Antitrust regulation gets a bipartisan free pass; it was even spearheaded by a Republican, Sen. John Sherman of Ohio. The Sherman Antitrust Act passed in 1890, 126 years ago.
It is a highly interventionist form of central government manipulation of ordinary free market competitive outcomes, however; and no one has any idea how much it costs the economy.
To lighten the burden, the House of Representatives is considering H.R. 2745, the SMARTER Act. That stands for Standard Merger and Acquisition Reviews Through Equal Rules. The legislation is intended to harmonize disparities in the way merger reviews happen between the Federal Trade Commission and the Department of Justice, and bring some predictability to the process. These two federal entities overseeing mergers now sometimes use different standards and criteria (rather than “colluding,” one presumes; OK, bad economist joke).
SMARTER was introduced in 2015 by Blake Farenthold (R-TX) and is co-sponsored by Tom Marino (R-PA) and Bob Goodlatte (R-VA). As a House Judiciary Committee press release described the 18-10 markup in September 2015:
"Under existing law, the Federal Trade Commission and the Department of Justice can review proposed mergers and acquisitions. However, the two antitrust agencies face different standards in court and utilize different processes when reviewing these transactions. The way a reviewing agency is chosen can appear random, as if it is decided by the flip of a coin. The SMARTER Act eliminates the existing disparities between the two antitrust enforcement agencies and ensures that companies face the same standards and processes regardless of which federal agency reviews the merger."
Reforming review is a good thing to do. However, it is improperly taken for granted that antitrust law protects consumers and should have an important role in policing markets, whether old smokestack era industries, or modern technology sectors that are allegedly susceptible to harmful network effects that lock in consumers.
That acceptance should be reconsidered, far beyond even what SMARTER will do. Economic regulations, including antitrust regulation, transfer wealth and are vulnerable to exploitation. Regulation attracts and enables political entrepreneurs seeking entry or price regulation that hobbles and eliminates competition.
When the federal government disrupts mergers like Sysco US Foods, ATT and T-Mobile , or Staples and Office Depot, competitors need not respond to these deals. They can relax. In turn, consumers do not get the benefit of their otherwise-necessary competitive response. Things stagnate. In that sense, antitrust and regulation rather than markets create lock-in.
The willingness of policymakers to rethink the presupposition that regulation benefits consumers occasionally spurs liberalization of sectors like transportation, communications, banking and electricity. Even today, overall regulatory budgeting is being considered as a way of easing burdens on the economy. The regulatory category of antitrust, which looms above these and all economic sectors, should be similarly rethought.
The skeptical interpretation of antitrust policy is that antitrust benefits political entrepreneurs rather than consumers (Here’s an Antitrust Skeptic’s Bibliography I once compiled). Like many economic regulations, antitrust can increase price and decrease output by undermining misunderstood or disregarded efficiencies.
Antitrust supporters often compare real-world markets with what economists regard as textbook “perfect competition,” an imaginary realm in which large numbers of buyers and sellers for each product exist and where no seller can raise prices at all since consumers would merely switch to another vanilla competitor.
Unlike such stasis, real competition is dynamic and leads to churning and creation of new products and wealth itself. But that’s unacceptable in the enforcers’ worldview, where the very hallmarks of ordinary competition—strategic rivalry, attempts to grow and gain market share, a commitment to winning through voluntary activities—can become sins like “market power,” “collusion” and “tying.”
As another bad economist joke goes, if a firm’s prices are higher than everyone else’s, that implies monopoly power; if everyone’s prices are the same, collusion is apparent; prices “too low” can signify cutthroat competition and predatory pricing.
Something’s wrong when it’s potentially punishable whether your prices are lower, the same, or higher than another’s.
The SMART Act addresses important questions of certainty and predictability with respect to what regulators may do to disrupt the marketplace.
But antitrust’s problems go deeper. In defiance of fundamental notions of property rights and wealth creation, antitrust regards the economic pie as largely fixed. It imagines that one firm or a combination of them can grab too much of the “social output” or otherwise unfairly restrain competition.
The problem is that the business practices routinely targeted by antitrust probably have efficiency justifications whether the bureaucracies see them or not. That implies that antitrust enforcement itself creates actual inefficiencies and harm. We and others presented some of these ideas to the Antitrust Modernization Commission a decade ago; clearly things take time.
Regulators have deemed a range of business practices as anti-competitive and harmful to consumers—yet rational, pro-consumer justifications may exist. Rethinking the nature of these practices is a job that still awaits Congress, a century after antitrust’s “Sherman’s March” through the economy. John Sherman was, incidentally, the brother of the famous Union general whose march was somewhat more localized, one might say. OK–three bad economist jokes are enough for one day.
Originally posted to Forbes.