CEI on Antitrust
The Competitive Enterprise Institute advocates abolishing antitrust laws. Antitrust restricts the rights of individuals to determine with whom and under what circumstances they wish to deal. The real cost of antitrust is the innovation it prevents.
There is no such thing as a permanent and assured dominant market position unless the government guarantees it. The creative destruction from unfettered free markets is a better creator of healthy competition than clumsy antitrust actions. The threat of antitrust action distorts business decisions and ultimately harms consumers.
Antitrust law overestimates regulators’ capacity for sufficient information to intervene into complex markets without harmful, unintended consequences. Simultaneously, antitrust law underestimates public servants’ incentives to regulate for political reasons. It also blocks or hinders a vast array of pro-competitive practices.
How Antitrust Regulation Hinders Innovation and Competition
Few economic concepts elicit such strong reactions as that of monopoly, and the policy intended to address it—antitrust regulations (called competition policy in the European Union). Yet, both supporters and opponents of antitrust regulations agree on one fundamental point—that effective competition is vital to the American economy and the welfare of its citizens. However, they differ in how the law should encourage this. There are essentially three schools of thought regarding antitrust policy:
- Interventionist. Regulators should use the law proactively to break up companies that are abusing their market power and restore a competitive market. The size of a company is a good guide as to when this should be done.
- Consumer welfare. Abuse of market power is rare and dominant market positions can be achieved through delivering improvements in consumer welfare. Therefore, antitrust laws should be used not to break up companies that have grown big through successful competition, but to address instances of collusion, price fixing, or other anti-competitive behavior.
- Free market. Antitrust law is unnecessary. Market processes routinely undermine monopolies—and attempts to create monopolies. Laws against “unfair competition” prevent property owners from experimenting with joint ventures and other innovations that can improve consumer welfare.
Antitrust Skeptic’s Bibliography
Since economic regulations—including antitrust—transfer wealth, they inevitably attract political entrepreneurs seeking entry or price regulation to hobble or preempt competition. Thus, a more skeptical interpretation of antitrust activism is that antitrust benefits political “entrepreneurs” rather than consumers.
1. What is antitrust?
Today’s body of antitrust laws is the culmination of over one hundred years of unclear objectives, contradictory interpretations, and controversial court decisions. At its most basic, antitrust is regulation restricting certain business arrangements and decisions. In the U.S., the stated aim of antitrust law is preserving competition in the marketplace to the benefit of consumers.
2. Why was antitrust created and what’s its history in the U.S.?
The earliest impulses towards federal antitrust legislation grew out of dissatisfaction with the railroads of the late nineteenth century, which were themselves government granted monopolies. When the problematic results of this government-created uneven playing field began to surface, so did political alliances calling for corrective government action. To that end, rate discrimination was outlawed with the passage of The Interstate Commerce Act passed in 1887. By 1888, antitrust planks appeared in both of the major political party’s platforms.
The most contentious point of antitrust law debate was to follow; Congress passed the Sherman Act in 1890. Whether the intent of the lawmakers was consumer welfare, outlawing certain business practices, preventing cartels, or blocking mergers has been the subject of debate ever since. Section I of the Sherman Act prohibits contracts, combinations, and conspiracies in restraint of trade or commerce. Section II outlaws monopolization, conspiracies, and attempts to monopolize. There are also criminal consequences for violations and obligations for federal officers to institute equity proceedings on behalf of the public good.
A series of court cases that were contradictory in their reasoning followed: United States v. Trans-Missouri Freight Association, Standard Oil Company of New Jersey v. United States and, much later, United States v. Alcoa.
The Democratic Congress of 1914 made a two-pronged attempt to strengthen antitrust policy. The House created the Federal Trade Commission, while the Senate took the lead in creating the Clayton Act that same year. The Act attempted to provide clarity to the courts by expressing naming prohibited practices and forbade tying and exclusive dealing in situations where the practice could significantly reduce competition.
The next century saw continued ambiguity and action in antitrust law. Cases included numerous suits against IBM, the National Bell telephone system being broken into so-called Baby Bells by consent decree, and the case against Microsoft in the late 1990s.
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