How to End the War over Antitrust

The government is at war with itself over antitrust policy, according to the New York Times.

On one side we have Christine Varney, who heads the Justice Department’s antitrust division. On the other we have the Department of Transportation (over both airlines and rail policy), financial regulators, legislators from both parties, and some of President Obama’s advisers (but not all of them).

The reason for the infighting is that antitrust policy, by its very nature, is vague and arbitrary. If the Sherman and Clayton Acts were followed to the letter, all prices, all mergers, and all business agreements would be illegal. Therefore they aren’t followed to the letter.

Regulators instead must use their discretion. Different people have different discretions; of course they will disagree on the proper boundaries of antitrust enforcement. Hence the government’s war with itself.

There are two ways around this: either enforce the laws as they are written, or repeal them. A quick look at the laws is enough to make the case for repeal.

Suppose you charge a higher price than your competitors. You are abusing your market power and can be prosecuted. If you charge the same price as your competitors, then that is evidence of collusion; also prosecutable. If you charge lower prices than your rivals, then that is predatory pricing, intended to drive your rivals out of business so you can then raise prices and make monopoly profits. Prosecutable. Literally, all prices are illegal. No one is innocent.

Same with mergers. There are three kinds: horizontal, vertical, and conglomerate. Horizontal mergers are between direct competitors. Fewer competitors implies less competition. Prosecutable. Vertical mergers are between firms with a supplier-customer relationship, and can lead to undue market power. Prosecutable. Conglomerate mergers unite unrelated, non-competing firms. By raising barriers to entry in multiple markets, they are prosecutable. All mergers fall under at least one of the three categories. All are technically illegal.

This is absurd, obviously. Companies have to charge prices. And even the most hawkish antitrust advocate knows that some mergers can actually increase efficiency and competitiveness. So the government doesn’t enforce antitrust statutes literally. Individuals pick and choose which companies to go after, and different people pick and choose differently.

If the executive branch is not going to consistently enforce antitrust laws — and they shouldn’t — they should be repealed.