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IDEAS ON LIBERTY
Breaking Up Antitrust
by Edward J. Lopez
actually enforce the agreement, or when a firm Unfortunately, the naive assumption that
actually succeeds in monopolizing a market, the there is a "public-interest" standard in gov-
result is almost invariably bad for consumers. 3 ernment dominates discussions of antitrust
Whether antitrust enforcement does the job or and in so doing abstracts entirely from the
not, we still need to take the threat of monopoly existence and power of special interest
seriously. And we still need to recognize and groups. Policies that were introduced in the
acknowledge that antitrust is, at least in theory, name of promoting competition have become
a way to deal with this threat. tools to protect against competition. Con-
But do classical liberals need to concede gress, businesses, and the antitrust bureau-
that antitrust regulation actually does the cracy all have much at stake in the antitrust
job? Do we need to agree that antitrust deals game. They form a triangle of private interests
effectively with the threat of monopoly and that drive antitrust enforcement at the ex-
that it is therefore good for society? The pense of the general public.
answer is clearly no. In fact, sober economic
analysis can explain how antitrust policy fails
to combat the monopoly threat, how it betrays
The Antitrust Bureaucracy
the public interest it is pledged to protect, and First, consider the incentives of those who
how it therefore serves the private interests of are in charge of enforcing the antitrust stat-
the businessmen, politicians, and bureaucrats utes. At the Antitrust Division, there are 331
involved. In short, we need to voice the attorneys and 50 economists, while the FTC
reasons why the antitrust laws should be maintains a comparable 435 attorneys and 63
repealed. 4 economists. These agencies are hierarchical
and experience much of the red tape that any
Antitrust Enforcement: government bureau does. But at some point,
The Ideal Versus the Real every decision is made by an individual, who
has his own career· agenda and objectives.
One would rightly be suspicious to discover One study of the Antitrust Division7 found
that antitrust laws in this country are enforced that the strengthening of the anti-merger laws
by two separate federal agencies, the Anti- (the 1950 Cellar-Kefauver amendment), and
trust Division of the Department of Justice especially the early cases brought to court,
and the Federal Trade Commission. 5 Each made antitrust expertise more valuable in the
agency is subject to Congress byway of budget private marketplace. There was a clear in-
appropriation, confirmation of appointees, and crease in the demand for these skills so that
general oversight into agency activities. Because a young lawyer had a great deal to gain by
of this oversight, we can be fairly certain that the working in the Antitrust Division. What's
agencies enforce the statutes according to the more, he or she had even more to gain from
wishes of the current Congress. 6 the specific experience of arguing cases at trial
In a perfect world in which Congressmen in the federal courts. Lawyers at the Antitrust
are public servants, antitrust should work the Division have every incentive to choose cases
way it is supposed to. We should expect that that will go to trial, and go to trial quickly,
once Congress allocates an amount to each regardless of the efficacy of the action in
agency, staff members there take an inventory combating monopoly, or its effect on con-
of the monopoly inefficiency in the economy, sumer welfare.
make a list according to the costs to society, A similar study focuses on the FTC. 8 The
and bring cases against these monopolies in study found that the ultimate career objective
order of their importance until their budgets of most FTC lawyers was a job at a prestigious
are exhausted. There might be some red tape private law firm. Robert Katzmann writes that
and pre-investigation procedures to worry some cases "threaten the morale of the staff
about, but overall this seems to be the way it because they often involve years of tedious
should work. What better way to make society investigation before they reach the trial
better off? How much better can a policy get? stage."g Therefore, the FTC opens "a number
BREAKING UP ANTITRUST 25
of easily prosecuted matters, which may have pany gain at the expense of the stockholders
little value to the consumer ... in an effort to of the more efficient, yet legally hampered,
satisfy the staff's perceived needs."10 One competitor.
FTC attorney is quoted in the study as saying, The evidence on the matter is clear. Anti-
"for me, each complaint is an opportunity, a trust enforcement falls less stringently on
vehicle which someday could take me into companies headquartered in the congres-
the courtroom. I want to go to trial so badly sional districts of members on the key com-
that there are times when I overstate the mittees with oversight and budget authority
possibilities which the particular matter might over the antitrust bureaus. 12 And if a com-
offer."11 mittee's membership changes significantly,
It's clear from studies like these that the the antitrust bureaucracy changes as well.
antitrust bureaucracy doesn't select cases to After the 1976 and 1978 elections, the key
prosecute on the basis of their potential net oversight committees experienced rapid turn-
benefit to society. Instead, the staff at FTC over of its members. Prior to that, the FTC
and the Antitrust Division use the discretion had a very avid enforcement agenda. But the
that they do have to further their own private new committee members found their constit-
interests and careers rather than those of the uent interests demanded a different ap-
public at large. The antitrust bureaucracy proach. Therefore, in 1979, the Congress
cannot be counted on to uphold the public blasted the FTC as a runaway and out-of-
interest in enforcing antitrust laws. control bureaucracy. After a series of heated
hearings, the FTC systematically watered
The Congress down or simply halted most of its controver-
sial activities. As the currents change in
Although the antitrust bureaucrats would pork-barrel waters, so too does the antitrust
like to exercise complete control over their bureaucracy.
enforcement agendas, they are ultimately Other aspects of antitrust also reveal pri-
accountable to their congressional oversight vate interests at work. While the original
and appropriations committees. Now, con- Sherman Act was ostensibly supposed to rein
sider the incentives of members of Congress. in the "dangerous concentrations of wealth"
The goal for most members is to get re-elected among the "giant monopolies" of the day,
or ascend to a higher office. There is a much history reveals little monopoly power existed
greater chance that this will happen if they at the time. Prices were falling throughout the
support local or narrow interests rather than economy and output was surging. 13 This only
some vague notion of the national or public serves to benefit consumers, and Congress
interest. even recognized this as true. 14 So why did
Antitrust is one of many pork-barrel pro- Congress enact an antimonopoly law in such
grams that Congress uses to transfer wealth an apparently competitive climate? Because
from large, unorganized groups of individuals the law protected small or inefficient busi-
to the narrow, organized interests of others. nesses from the rigors of competition, and it
In many ways, antitrust is the perfect wealth- portrayed Congress as a champion of justice
transfer vehicle. It is highly inconspicuous, and freedom. Other studies find similar re-
covering the entire economy rather than just sults for the Clayton Act. 15 Still other studies
specific industries. It applies to specific busi- show that antitrust not only fails to benefit
ness practices, and can therefore be used to consumers, but also harms them.
protect less efficient companies from their The conclusion from examining the incen-
more efficient competitors. Antitrust can tives created by antitrust laws, and actions
therefore deliver potent benefits (directly taken under them, is that antitrust laws do
limiting the competitiveness of one's rivals), not serve the public interest as their support-
while the costs occupy a tiny line on the ers would claim. Antitrust does not combat
federal budget and are hardly noticeable at the monopoly threat, but rather protects less
all. The stockholders of the protected com- efficient companies from their competitive
26 THE FREEMAN • JANUARY 1997
rivals, bolsters the political capital of mem- 1. Howard Putnam taped this conversation. It was entered as
bers of Congress, and furthers the careers of evidence in the case brought by the government against American
Airlines and Crandall. Quoted from Roger E. Meiners, AI H.
Washington bureaucrats. In short, the only Ringleb, and Frances L. Edwards, The Legal Environment of
thing that antitrust makes more efficient is the Business, 3rd ed., p. 401.
cozy triangle of special interests. 2. Dennis W. Carlton and Jeffrey M. Perloff, Modem Indus-
trial Organization, pp. 181-183, and Richard A. Posner, "The
Social Cost of Monopoly and Regulation," Journal of Political
Economy, 83:807-827.
Conclusion 3. Probably most successful monopolization is achieved
through government protection.
Classical liberals should take the threat of 4. A compelling case has been made along these lines by D. T.
Armentano. See Antitrust and Monopoly (New York: John Wiley
monopoly seriously. But the answer to this and Sons, 1982) and Antitrust Policy: The Case for Repeal
threat is not antitrust laws. Any potential (Washington, D.C.: Cato Institute, 1986).
5. This arrangement has been the subject of widespread and
monopoly must instead be exposed to the extensive criticism, which typically calls for the elimination of the
discipline of market competition. Econo- FTC. See Richard S. Higgins, William F. Shughart II, and Robert
D. Tollison, "Dual Enforcement of the Antitrust Laws," in Robert
mists have long made convincing arguments J. Mackay, James C. Miller III, and Bruce Yandle, eds., Public
that a natural monopoly is rare. Most mo- Choice and Regulation: A View from Inside the Federal Trade
Commission (Stanford, Calif.: Hoover Institution Press, 1987).
nopolies exist because of government inter- 6. Barry R. Weingast and Mark J. Moran, "Bureaucratic
vention. By repealing antitrust statutes, and Discretion or Congressional Control? Regulatory Policymaking
by the Federal Trade Commission," Journal ofPolitical Economy,
ending government-sponsored monopoly, October 1983, 91:765-800.
we will allow the threat of monopoly to be 7. Suzanne Weaver, The Decision to Prosecute: Organization
and Public Policy in the Antitrust Division (Cambridge: MIT Press,
dealt with in the most effective manner 1977).
possible: the market process. 8. Robert A. Katzmann, Regulatory Bureaucracy: The Federal
Trade Commission and Antitrust Policy (Cambridge: MIT Press,
Adam Smith rightly warned us of the dan- 1980).
gers of business conspiracies. But in the same 9. Ibid., p. 83.
10. Ibid.
famous passage quoted earlier, he went on to 11. Ibid., p. 61.
warn of the even greater danger of relying on 12. Richard A. Posner, "The Federal Trade Commission,"
government institutions to combat it: University ofChicago Law Review, 37:47-89,1969. Roger L. Faith,
Donald R. Leavens, and Robert D. Tollison, "Antitrust Pork-
barrel," Journal of Law and Economics, 15:329-342, 1982.
It is impossible indeed to prevent such meet- 13. Thomas J. DiLorenzo, "The Origins of Antitrust: An
ings, by any law which either could be executed, Interest-Group Perspective," International Review of Law and
or would be consistent with liberty and justice. Economics, 5:73-90, 1985.
14. Ibid., pp. 80-81.
But though the law cannot hinder people of the 15. Robert B. Ekelund, Michael J. McDonald, and Robert D.
same trade from sometimes assembling to- Tollison, "Business Restraints and the Clayton Act of 1914:
gether, it ought to do nothing to facilitate such Public- or Private-Interest Legislation?" in Fred S. McChesney
and William F. Shughart, The Causes and Consequences of
assemblies; much less to render them Antitrust: The Public Choice Perspective (Chicago: University of
necessary. [] Chicago Press, 1994).
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