The Problem with Obama's Antitrust Plan

Article excerpt

The Obama administration recently signaled a new, tougher antitrust policy.

The assistant attorney general, a former Federal Trade commissioner, argued last week that "vigorous antitrust enforcement must play a significant role in the government response to economic downturns."

Breaking sharply with the relatively laissez faire antitrust policy under President Bush, Christine Varney hinted that so-called dominant firms that engage in "improper business practices" to stifle their competitors will be likely targets of the new antitrust enforcement. Several key senior aides who worked in the Clinton administration have been recruited to investigate and/or litigate new cases.

Here we go again.

The free market does not need more strict antitrust policy; it needs simple protection from fraud. The problem is that, in the 119 years that antitrust laws have existed, there is little empirical evidence that "vigorous enforcement" of them can promote the interests of consumers. And it was for the alleged benefit of the consumers that the laws were created.

Indeed, antitrust history is riddled with silly theories and absurd cases that themselves have restricted and restrained free- market competition and hampered an efficient allocation of resources. A look at a few examples is reason to believe that President Obama's antitrust regulation won't be any different.

The wrongheaded prosecution of efficient dominant firms goes back to at least 1911, in US v. Standard Oil of New Jersey. Neither the trial court nor the Supreme Court ever determined that Standard Oil had employed predatory practices to destroy rivals and raise prices. Standard earned its high market share through efficient operation and low prices and always had competition. (In 1911, there were 137 suppliers in oil refining and no monopoly.)

Yet Standard was convicted, despite its economic performance, since the formation of its Trust ended "competition" between its own subsidiaries.

A very similar scenario played out in the 19th-century tobacco industry. The American Tobacco Company had earned a substantial market share through merger, internal efficiency, and low prices. Yet despite its economic performance, and despite the fact that there were thousands of rival suppliers of various tobacco products, the high court determined that the acquisitions that had created American Tobacco were themselves a violation of the Sherman Act (the first major antitrust law in the US).

The 1945 suit against Alcoa and the 1954 suit against United Shoe Machinery are two of the most egregious anticonsumer monopoly cases of all time.

In Alcoa's case, the trial judge dismissed 150 separate government charges concerning alleged monopolization. He also determined that Alcoa had expanded aluminum ingot production and lowered prices for 50 years. …