New CEI video: The case for big and small business in America

Some questions don’t have a correct answer. For example: What is the right size for a business? A new CEI video and website featuring Jessica Melugin explores that question, along with small business owner Jill Erber, and former Gillette CEO James M. Kilts.

Smaller businesses are more nimble and responsive. They offer better customer service, niche products and services, and personal touches that bigger companies can’t compete with.

Big businesses can take advantage of economies of scale in a way that smaller businesses cannot. Manufacturing, groceries, communications, and some other industries tend to give customers a better experience when companies are bigger. That means more and better goods at lower prices, with more consistent quality control.

So which is right? It depends on what consumers want.

That lack of a single correct answer drives some regulators nuts. For a long time, antitrust regulation operated on a big-is-bad philosophy. Under this thinking, companies simply should not grow beyond a certain size, or command more than a certain market share.

Big-is-bad antitrust led to some ridiculous cases. Standard Oil was broken up for using its size to lower oil prices, rather than jack them up. A case against IBM’s mainframe computers lasted 13 years and was dropped only after competition from PCs made mainframes obsolete.

In the late 1970s and early 19080s, these antitrust excesses led to a revolutionary idea: put consumers first. Big isn’t automatically bad. Big must behave badly before enforcers can crack down. Usually, this bad behavior means some combination of higher prices and restricted supplies.

But if a company gets big by being the best at what it does, and by giving consumers a better deal than anyone else, then all the better. Regulators should be size-agnostic. It’s all about the consumer.

This idea is called the consumer welfare standard. It has guided antitrust policy for more than 40 years.

In recent years, populists from both parties have pushed for a return to the old-timey big-is-bad standard and have caused some setbacks. The FTC and Justice Department have tried to block mergers and punish big companies in retail, live events, groceries, and other industries.

Fortunately for consumers, the FTC has lost most of its major court cases so far, and the Justice Department’s record isn’t much better. Populist anti-merger bills have all failed in Congress. But there is more to do stand up for consumers.

Big and small businesses both play important roles in creating opportunities and wealth for millions of people. Today’s small business could be on its way to becoming big. And today’s big business could disappear tomorrow. As the video points out, more than half of the Fortune 500 has turned over in the last 20 years.

Regulators should instead focus on maintaining a business environment in which entrepreneurs of all sizes can succeed by creating value. Because when entrepreneurs succeed, so do consumers.

The video is here. A website on the case for big and small business in America here. CEI’s Eye on FTC project is here. More CEI antitrust resources are here, as well as a paper advocating a common sense approach to antitrust.