Antitrust in a time of populism

Posted by Social Science Research Network

By Carl Shapiro

Antitrust in a time of populism

Antitrust in the United States today is caught between its pursuit of technical rules designed to define and implement defensible economic goals, and increasingly political calls for a new antitrust “movement.” The goals of this movement have been variously defined as combating industrial concentration, limiting the economic or political power of large firms, correcting the maldistribution of wealth, control of high profits, increasing wages, or protection of small business. None of those goals is new. They have appeared and reappeared in the history of United States antitrust policy. Among the articulated goals of movement antitrust, low consumer prices is very frequently absent.

In the 1960s the great policy historian Richard Hofstadter lamented the passing of the antitrust “movement” as one of the “faded passions of American reform.” In its early history, he observed, antitrust had a powerful movement quality but very little success in the courts. Later, it ceased to be a movement just as it was attaining litigation success. As a movement, antitrust often succeeds at capturing political attention, but it fails at making effective – or even coherent – policy. The coherence problem shows up in goals that are both unmeasurable and fundamentally inconsistent, although with their contradictions rarely exposed. Among the most problematic contradictions is the one between small business protection and consumer welfare. In a nutshell, consumers benefit from low prices, high output and high quality and variety of products and services. But when a firm or a technology is able to offer these things they invariably injure rivals, typically smaller firms or those dedicated to older technologies. Although movement antitrust rhetoric is often opaque about specifics, its general effect is invariably to encourage higher prices or reduced output or innovation, mainly for the protection of small business or firms dedicated to older technologies. Indeed, some spokespersons for movement antitrust write as if low prices are the evil that antitrust law should be combating.

This piece sets out to do three things. First it describes so-called “movement” antitrust, focusing on recent writings disparaging the consumer welfare principle in favor of alternatives that seek to protect small business welfare, redistribute wealth, or pursue other goals. Then it describes the fundamental contours of technical antitrust, whose stated goal is the protection of consumer welfare, and explains why this approach is much more consistent with concerns about economic rationality, due process, administrability, and federalism. Finally, it examines several areas where technical antitrust rules could be improved, focusing mainly on merger policy and one particularly problematic area, which is antitrust’s historical failure to deal adequately with monopsony power in labor markets.

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