How Many Cheers for Antitrust's 100 Years?

By Demsetz, Harold | Economic Inquiry, April 1992 | Go to article overview

How Many Cheers for Antitrust's 100 Years?


Demsetz, Harold, Economic Inquiry


This article describes the ambiguity inherent is U.S. antitrust policy, arguing that it is a necessary consequence of the true, but not commonly understood, task of antitrust policy. Competition is multidimensional in form, and its different dimensions cannot be maximized together. Therefore, antitrust policy cannot maximize competition per se, but aims to achieve an efficient mix of competitive forms. Inadequate knowledge of the technical and preference tradeoffs involved guarantees that questions about the appropriate competitive mix will remain open to debate. The resulting policies, in the author's opinion, merit one cheer out of a possible three.

I. INTRODUCTION

The objective of our antitrust experiment is frequently taken to be the promotion of competition or the reduction of market power. This cannot literally be antitrust's goal. It presumes that competition is single dimensional or, if multidimensional, that it can be increased on all fronts simultaneously. The presumption is wrong. The intensity or effectiveness of one form of competition often correlates negatively with the strength of other forms. This means that maximization of competition is a meaningless goal. The goal is more correctly described as choosing a preferred mixture of competitive forms.

Thus, price competition between existing goods can be intensified by eliminating patent and copyright protection, but this reduces the effectiveness of competition to produce new goods. Similarly, competition between firms can be made more effective if competition between persons within firms, as between partners, is suppressed. The trade-off between different forms of competition is in fact recognized in antitrust by the distinction Judge Taft sought to draw in Addyston between ancillary restraints of competition and restraints whose main objective is to eliminate competition. The problem is recognized latter by Judge White when he attempted to forge a rule of reason in Standard Oil. The generality of the problem and its importance to a much broader range of antitrust issues is, however, not made explicit in the context of these cases. One form of competition is necessarily substituted for another, and prioritizing forms of competition by nomenclature such as "ancillary" simply diverts attention from the ever-present and quite general trade-offs that are involved.

Recognizing these often negative correlations between different dimensions of competition, I take as the goal of antitrust the achievement of an efficient mixture of competitive forms or its mirror image an efficient mixture of monopolistic forms. This is quite different from the goal of increasing competition or reducing monopoly, which, to be sensible, requires the absence of a general trade-off problem. It is in reference to the efficient mixture criterion that I judge the past 100 years of antitrust.

The efficiency of a mixture of competitive forms reflects the technically possible trade-offs between types of competition and the preference weights given to these types. There is no explicit market in which the preference weights for forms of competition are revealed, and the technical trade-offs between the various forms of competition, in principle determinable objectively, are so unknown that gross guess work must be used to judge them. The fact is, we do not possess enough general knowledge and understanding of the competitive trade-off problem to resolve differences in our evaluations of antitrust policy. Perhaps this is why there has been no systematic empirical study and appraisal of the efficacy of our antitrust policy. Unfortunately, evaluation remains a highly subjective task. That is why the debate over antitrust is never ending.

The problem is revealed in the Sherman Act itself. We are not dealing with the equivalent of a speed limit law. We have here something more like RICO. The Act did not legislate prohibitions that can be known with fair certainty to have been breached.

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