Antitrust Basics: Think Long Term, Not Just Short Term
This is the seventh entry in the “Antitrust Basics” series. See below for previous posts.
Moore’s Law states that computing power doubles every year and a half or so. An antitrust case against IBM, by contrast, lasted for 13 years, never reached a decision, and was eventually dropped because the original issue had long become obsolete. Markets are ongoing-long-term processes but antitrust cases are often short-term reactions to temporary situations—even if they sometimes last so long as to outlive the problem they seek to address.
Today’s Neo-Brandeisians and right-wing populists calling for an antitrust revival are not the only analysts prone to short-termism. Robert Bork, famous for his antitrust skepticism, writes on p. 311 of his 1978 book “The Antitrust Paradox”:
Antitrust is valuable because in some cases it can achieve results more rapidly than can market forces. We need not suffer losses while waiting for the market to erode cartels and monopolistic mergers.
Bork’s statement focuses on short-term results while ignoring long-term underlying processes, and has several other problems besides. How do regulators and judges know which cases are causing consumer harm and which are not? How do they ensure cases are chosen on the merits and not for politically-motivated reasons?
Cases also often take years to resolve. Assuming regulators do identify a valid case, how would they, and the judges who hear the case, know if market activity could address the problem by the time the case is decided? Do the benefits of regulatory action exceed the court and enforcement costs? Are the affected companies in a position to capture the regulators?
More to the point, does the short-term benefit come at a greater long-term cost? An enforcement action now could have an unforeseen deterrent effect on future mergers, contracts, and innovations, including in unrelated industries. The consumer harm from these could well exceed the short-term benefits of a short-term improvement on market outcomes—assuming that regulators are consistently capable of such a feat.
In the 1969-1982 IBM case, regulators eventually gave up, however belatedly. But this is not guaranteed to happen in every case. And who knows what consumer-benefiting innovations IBM could have developed with the time and resources it ended up devoting to defending itself in this case?
As the Justice Department and Federal Trade Commission conduct their investigations into Facebook, Google, Amazon, and Apple, they should keep their limited abilities to answer such questions in mind—as well as their bosses’ short-term focus, which rarely extends beyond the next election cycle.
For more, see Wayne Crews’ and my paper, “The Case against Antitrust Law: Ten Areas Where Antitrust Policy Can Move on from the Smokestack Era.” Further resources are at antitrust.cei.org.
Previous blog posts in the Antitrust Basics series:
- Corruption and Rent-Seeking (8/21/19)
- Regulatory Uncertainty (7/11/19)
- Rule of Reason Standard vs. Consumer Welfare Standard (7/8/19)
- Misleading Herfindahl-Hirschman Index (7/1/19)
- Relevant Market Fallacy (6/24/19)
- Introducing Antitrust Basics (6/17/19)