When to Regulate and When Not to? Ghosts of Antitrust Mistakes Past

The Washington Times (Washington, DC), September 14, 2011 | Go to article overview

When to Regulate and When Not to? Ghosts of Antitrust Mistakes Past


Byline: Ronald A. Cass, SPECIAL TO THE WASHINGTON TIMES

As the U.S. economy struggles with zero job growth, high unemployment and tight credit, Rule One for government regulators should be do no harm - avoid any step that threatens job creation, investment and expansion.

Regulators especially should steer clear of intruding into parts of the economy that are working well, most obviously the high-technology sector. Smartphones, tablets, software and the ubiquitous cloud that now is home to so much of what Americans do, are evolving at breathtaking speed, with U.S. firms helping lead the way. Antitrust officials, however, seem poised to try to reorganize this sector based largely on their predictions of what is in store for the market, evident most notably in their contemplation of a suit against Google. This is almost guaranteed to turn out badly. It is a special risk for a flailing economy and a throwback to antitrust mistakes past.

The simple notion at the core of antitrust law is that businesses should compete in the marketplace, not collude with one another to raise prices, reduce output or restrain competition in other ways that harm consumers. The law is predicated on the understanding that market competition benefits consumers and promotes economic growth and that government intervention is appropriate only in extraordinary cases. Congress made violation of the core provisions of the basic U.S. antitrust law, the Sherman Antitrust Act, a crime precisely because it targets extreme cases of anti-competitive conduct, not ordinary, aggressive competition.

The trick for regulators is to decide whether cases they are asked to look at involve ordinary competitive behavior or behavior that truly subverts market forces - whether intervening will hurt markets and consumers or will protect consumers from extraordinary acts that undermine competition. Businesses always have incentives to portray weaker performance in the market as the result of illegal behavior by their most successful competitors and to assert that only regulatory intervention can set things right. Regrettably, regulators all too often believe them.

The history of antitrust enforcement should serve as a cautionary tale about the ability of regulators to see where markets are headed and to discern when antitrust intervention will do more harm than good - especially when competitors charge that one firm dominates a market because it isn't playing fair, rather than because it has a better product, more efficient production, more attractive marketing, or something else common to market competition. That is when the regulators have been at their worst, not only in deciding what is driving market results - on which competitors will be only too happy to provide a self-interested, if distorted, view - but also in deciding what will happen in the markets if regulators stay their hand.

Regulators routinely have underestimated the effects of other forces at compensating for whatever - good or bad - has put one company temporarily in a dominant position.

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When to Regulate and When Not to? Ghosts of Antitrust Mistakes Past
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