The Return of Antitrust? New arguments that American industries are harmfully concentrated are as dubious as last century's pre-Chicago claims.

AuthorReynolds, Alan

In a July 24, 2017 New York Times op-ed, Senate Minority Leader Chuck Schumer (D-NY) promised aggressive antitrust activism as part of his party's "Better Deal for American Workers." "We are going to fight to allow regulators to break up big companies if they're hurting consumers," Schumer promised. Antitrust laws, he argued, are "padding the pockets of investors but sending costs skyrocketing for everything from cable bills and airline tickets to food and health care." As Jeff Stein at Vox explained, this Better Deal intends to create "a new federal 'Trust Buster' agency ... similar in scope to the Consumer Financial Protection Bureau."

In a 4,000-word column titled "Is Amazon Getting Too Big?" in the Washington Post a few days later, business writer Steven Pearlstein went Schumer one better, arguing that a new "antitrust czar" should not focus narrowly on consumer harm, but should combat "bigness" in general. Pearlstein lauded a Yale Law Journal article by Lina Khan, now a fellow with the Open Markets Institute, that makes the same argument.

Pearlstein was followed by numerous columns and articles containing similar points with increasing frequency and intensity. In a January 16, 2018 Wall Street Journal piece titled "The Antitrust Case against Facebook, Google and Amazon," economics commentator Greg Ip claimed, "A growing number of (nameless) critics think these tech giants need to be broken up or regulated as Standard Oil and AT&T once were." That was followed by The Economist's January 20 cover story, "The New Titans: And How to Tame Them," with Facebook, Google, and Amazon depicted as gigantic scary robots.

Just a few days earlier, Brookings Institution political scientist William Galston and assistant Clara Hendrickson released "A Policy at Peace with Itself: Antitrust Remedies for Our Concentrated, Uncompetitive Economy." The report emphasized that "antitrust is not merely an object of scholarly concern; it has also become an important political talking point." The two authors soon added a follow-up in the Harvard Business Review, "What the Future of U.S. Antitrust Should Look Like."

This article is a critical review of the evidence cited in these calls for a "new antitrust." Specifically, I examine claims regarding the effects of past mergers on prices in several industries, assertions that corporate profitability is evidence of increased market concentration, and estimates of concentration of large firms in broad sectors such as retailing and service, interpreted as diminished competition. I'll end this article with some cautionary lessons from the antitrust suits against IBM (1970s-1980s) and Microsoft (1990s-2000s) about the dangers of confusing imaginative prosecutors with technological forecasters, or of assuming that tech firms with an early lead on some innovation have an invincible advantage over new rivals.

In the renowned 2004 study "Does Antitrust Policy Improve Consumer Welfare? Assessing the Evidence," Brookings Institution scholars Robert Crandall and Clifford Winston found "no evidence that antitrust policy in the areas of monopolization, collusion, and mergers has provided much benefit to consumers and, in some instances, we find evidence that it may have lowered consumer welfare." But consumer welfare is not what drives populist/progressive Better Deal enthusiasts. Since the Chicago School shifted the emphasis of antitrust to consumer welfare, complains Pearlstein, "courts and regulators narrowed their analysis to ask whether it would hurt consumers by raising prices." Pearlstein would like courts and regulators to pay more attention to "leveling the playing field." Kahn likewise argues that "undue focus on consumer welfare is misguided. It betrays legislative history, which reveals that Congress passed antitrust laws to promote a host of political economic ends."

The trouble with grounding policy on legal precedent and political ends, however, is that Congress has passed many laws to promote the special interests of producers at the expense of consumers. Some examples include the creation of the Interstate Commerce Commission (1887), the National Economic Recovery Act (1933), the Robinson-Patman Act (1936), the creation of the Civil Aeronautics Board (1938), price supports for farm and dairy products, and numerous tariffs and regulations designed to benefit influential interest groups and the politicians who represent them. The harm that these initiatives did to consumers is now well understood, though not by all politicians and journalists. That raises the question of why we should unleash another round of consumer harm on the public.


University of Pisa economist Nicola Giocoli examines the economic analysis of antitrust over the period 1939-1974, when it was dominated by the structure-conduct paradigm of Harvard's Edward Mason and his student Joe Bain. By the 1950s and 1960s, that "Harvard School" approach evolved into a more rigid "structuralist" view that market concentration ("oligopoly") could be assumed to facilitate collusion and therefore high prices and profit. Harold Demsetz later showed the lack of evidence for that hypothesis, which helped to advance a consumer-focused price theory approach, dubbed "The Chicago School of Antitrust Analysis" by Richard Posner.

Kahn claimed the Chicago School's "consumer welfare frame has led to higher prices and few efficiencies," citing a collection of studies John Kwoka discusses in his 2014 book Mergers, Merger Control, and Remedies. Galston and Hendrickson praise the book as "a comprehensive study of recent mergers." In reality, 10 of the book's 42 "recent" mergers happened between 1976 and 1987, and 21 others happened in the 1990s. Those old studies were mainly focused on very few industries, including airline and railroad mergers enforced by the Department of Transportation and the Surface Transportation Board, rather than the Justice Department or Federal Trade Commission. Senator Schumer as well as Galston and Hendrikson allude to "recent" airline fares as a reason for tougher antitrust, even though five of the seven airline mergers in Kwoka's book occurred in 1986-1987, and the other two in 1994.

Pearlstein notes that Kwoka's list of higher prices blamed on mergers includes "hotels, car rentals, cable television, and eyeglasses." The goods on that list look as old-fashioned as Kwoka's definition of "professional journal publishing" as involving print only, ignoring electronic publications. Hotels now face stiff competition from Airbnb; rentals cars from Uber; cable companies face "cord-cutting" alternatives such as broadcast HDTV, satellite providers DirecTV and Dish, and internet providers such as Roku, Netflix, Amazon, Hulu, and more. The claim that eyeglass maker Luxottica controls 80% of U.S. optician chain sales ignores the sales made by thousands of independent optometry practices, huge retailers Walmart and Costco, and online retailers Zenni Optical and Warby Parker. It is difficult to imagine how Pearlstein or Kwoka could seriously suggest consumers face monopoly pricing from such industry leaders as Southwest Airlines, Marriott hotels, Enterprise Rent-A-Car, or Costco Optical.

The most recent merger in Kwoka's compilation of supposedly cartelizing mergers was in 2006 when Whirlpool outbid Haier to acquired Maytag. Any suggestion that Whirlpool gained monopoly power from that merger, however, was...

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