, more nuanced (but nonetheless intuitive) measure, the Herfindahl-Hirschman Index, which is obtained by squaring the percentage of the market held by each of the top- 50 firms and then adding up the numbers. The HHI can range from zero, a classic competitive market where each firm has an infinitesimal percentage share, to 10,000, where one firm controls the whole shebang (100² = 10,000).

These studies suggest that, no matter what direction you look from, the American economy is witnessing rising market concentration. But Carl Shapiro, a former deputy assistant attorney general for Antitrust under President Bill Clinton, has urged caution in interpreting these numbers. “I very much doubt that many antitrust economists would be concerned to learn that a market had experienced these types of increases in the HHI,” he recently wrote in a paper entitled “Antitrust in a Time of Populism.”

It’s true: the current Horizontal Merger Guidelines classify markets as highly concentrated only if they top a 2,500 HHI threshold. Nevertheless, the fact that concentration is rising throughout the economy — and does not merely reflect the peculiarities of some markets — should give reason to pause. The problem may not lie in documented HHI levels failing to breach the point at which antitrust scrutiny is triggered, but in a threshold insufficiently concerned with the threat posed by concentration levels below those identified by current agency guidelines.

John Kwoka’s comprehensive study of merger activity finds that in narrowly focusing on the highest concentration cases, antitrust enforcement has failed to capture the very tangible anti-competitive effects of allowing mergers at the enforcement margin to proceed. This permissive approach, he concludes, has directly contributed to rising concentration.

And while enforcement against mergers at the margin could use strengthening, other studies find that concentration levels that would ordinarily trigger antitrust scrutiny haven’t. A Wall Street Journal analysis found that, in the food and staples retail industry, the HHI rose from 2,000 in 1996 to 3,000 in 2013. The internet software market saw an even more dramatic implosion, from 750 HHI in 1996 to 2,500 HHI in 2013. Meanwhile, the FCC found that concentration in the wireless market rose from an HHI of 2,700 in 2008 to 3,000 in 2013.

Concentration Erodes Competition

Rising concentration is only part of the story. Several trends indicate that the other shoe has dropped: competition across the economy is in decline. Taken individually, each might not elicit serious concern, but together they paint a troubling picture in which firms are exploiting the advantages of tepid competition.

Today’s corporations are astoundingly profitable. While in the mid-1980s their earnings constituted 7-8 percent of GDP, that share has since risen to 11-12 percent. One could read this gain as a sign of rapid innovation that antitrust policy should not punish. However, the evidence points in the other direction, toward weakened competition.

When competition is alive and well, rivals regularly displace incumbents. Yet, while a profitable American firm in the 1990s had a 50 percent chance of finding itself similarly successful 10 years on, a very profitable American firm today enjoys over an 80 percent chance.

Declining competition is also seen in labor’s falling share of GDP. While many assume the decline in labor compensation has been offset by an increase in capital’s share – defined as the return required to attract and keep capital at work — The University of Chicago’s Simcha Barkai found something quite different. The shares of both labor and capital have been declining since 1984, shifting returns to “supra-normal” profits in the non-financial corporate sector.

A breakdown in competition is also demonstrated by today’s lackluster start-up activity. Startup rates have fallen dramatically over the past three decades and among those formed, more are failing compared to previous decades. The mechanisms of creative destruction are breaking down, with today’s startups failing to displace incumbents and the market position of dominant firms becoming more entrenched.

Truth and Consequences

Taken in its entirety, evidence of rising concentration and declining competition suggests the time has come to freshen antitrust law and toughen its enforcement. The need to correct course becomes particularly clear in light of the economy-wide consequences that have resulted from under-enforcement.

Consumer harm

John Kwoka examined the price changes of 119 products before and after mergers and the establishment of joint ventures. He found that for nearly two-thirds of products, prices rose. In nearly one-third of cases, the price increase was greater than 10 percent, and in one-fifth of cases, the price increase was greater than 20 percent. Yet the antitrust agencies pursued action against just 38 percent of the firms apparently exploiting their pricing power.

Uncle Sam sitting on the steps to the White House, 1896/Universal History Archive/uig/Bridgeman images

Economic inequality

Increased concentration has led to rising prices for services that are staples of middle-class life — among them, health care, cable communications and air travel. It is also widening the income disparities among workers.

The current focus on CEO-versus-typical-worker compensation misses the even starker disparity between similarly positioned workers whose earnings vary based on where they work. Earnings inequality occurs largely between firms rather than within firms. Jason Furman and Peter Orszag link this finding to the fact that top firms enjoy super-normal profits and pass on some of the “economic rents” to their employees. But the vast majority of workers are not in a position to share in the bounty — hence greater inequality.

Corporate ossification and underinvestment

Declining dynamism, as indicated by a 30 percent drop in the share of U.S. employment accounted for by young firms over the past three decades, has stark implications for workers as well as productivity growth. Today’s employers tend to be large, national firms. This consolidation threatens potential competitors that have historically served as a major source of innovation.

What Do We Want From Antitrust?

The Congressional debate over the seminal Sherman Act offered a stew of economic, political and moral aims that individual supporters hoped it would promote. The eponymous Senator Sherman had this (among other things) to say:

If the concentrated powers of [a] combination are entrusted to a single man, it is a kingly prerogative, inconsistent with our form of government. … If we will not endure a king as a political power, we should not endure a king over the production, transportation and sale of the necessities of life.

Others emphasized the importance of preserving local businesses, protecting consumers (and small producers) against the superior market power of large corporations and safeguarding the competitive process. And for decades, the language of court decisions reflected this mix of public purposes.

In 1904, when the Supreme Court barred the merger of the Great Northern and Northern Pacific railroad companies, Justice John Marshall Harlan argued: “The mere existence of such a combination, and the power acquired by the holding company as its trustee, constitute a menace to, and a restraint upon, that freedom of commerce which Congress intended to recognize and protect.”

Siding with the Justice Department’s suit against Alcoa in 1945, Judge Learned Hand argued that the purpose of antitrust law was not merely to preserve the freedom of commerce, but to encourage a particular form of industrial organization.

Throughout the history [of the Sherman Act and other antitrust laws] it has constantly been assumed that one of their purposes was to perpetuate and preserve, for its own sake and in spite of possible cost, an organization of industry in small units which can effectively compete with each other.

Echoing this argument in the majority opinion in the 1961 Brown Shoe Company case, Chief Justice Earl Warren wrote that antitrust should prioritize economic decentralization over efficiency.

Throughout the recorded discussion [of the Celler-Kefauver Act of 1950] may be found examples of Congress’ fear not only of accelerated concentration of economic power on economic grounds, but also of the threat to other values a trend toward concentration was thought to pose.

And in the Supreme Court’s decision in U.S. v. Von’s Grocery, Justice Hugo Black went even further. “The basic purpose of the 1950 Celler-Kefauver Act,” he wrote, “was to prevent economic concentration in the American economy by keeping a large number of small competitors in business.”

In sum, until the late 1970s, court decisions reflected two basic principles: first, that antitrust enforcement served political as well as economic purposes; and second, that it was the courts’ responsibility to balance these goals in light of the facts in specific cases.

A countermovement was born, though, in the 1960s — one based on the idea that the law should be interpreted in light of economic efficiency. Robert Bork’s 1978 book, The Antitrust Paradox, crystallized this revolt in the case of antitrust. “Certain of [antitrust’s] doctrines preserve competition,” Bork argued, “while others suppress it, resulting in a policy at war with itself.” Multiple and incompatible goals opened the door to judicial activism untethered from principle, leading to the acceleration of what he termed the “protectionist, anticompetitive strain in the law.”

As was the case a century ago, scholars and community leaders worry about the civic consequences of growing corporate concentration, both for localities and for national governance.

“The only legitimate goal of American antitrust law,” he famously declared, is the “maximization of consumer welfare.” But “consumer welfare” is not a self-explicating concept, and Bork advanced an additional specification: “Consumer welfare … is merely another term for the wealth of the nation.” So, if a proposed economic arrangement maximizes total output, it meets the standard — even if it ends up transferring wealth from consumers to producers.

This thesis stood at some remove from most people’s intuitive understanding of what antitrust laws were designed to promote — or prevent. Bork had an explanation for this discrepancy. “To claim, as I have, that antitrust is a subcategory of ideology is necessarily to assert that it connects with the central political and social concerns of our time.”

With hindsight, we can see that Bork’s rise to great influence represented a hinge moment in post-war history when U.S. business felt increasingly beleaguered by foreign competition. Business leaders concluded that they could no longer afford accommodations to the interests of workers and local communities. The post-war system of accommodation among business, labor and government weakened, and conservative political leaders promised a better business climate, including less resort to antitrust action against mergers and acquisitions.

In the four decades since the publication of Bork’s book, new concerns have arisen about the consequences of growing corporate concentration, which include not only increased inequality and decreased entrepreneurship, but also the concentration of economic growth in a small number of geographical areas. In 2016, Hillary Clinton won just 472 counties, but they represented 64 percent of GDP, compared to 36 percent for the 2,584 counties that Donald Trump carried. In many small towns and rural counties, a single “big box” store owned by a national firm has replaced a multiplicity of locally owned small businesses. As was the case a century ago, scholars and community leaders worry about the civic consequences of concentration, both for localities and for national governance.

These developments have led to a division of expert opinion that Diana Moss, the president of the American Antitrust Institute, described lucidly in her testimony before the Senate Judiciary Subcommittee on Antitrust. Until recently, she observed, there were two major camps. Conservatives invoke Bork’s total welfare standard and regard efficiency-enhancing mergers as presumptively legitimate, even if they involve anti-competitive conduct, while progressives employ a consumer welfare standard broad enough to encompass “non-price dimensions of competition such as quality and innovation.” Progressives also back the “structural presumption” that mergers combining players with large market shares are presumptively illegal.

Conservatives are sensitive to the charge that the total welfare standard fails to distinguish between static and dynamic analysis — that is, between the short-term effects on prices and quality resulting from increased concentration, and long-term effects on the health of the economy. In his testimony at the Senate hearing, Abbott Lipsky Jr. from George Mason University confronted this issue directly. “Given the absolutely critical role of innovation in improving our economic well-being,” he declared, the resolution of difficult antitrust issues must take into account “their long-run effect on economic productivity, including most specifically the possible effects on innovation, as well as output, product quality and other key economic variables.”

This acknowledgement moves the conservative position toward the dynamic realities of the modern economy, at the cost of reducing the enforcement clarity and predictability that conservatives have always highlighted as a key advantage of their position. In principle, it also opens conservative antitrust enforcement to entertaining the possibility of “predatory pricing,” where deep-pocketed firms lower prices to drive competitors out of business.

Recently, Moss observes, a third position — populism — has re-entered the fray. Contemporary populists regard the consumer welfare standard as inadequate, not only because it fails to deal with the modern internet-driven marketplace and the buyer power it creates, but also — and mainly — because it pays no attention to the political dimension of antitrust. If antitrust laws were designed to prevent the conversion of concentrated economic power into concentrated political power, then their enforcement should do so directly, as distinguished judges and justices had done for decades before the rise of the Bork orthodoxy.

Conservatives have long objected to the use of political standards in antitrust on the grounds that they opened the door to rulings based on the preferences of administrators and judges. Political standards are inherently unpredictable, conservatives counter, and do not give businesses the certainty they need to make long-term plans.


Progressives have their own objections to the populist proposal. They fear that replacing the consumer welfare standard would throw enforcement into disarray. Besides, they argue, firming up the consumer welfare standard, enforcing it vigorously, codifying the structural presumption and requiring merging parties to justify their consumer welfare claims both before and after mergers take place would accomplish much of what populists seek at a fraction of the political and administrative costs.

The populists offer a plausible account of the historical record, we believe. At the same time, we share the progressives’ doubts about the wisdom of explicitly bringing political considerations back into antitrust enforcement. In our deeply divided society, the need to make political judgments could tie administrators in knots. As Carl Shapiro recently observed, “the core mission of antitrust, to promote competition, could easily be undermined if we ask antitrust to solve problems unrelated to competition.”

We can’t expect antitrust enforcement to do everything needed to rein in the political power of corporations. Nor can antitrust enforcement bring about a society in which opportunity is available to all. Those who want, say, a more progressive tax system or campaign finance reform cannot hope to attain their goals through the back door of antitrust enforcement. Enforcement anchored on sound standards and solid evidence is a big enough task to occupy reformers for years to come.

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Four Modest Proposals

Before turning to specifics, we offer some broad points that guide our recommendations. First, although economic analysis is central to antitrust enforcement, economic theory is no substitute for evidence about real-world behavior and consequences. Institutions matter. So do noneconomic motives for business choices, as well as the kinds of cognitive distortions that the behavioral economics movement has highlighted.

Simple economic models of individuals maximizing self-interest led former Federal Reserve Board Chair Alan Greenspan to excessive confidence in financial self-regulation. Greenspan’s rueful reflections, postirrational exuberance, should serve as the epitaph for an era in which market fundamentalism blinded regulators and policymakers to facts on the ground.

Second, as circumstances change, antitrust enforcement must evolve. The problems of today’s increasingly globalized, highly concentrated and unequal economy are very different from those of the late 1970s, when the broad outlines of today’s efficiency-driven antitrust regime took shape.

Third, antitrust enforcement reflects basic unstated presumptions about the risks of government intervention in the market economy. In recent decades, for example, administrators and courts have been driven by the fear of “false positives” — of actions that inadvertently sanction behavior that undermines neither competition nor the interests of consumers. In the process, enforcement has tolerated “false negatives” — instances of anti-competitive, anti-consumer behavior that should have been sanctioned, but were not. The system has lurched from one extreme to the other, and requires recalibration.

Fourth, in circumstances (like now) where the evidence of increasing business concentration is persuasive, prospective mergers and acquisitions should bear a higher burden of proof than they currently do. Firms should be required to demonstrate how their proposed agglomeration would serve the interests of consumers, broadly understood — and not just tomorrow, but for the reasonably foreseeable future.

Firms should be required to demonstrate how their proposed agglomeration would serve the interests of consumers, broadly understood – and not just tomorrow, but for the reasonably foreseeable future.
Idea One: Rethink Enforcement of Horizontal Merger Policy

The current Horizontal Merger Guidelines state, “Mergers that cause a significant increase in concentration and result in highly concentrated markets are presumed to be likely to enhance market power.” In principle, this places the burden of proof where it belongs, on firms whose proposed action would significantly increase concentration. The guidelines go on to state that only “persuasive evidence” will suffice to rebut this presumption.

The big question here, though, is whether these sensible guidelines lead in practice to effective enforcement. The evidence suggests that they do not, and for two reasons. First, the Federal Trade Commission (which, along with the Justice Department, brings antitrust cases) has focused its efforts on the highest concentration industries — those with four or fewer competitors — while other enforcement actions have all but disappeared. Trouble is (as noted above), recent research has shown that mergers below the four-firm level have also increased market power and led to higher consumer prices.

Similarly, FTC enforcement has shifted to focus on cases creating the greatest change in HHI, even though cases at the margin have also had anti-competitive effects. This suggests that antitrust enforcers should lower the threshold at which prospective mergers are subject to rigorous scrutiny. It really would be possible to reduce false negatives (allowing anti-competitive behavior to stand) without significantly increasing the number of false positives (inhibiting behavior that would increase efficiency and/or raise consumer welfare).

The second problem with current horizontal merger enforcement: the standard for “persuasive evidence” sufficient to rebut the presumption that greater concentration is bad has been set too low. Because much of this evidence involves the future effects of actions taken or not taken, it will always involve an element of speculation, and will rarely if ever be conclusive. The best remedy for this problem, we believe, is to make merger approvals conditional and reversible if evidence emerges (within a reasonable period) of anticompetitive effects that harm consumers through higher prices, lower quality or slower innovation. As former FTC head Robert Pitofsky noted, this “look-back” authority has been used in the past and seems especially well suited to dynamic markets in fast-changing industries.

Idea Two: Update Non-Horizontal Merger Guidelines

As discussed earlier, the Non-Horizontal Merger Guidelines have not been updated since 1984. This reflects, in part, the wide acceptance of economic theory that minimizes the incidence and impact of anti-competitive effects from end-to-end mergers. But here as elsewhere, theory and evidence diverge. Vertical integration among firms in a supply chain can have anti-competitive effects.

The Justice Department’s somewhat confusing justification for blocking the AT&T/Time-Warner megamerger underscores the urgency of figuring out when standard economic theory should apply and when it shouldn’t.

We’re hardly the first to make this point. In 2007, the now-defunct Antitrust Modernization Commission that had been created by Congress in 2002, recommended an update, as did the American Bar Association’s Section on Antitrust in 2013. Indeed, the Justice Department’s somewhat confusing justification for blocking the AT&T/Time-Warner megamerger underscores the urgency of figuring out when standard economic theory should apply and when it shouldn’t.

We won’t offer a fully fleshed out revision of our own, but we can summarize recommendations that enjoy wide support among antitrust experts.

• Don’t rely on the presumption that nonhorizontal mergers are pro-competitive, but rather base decisions on the evidence in each case.
• Give more weight to potential harms, using a sliding scale for mergers that raise more significant concerns.
• Pay special attention to the potential consequences of acquisitions by dominant firms.
• Place the burden of proof on the merging parties to demonstrate pro-consumer effects.
• Take barriers to entry to the relevant markets into account in assessing the likely effects of the merger.
• Assess the merged firm’s incentive to raise prices on “downstream” rivals that it supplies.
• Establish a clear process for post-merger review.

We note, in addition, broad agreement that the assistant attorney-general for antitrust’s skepticism about the adequacy of “behavioral” remedies — in effect, agreements to go forth and sin no more — for the anticipated anticompetitive effects of nonhorizontal mergers. To pre-empt these effects, structural remedies such as partial divestment are the preferred strategy, even if they lead merging parties to walk away from the deal.

Idea Three: Create an enforcement regime to deal with predatory pricing

Monopolies and oligopolies (shared monopolies) can engage in two different forms of anticompetitive activities. “Exclusionary” conduct prevents new competitors from entering a market, while “exploitative” conduct allows dominant parties to take advantage of their market power. Most countries have regimes addressing both kinds of abusive behavior. By contrast, the United States has few tools to wield against exploitation. When episodes such as Mylan’s 400 percent price hikes for its 40-year-old EpiPen product evoke public outrage, the government is forced to rely on public shaming to induce corporations to forego monopoly pricing, a strategy that often fails.

As John DeQ Briggs argues, the government could seek expanded authority to go after firms that exploit their market power against the welfare of consumers. What many critics viewed as overly aggressive application of Section 5 of the FTC Act (prohibition of unfair methods of competition) during the Carter administration has chilled enforcement ever since. But here as elsewhere, real-world circumstances have changed dramatically, warranting a renewed look at this potential tool for protecting consumers.

Exploitation can also take a subtler form, known as “predatory pricing,” in which a strong firm will cut prices temporarily to force weaker parties to accept takeover bids or to exit the market altogether, after which the firm uses its increased dominance to raise prices. In the wake of the Supreme Court’s decision in Brooke Group Ltd. v. Brown and Williamson Tobacco 25 years ago, antitrust actions against predatory pricing have ground to a halt. In the Brooke Group case, the Supreme Court required plaintiffs to show that the firm both set its price below cost and had a substantial likelihood of recovering its losses once its actions had altered the market advantageously.

Relying on free market economic theory, the Supreme Court also argued that because predatory pricing rarely occurs, an anti-predation regime would generate unacceptable false positives, preventing price cuts that are good for consumers. The Supreme Court acknowledged that its framework would also yield false negatives because price cuts that remain above the cost of production can also have anticompetitive effects. But its aversion to false positives, which would chill “legitimate pricecutting,” trumped its concern about permitting some anti-competitive practices.

As C. Scott Hemphill and Philip Weiser point out, however, action against predation remains possible to a greater extent than many practitioners and public officials realize. The Brooke Group framework is flexible enough to permit case-specific evidence and more modern forms of economic analysis to prevail against offending firms. It would be useful, however, to bring a case that challenges the framework directly, especially the requirement that the contested pricing must be below cost. As Amazon’s acquisition of Quidsi shows, price cuts that reduce but do not eliminate a dominant actor’s profit margin can force weaker actors to capitulate, rendering the market less competitive.

Idea Four: Pare the costs of antitrust enforcement

Antitrust enforcement is typically slow and expensive. Individual cases, such as the Justice Department’s Microsoft and AT&T investigations, can last a decade and consume an outsized share of an agency’s resources. With that in mind, the government is understandably reluctant to initiate actions against large firms with deep pockets.

Prior to 1974, the rules allowed automatic appeals of district courts’ antitrust decisions to the Supreme Court, bypassing an entire level of appellate review. In light of the enforcement experience since this rule was repealed in 1974, the case for legislation that reinstates the rule is strong.

This is particularly true for anti-monopoly cases arising under Section 2 of the Sherman Act. The longer monopoly abuses are allowed to persist, the more entrenched offenders become and the more unlawful economic surpluses they can extract from consumers. Forcing firms to disgorge these ill-gotten gains after the fact is difficult at best, and there is no way of compensating potential entrepreneurs whom monopolistic firms deterred from starting new businesses.

The Case for Incremental Reform

A fair reading of the historical record, we believe, will show both economic and civic/political motives for the development and enforcement of antitrust legislation. It was, for example, perfectly reasonable to worry about the effect of interstate banking on the availability of credit to localities, and about the effect of large retail enterprises on the local businesses that bolstered the social capital of small communities.

In light of this history, our focus on consumer welfare, broadly construed, may appear arbitrary.

But we are guided, in part, by the desire to craft a usable reform agenda. Working to improve a regime that enjoys considerable support across partisan and ideological lines is more likely to be effective than seeking to place the system on a new and highly controversial foundation.

We wonder whether it would be possible to reinvigorate the enforcement of antitrust laws that reflect legitimate civic concerns without excessively impeding economic dynamism. That said, we oppose federal and state government measures to pre-empt such actions. Nothing should prevent local communities from, say, using zoning laws to prevent the construction of big box stores within their borders. Citizens should decide for themselves whether they are willing to pay somewhat higher prices to keep locally owned stores in business.

Federalism is the most practical means of balancing the often-competing claims of citizens, consumers, workers and producers. But this is not always an easy course. Despite the long-term effects on local businesses and economic self-determination, hard-pressed communities will be tempted by the up-front jobs and tax revenues that large firms can offer. There is simply no perfect solution for the asymmetrical bargaining power that large firms often enjoy.

main topic: Competition Policy