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Wayne Crews, Antitrust Terrible Ten, Cato Institute Policy Analysis No 405, June 28 2001

Wayne Crews, Antitrust Terrible Ten, Cato Institute Policy Analysis No 405, June 28 2001

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The Antitrust Terrible 10
Why the Most Reviled “Anti-competitive”
Business Practices Can Benefit Consumers
in the New Economy.
The Antitrust Terrible 10
Why the Most Reviled “Anti-competitive”
Business Practices Can Benefit Consumers
in the New Economy.

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Categories:Types, Business/Law
Published by: Clyde Wayne Crews Jr. on Aug 29, 2013
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Antitrust law is a form of economic regulation.And like all economic regulation, it transferswealth, often in response to special-interest urg-ing. Partly in recognition of such shortcomings,many economic sectors, such as transportationand telecommunications, have been partiallyderegulated. But antitrust regulation is typicallypraised. Even in the new economy, this hundred-year-old smokestack era law is used to justify con-straints imposed on companies like Microsoft andAOL Time Warner. Antitrust law is almost univer-sally seen as being in the public interest and hav-ing a role to play in policing markets. Yet in antitrust cases, the targeted companiesrivals have a direct financial, as opposed to ethi-cal, interest in the outcome. Assertions thatantitrust law is in the public interest do notchange the fact that the private motives of rivals,and even ambitious enforcers, are always lurkingin the background. The idea that antitrust lawhelps consumers and that it has a role to play inthe new economy deserves close examination.Under antitrust law, a laundry list of businesspractices is regarded with suspicion, and otherpractices are outlawed altogether. But businesstransactions are fundamentally voluntary, non-coercive dealings—unlike antitrust interventions.From this fresh perspective, one finds that eventhe most “despised” business behaviorsuch ascollusion and megamergers—can be pro-compet-itive and pro-consumer. To the extent thatantitrust regulations strike down practices thathave efficiency justifications that are misunder-stood or ignored, those regulations make indi-viduals and society needlessly poorer. The list of vilified business practices is long,but it needn’t be. A list of vilified trustbusterpractices might be more helpful to consumers.
The Antitrust Terrible 10 
Why the Most Reviled “Anti-competitive” Business Practices Can Benefit Consumerin the New Economy 
by Clyde Wayne Crews Jr.
 _____________________________________________________________________________________________________
Clyde Wayne Crews Jr. is director of technology studies at the Cato Institute.
Executive Summary
No. 405June 28, 2001
 
Introduction
Given the long history of antitrustlaw and its contempt for true marketrivalry, perhaps the most effectivepro-consumer program would be toconsider federal enforcement of theantitrust laws to be a per se restraintof trade.
Thomas W. Hazlett 
1
Even in a digital information age, seem-ingly everyone believes that antitrust law pro-tects consumers and has an important role toplay in policing high-tech markets. But is thispopular view really true?Part of the impulse for more than twodecades of deregulation in the transporta-tion, communications, banking, and electric-ity sectors has been a willingness on the partof policymakers to rethink the presumptionthat regulation of economic affairs benefitsconsumers. Policymakers have recognizedthat economic regulations transfer wealth,which means that in the political swirl sur-rounding their creation and maintenance,they inevitably attract political entrepreneurswho seek entry or price regulation that willgive them an edge on the competition.Consumers get harmed in the process. Thathealthy touch of skepticism has also con-tributed to restraint in the regulation of thetechnology sector.Since antitrust is a form of economic regu-lation, it is similarly vulnerable to exploitationboth by firms hoping to hobble competitionand by a public and private legal infrastruc-ture that lives comfortably off the industrycreated by enforcement of antitrust laws. Thus, a skeptical interpretation of the his-tory of antitrust enforcement, up to andincluding recent campaigns targetingMicrosoft, Intel, the AOL-Time Warner merg-er, and the rejected WorldCom-Sprint mergeris that antitrust advances the well-being of political entrepreneurs rather than con-sumers. Antitrust enforcement, like any eco-nomic regulation, often increases price anddecreases output by destroying misunder-stood or disregarded efficiencies. Those out-comes are the opposite of those allegedly pur-sued by enforcers. Yet, although the legitimacyof economic regulation is often questioned,antitrust enjoys almost universal support.Antitrust advocates compare real-worldmarkets with the theoretical world of whateconomists call “perfect competition,” inwhich there are large numbers of buyers andsellers for each product. In this scenario, if aseller raised his prices, consumers would sim-ply switch to a competing brand. Undernotions of perfect competition, strategicrivalry, size, and a commitment to winning—the hallmarks of ordinary competition—canbecome unlawful behavior whenever theenforcement-minded decide, since all firmshave at least some market power.Successful companies have no way of knowing if and when their business practiceswill be targeted. As stated so simply by R. W.Grant in
Tom Smith and His Incredible BreaMachine,
if a firm’s prices are higher thaneveryone else’s, that implies monopolypower; if everyone’s prices are the same, col-lusion may be alleged; prices “too low” cansignify cutthroat competition and predatorypricing.
2
 Too high, too low, or the same: eachscenario can be targeted by antitrustenforcers. Under these circumstances, flyingunder the radar can become important. Typical critiques of antitrust regulationtarget its inefficiency or unintended effects. Amore fundamental, albeit politically less palat-able, criticism stems from the rejection of property rights inherent in antitrust.Ungrounded in a concept of capitalism thatincludes property rights and wealth creation,antitrust advocates regard the economic pie aslargely fixed and imagine that one firm cangrab too much of the social output. In defi-ance of basic notions of property rights,antitrust regulation regards conditionsimposed on the sale or distribution of 
one’s own goods,
as in the Microsoft browser andIntel chip-specification cases, as a potentialexercise of force against competitors and con-
2
Antitrust regula-tion regards con-ditions imposedon the sale or dis-tribution of 
one’s own goods,
as inthe Microsoftbrowser and Intelchip-specificationcases, as a poten-tial exercise of force againstcompetitors.
 
sumers. In this manner antitrust law is basedon a misunderstanding of the very nature of markets and their grounding in private own-ership and control. Consumers are not threat-ened by firms that achieve dominancethrough internal growth or aggressive compe-tition. In fact, driving out one’s competitors isthe name of the game in business, and such“restraint of trade” is essential to consumerwelfare. No matter how large a company, thecapital markets and the rest of the economyarrayed against it are bigger and can appropri-ately discipline it. Indeed, market conditionscan never be frozen—the marketplace is anarena in which seemingly impervious stan-dards (like mainframe computers and vinylrecords) are routinely toppled.Economists, documenting that decades of antitrust enforcement and business regula-tion in general have failed to benefit the con-sumer, have noted the pro-competitive ele-ments of a number of practices typically eyedsuspiciously by antitrust regulation. But if these practices are actually efficient, thatimplies that enforcement creates inefficien-cies and harm. Policymakers cannot seem tomanage the industrial policy scheme calledantitrust to consumer advantage, and thatinvites rejection of the conventional view of antitrust as public interest law.Although antitrust supporters tend toagree with Adam Smith that self-interestrules in the marketplace, they embrace a con-tradictory view of human nature with respectto government officials engaged in “protect-ing competition.” Public servants areassumed to lack the capacity for self-servingbehavior, the existence of which those verypeople take for granted in the private sector.But skeptics do not share this view. Insteadthey ask
whose 
wealth is increased by theenforcement of antitrust laws, and they con-clude that it is not that of consumers. To be sure, there does exist such a thing ascoercive monopoly power. It stems from gov-ernment protectionismfrom the restrictionof entry or the banning of competition.
3
AT&T once enjoyed protection from compe-tition, just as electric power companies andthe U.S. Postal Service do in some of their ser-vices today. Breaking up
government-granted 
monopolies—that is, abolishing exclusivelegal franchises, tariffs, quotas, and excessivelicensing restrictions would be an antitrustactivity worthy of the name.Although certain business practices havehistorically been regarded as anti-competitiveand harmful to consumers, there may in factbe pro-consumer justifications behind anumber of such practices. Alternative inter-pretations of several of those frowned-uponpractices, presented on the following pages,conclude that the quashing of those behav-iors only serves to transfer wealth from someproducers to others, or even from consumersto producers. In that sense, antitrust enforce-ment may function as one of today’s least-obvious forms of special interest pleading.But better, more economically astuteantitrust enforcers are not the answer: theproblem lies with the fundamental rejectionof property rights and contracts inherent inantitrust law and its flawed view of marketsand human interaction.Antitrust is anti-consumer.
1: Restraint of Trade andMonopolization
 The stated intent of antitrust law is topolice restraint of trade and monopolization. The Sherman Act of 1890 makes illegal everycontract, combination, or conspiracy inrestraint of trade
4
and declares that “everyperson who shall monopolize, or attempt tomonopolize or conspire to monopolize shallbe deemed guilty of a felony.”
5
 The 1914Clayton Act created a list of practices thatcould entail anti-competitive effects under cer-tain conditions, including tying arrange-ments, exclusive dealing, mergers, and inter-locking boards of directors.
6
But the notion that restraint of tradecharacterizes the marketplace at all is sus-pect. Markets represent the social incarna-tion of voluntary trade. Take the signature“golden age” or “smokestack” antitrust case
3
To be sure, theredoes exist such athing as coercivemonopoly power.It stems fromgovernment pro-tectionism—fromthe restriction of entry or the ban-ning of competi-tion.

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