Economists Get Serious About the Harm From Monopolies

The big story at the annual American Economic Association meeting in Atlanta earlier this month was about the economics profession dealing with its gender problem. But after that, the second-most-interesting debate in economics right now is over antitrust and monopoly power.

Two things have pushed the antitrust issue to the fore — economists have started to cite excessive market power as a drag on growth and wages, while energized activists are rising up to challenge lax regulation that allowed a wave of mergers in the past few decades.

Along with rising awareness of the market power problem, there’s a growing realization that the traditional approach to antitrust won’t be enough to correct things. Not only do regulators fail to consider many of the broad implications when deciding which mergers to allow, but the government lacks tools for dealing with monopoly power after companies become large and dominant.

One of the most interesting papers presented in Atlanta was by the University of Pennsylvania’s Ioana Marinescu, an economist who has done a lot of recent research on market concentration and market power. Writing with law professor Herbert Hovenkamp on the effect of mergers on labor markets, the authors proposed a new approach to antitrust. Whereas defenders of the traditional approach focus on consumer welfare as the benchmark of market power, Marinescu and Hovenkamp recommend that courts and regulators also consider the degree to which mergers give companies more power to suppress wages.

But Massachusetts Institute of Technology economist Nancy Rose gave a presentation emphasizing the difficulty of using merger enforcement to counter market power. It’s true, Rose noted, that antitrust enforcement has eased in recent decades, and that it could be tightened up. But formidable institutional barriers will limit the effectiveness or the policy even under the best of circumstances. To stop companies from merging, regulators have to take them to court, and plead their case to judges whose understanding of the economics involved is hazy at best. (Also, as Rose might have been too polite to point out, companies themselves can often hire expensive consultants to argue their case.) Thus, merger enforcement is costly and difficult.

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