Antitrust: Source of Dynamic and Static Inefficiencies?
WILLIAM J. BAUMOL AND JANUSZ A. ORDOVER
This paper undertakes to reexamine some of the efficiency consequences of the antitrust laws. It will offer a variety of grounds suggesting that matters in this area are more complex than conventional views of the subject may suggest. We will not emerge with categorical conclusions on the evaluation that these laws have earned on balance, but we will offer a number of policy suggestions that can plausibly be expected to improve their performance.
If there is any one prevailing view on the merits and demerits of antitrust legislation as a stimulus to economic efficiency it would appear, very roughly, to hold that on the static side, by discouraging the exercise of monopoly, these laws have served unambiguously to promote economic welfare. Nevertheless, there has been a trade-off for social welfare, in that at least in the past antitrust rules have discouraged joint research efforts, have exacerbated the innovator's free-rider problems through restrictions on the scope of the licensing contracts, and may have impeded the attainment of the firm sizes needed to mount the most effective research and innovation efforts. 1 Not everyone agrees that the last point is a problem in reality, but there does seem to be a consensus that if antitrust falls short anywhere, the problems are most likely to take the form of impediments to growth in productivity.
Although we will emphatically not take the opposite view, it will be suggested here that there are two sides to the story, both in its static and dynamic components, and that the standard list of sources of inefficiencies possibly deriving from antitrust activities is not quite complete. First, we will try to show that antitrust can and probably often does serve as a vehicle for rent seeking and as a means to prevent "unfair competition," meaning any competition that threatens to make life too uncomfortable for rivals, as true and effective competition should do. To this extent, rather than promoting static efficiency, antitrust legislation may serve to undermine it.
The opposite may be true on the dynamic side, where antitrust may contrib-