Controversy: Are Antitrust Laws Immoral? A Response to Jeffrey Tucker

By Elzinga, Kenneth G. | Journal of Markets & Morality, Spring 1998 | Go to article overview
Save to active project

Controversy: Are Antitrust Laws Immoral? A Response to Jeffrey Tucker

Elzinga, Kenneth G., Journal of Markets & Morality

Antitrust As Protection Against Cartels

Perform with me a gedanken experiment. Imagine, if you would, three product markets, each supplied by several firms, who are vying with one another for customer patronage. In the first market, the firms tire of competing against each other. So they divide up the market geographically, each firm agreeing not to poach on customers outside one another's designated territory. In the second market, sellers become unhappy with prevailing prices. So they agree to a floor price below which sales will not be made. The floor price represents an increase over past prices. To underscore their agreement, each firm deposits a sum of money payable to others in the price-fixing ring if that firm is ever observed cutting prices. In the third market, prices are determined by competitive bidding. Sellers can restrain their enthusiasm for prevailing price levels so they meet in advance in order to escalate the bid price. At each meeting they determine which firm among them will win a particular bid. The other sellers submit fictitiously high prices with the understanding that they will receive a side-payment from the successful bidder or that they will be permitted to bid without genuine opposition on future bid solicitations.

Economists recognize each of these collective strategies as a variation of cartel behavior. Antitrust lawyers recognize each as being illegal per se under federal antitrust laws. Notwithstanding the legal prohibition on cartels in the United States, Jeffrey Tucker claims that the "moral burden of proof is on the side of those who advocate antitrust policies, and that burden has yet to be born."

To begin bearing the burden, let me suggest the Bible's ninth commandment. When a company holds itself out to its customers as an independent center of initiative in the marketplace, yet buyers are never informed that the market has been parceled out, or that a floor price has been set, or that the bidding is phony, the firms in the cartel have born false witness. Antitrust laws that deter cartels are deterring the bearing of false witness. Participants in a cartel bear false witness whether the cartel raises prices and restricts output by large amounts or small; participants in a cartel bear false witness notwithstanding centrifugal incentives for cartels to come undone by members cheating on the agreement.

Jeffrey Tucker's critique of antitrust never specifically discusses antitrust's prohibition of cartels, but since he endorses no element of federal antitrust policy, I take his condemnation of antitrust to be a blanket one. That Tucker never discusses cartels is peculiar. The meat and potatoes of antitrust enforcement in the United States is ferreting out cartels. Presumably, Tucker would abandon this kind of antitrust enforcement. In so doing, there would be several consequences for consumers.

First, without antitrust deterrence, there will be more cartels. Deciding to form a cartel involves the calculation of prospective costs and benefits. Sans antitrust, the primary cost to cartelization will be the coordination costs (since there will be no financial penalties to pay, or incarceration to endure, if caught). The major economic hindrances to cartelization will be the free rider problem, cheating by members, and fending off prospective new entrants. Second, without antitrust deterrence of cartels, consumers who perceive themselves as aggrieved by the absence of competition would turn to politicians who might respond with burdensome government regulations on business. Antitrust, in principle, sets the rules of the game, but not the outcome. Absent antitrust enforcement, the regulations politicians substitute might directly involve the government in price and output determination that would be more obstructive than antitrust's more limited restrictions upon freedom of contracting. Tucker never mentions the economic advantages consumers now enjoy because of deregulation that came about because antitrust was offered as a substitute for direct government regulation of price and entry.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Controversy: Are Antitrust Laws Immoral? A Response to Jeffrey Tucker


Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?