What's Wrong with Anti-Trust Laws?
Politics
| February 21, 2005
| Tim
As a recovering "centrist" who still harbors definite left-leaning tendencies, one of the more "leftist" ideas I believe in is the goodness and rightness of anti-trust law. I still cheer, mentally, when I think of Teddy Roosevelt telling the awful robber-barons that he intended to break them up, and negotations would be of no use whatsoever.
But I'm also aware that most my other left-leaning ideas have been proven wrong, and have heard rumors that anti-trust laws might also not be all they seem.
So today I thank Dawn Eden for pointing me to this tidbit, which seems to strike a blow against my cherished belief in anti-trust law:
Producers who charge more than their competitors, Paterson observes, can be accused of price gouging. Those who charge less are guilty of predatory pricing and unfair competition. Those who charge precisely the same must surely be engaged in price fixing. Any of these accusations might therefore be leveled against a firm by a competitor, making "status," or political power, crucially important to commerce. According to Paterson, the malleability of the notion of "anticompetitive" practices means that in effect, firms will seek prior approval before innovating, merging, or splitting and selling off subsidiaries. The effect, ironically, is to inhibit competition.
That, I can understand.
Not sure I'm entirely sold yet, but it makes for a funny read.
Also, Dawn's article about Hollywood pimping for Soviet spy Alger Hiss in the SF classic "The Day the Earth Stood Still" is very interesting. I had no idea that was the subtext. Hollywood hasn't changed much, have they? Just as shameless as ever.
its true.
If you look up the history, you'll find that most antitrust laws were pushed through by business who couldn't compete, and they are the same who use those laws to kill the growth of their competition. It may allow them to compete, but at what expense? If they can't compete in the free market, they should go out of business and allow others who can to take their place.
Antitust laws are only allowed for one of two reasons:
1. Politicians don't understand economics and think that every change in the market is a broken market in need of intervention (sort of like how we thought than any mild recession was a call for the printing of new money - which we now know only exacerbates the problem)
2. Politicians know they are restrictions on free competition and are bad, but it gives the pol. more power to keep them
Whichever is your theory, they should all be repealed. The only real monopoly is the government granted monopoly. Anything else that acts like a monopoly is shortlived as new firms enter in order to reap the profits. If it seems that they can't enter (eg local telephone), then leave government off for a minute and a new technology will allow them to enter (eg broadband phones). But, allow government to strangle the market (as in phones and cable for so long), you will keep away the technology. Same is true in any other area of competition or trust laws. If government had not regulated phone service, though, we must ask:
1. What would local calls have cost? (for the answer we must think about demand, cost, and any other factors)
2. Would technology such as cell phones, broadband and other competition have come sooner?
3. What can we learn from countries where local calls were always more expensive than in the US? Were they regulated? Why was it it more there? Why do they all use cell phones now?
Great site.
It's interesting how many blogs are suddenly covering this issue. It seems almost like a co-ordianted movement. The Becker Posner Blog had a piece on this a little while back.
I agree with a lot of the arguments against "anti-gouging" laws, which should be altered or repealed since they are horribly vauge in their descriptions of what constitutes "gouging." A vauge law is virtually indistinguishable from an ex-post facto law since you don't know you've violated it till after you have. Anti-trust laws and anti-collusion laws should be enough to cover things. The only drawback I can see to that is that it's often terribly difficult to prove collusion, and the people who commit the crime usually have the resources to defend themselves.
I can add one good example of government intervention preserving monopolies. Microsoft got its monopoly on operating systems. It is working to preserve it through the Digital Millenium Copyright Act (DMCA), a horrible piece of legislation which makes reverse engineering even for the purpose of interoperability illegal. We're not allowed to even know how the stuff running on our computers work. Which leads to problems like Sony's Rootkit (potentially harmful software installed via music CDs) being left undiscovered and undealt with for such a horribly long time. The only saving grace of that whole debacle is that the rootkit was not mentioned in the EULA, so it wasn't covered. But reverse engineering of the tools we use in order to understand how they work should be a standard practice. Laws to defend 'intellectual property' often do more to stifle innovation than to support it. Large companies patent absurd things as defensive patents.
If they're sued, they countersue. A system like that holds power, not justice as the standard used to resolve disputes. This defys the purpose of a legal system, i.e. aruging towards a common, fair standard.
However I don't put unlimited faith in the market either, as some people seem to do. Collusion to create a scarcity of a non-patented\non-copyrighted good disrupts the efficiency of the market. In cases where a market is controlled by just a few major players there's too much incentive for them to elevate prices. Consider GM buying up the public transport systems in... Ohio (IIRC) and trashing them to create a greater need for cars. Of course, in practice I don't know how fairly anti-trust laws are enforced.
The notion of goughing is most relevant when it concerns a sudden need for an item in order to preserve one's life. Some issues to consider re: anti-gouging laws;
1. Is the need for the exchange immediate and vital? One example of this is the Law of the Sea where ships have an obligation to help other ships and the price for aid is high, but, (IIRC) regulated. "Price gouging" laws might be reasonable if a person is put in sudden, unforseen need of a non-patented commodity and their life depended on procuring that commodity.
2. Is the item in question legitamately scarce? If so, a price increase may replace other forms of rationing or deprivation. Of course, we still need to ask if there was collusion to create the original scarcity. Can collusion be proved if it exists?
3. Is the scarce good a necessity in small quantities and a luxury good in large quantities? While I'm generally against rationing, it might make sense, in times of temporary, localized food scarcity, to ration in order to make sure people had enough food to make it through a crisis. But these situations are rare. Long-term famines tend to be economic. Ethiopia was a net exporter of food during it's intense drought, because locals didn't have the money to afford agricultural products.
What really frustrates me is that consumers haven't taken things into their own hands more. When businesses temporarily dip their prices to drive other stores out of business, why don't people ever see it would be in their best interest to get together en-masse and start up their own business collective so they could get goods at a fair price? Newspapers always support the price dip (new superstore brings greater efficiency and lower prices!) and are dead silent afterwards. I think the better 'leftist' (and conservative) answer to this problem is not so much anti-trust laws but people owning the corporations which supply their needs. I don't mean socialism here. Any centralization of power is a potential threat to our freedoms. I mean legitamate purhase of shares in a business with a 'share' giving you rights within the business in terms of discounts, choice of management, etc. Americans have enough disposable income to make investment in these buyers collectives feasible. This would seem to be in their best interest, and more effective than anti-trust laws. But I rarely hear of this happening, or even advocated.
Regarding your link to the article posted at the Cato institute;
http://www.cato.org/special/threewomen/god-machine.html
Totalitarian regimes could achieve advanced technology only by parasitism on previous innovation
The Soviet Union, Nazi Germany, and wartime Japan were many horrible things. But they were certainly capable of developing advanced technology.
It was, writes Paterson, the merger of the Roman concept of law with the Christian focus on the freedom and salvation of the individual soul and the Greek ideal of truth pursued through reason that allowed a mercantile "society of contract," with the United States as its prime example, to emerge in the West from a feudal "society of status."
This is an interesting assertion. Ideals are expressed and they don't come to fruition for nearly 2000 years? In this situation, I would be inclined to believe that other factors were involved in the creation of America outside of the sources cited here. Why else would this perfect nation emerge suddenly so incredibly long after its influences came into existance? The founding fathers were students of the enlightenment, a fact which this article glosses over completely.
"As the Government of the United States of America is not in any sense founded on the Christian religion" -Treaty of Tripoli
http://earlyamerica.com/review/summer97/secular.html
There are some people in the US who want to make America a theocracy. That's their choice, of course. That they try to do it by pretending that the majority of the founding fathers were conservative Christians is straightforward dishonesty, however.
Furthermore, American democracy and separation of powers has an analog in some Native American traditions. I've often wondered just how much Native Americans contributed to the American system. Since Native American practices would have no standing in the eyes of British law, the founding fathers had to make their case with British Common law rulings or be seen as legally irrelevant. But I wonder if that's where some of their ideas came from.
I think we should straighten this out before this thread gets too long; the OP and his cited sources are mixing terms here. Price gouging is typically short term and it applies to the sale of essential goods at a high price during an emergency. You can sell your house or your bottle of fine wine at whatever price you like and you're not engaged in 'price gouging.'
It's possible to keep price gouging laws but remove anti trust laws or vice versa. The two are disparate. They seem to be blurring together because the oil companies are trying to prove that they did not collude to raise oil prices and some gas stations are being accused of price gouging.
Wikipedia has an incisive overview of the issue of price gouging which is better than just about all of the blog enteries that I've read.
http://en.wikipedia.org/wiki/Price_gouging
Incidentally, if two companies sell items at the same price that is NOT sufficient to prove price fixing.
Similarly, you have to do more than sell your product at a low price to be accused of predatory pricing. It's a very difficult thing to prove in court. Wikipedia's article on predatory pricing makes an interesting argument that predatory pricing will fail in the majority of cases since if a firm sold a physical commodity below cost, a rival firm could buy up the commodity in bulk and resell it, hurting their rival. Predatory pricing may work for intangible goods or perishable goods when there's also high cost of entry to the market, but those are often less essential commodities.
http://en.wikipedia.org/wiki/Predatory_pricing
I don't totally agree with Wikipedia's assertion, though. A new large movie theatre near where I used to live, for instance, did manage to use predatory pricing to drive several smaller theatres out of business, then jacked its rates up.
Regarding your link to the article posted at the Cato institute;
This was my comment. I don't know why attribution got removed. I was not deliberately anonymous.
"Totalitarian regimes could achieve advanced technology only by parasitism on previous innovation"
The Soviet Union, Nazi Germany, and wartime Japan were many horrible things. But they were certainly capable of developing advanced technology.
Actually, it's not entirely clear whether your argument refutes the original statement -- though I was certainly inclined to agree with it at first.
It's often argued that Islam enjoyed a "golden era" of innovation -- but many make the argument that if you scratch the surface, you'll find that most the innovations attributed to Islam were simply the products of Syrian and Persian Christian culture, and soon stopped being produced when Syria became Islamic.
Likewise, one could point out that many of Hitler's inventions -- for example, those from Werner Von Braun -- actually were the products of the free culture which had existed before Hitler came to power. The same can be said for the famous Nazi airships -- the business was stolen from the Hindenberg family.
And again, most of Stalin's military wonders were created under capitalism. His atomic weapons were developed in Los Alamos; his rockets were built by German rocket scientists, addressed above. I am unaware of any other significant technological contributions from the USSR or her satellites.
In the short term, strong-fisted revolutions appear to do well because they restribute wealth or leverage technology created by the former system -- or steal technology developed outside. But in the long term, there are no incentives for sustained innovation.
I suppose it boils down to how you define 'technology.' I've always defined it as 'applied science' but apparently under some definitions 'technology' can also refer to the raw theoretical ideas and other things aside from applied science. If that's so, I can buy the notion that totalitarian regeims tend to kill the theoretical sciences. I remember reading how the ancient Egyptians used (and possibly developed) geometry for surveying, but it wasn't until the democratic Greeks that the notion of 'proofs' entered mathematics.
And granted, totalitarian states are less efficient than free capitalist ones.
his rockets were built by German rocket scientists,
Of course, a lot of US WWII innovations were built by foreign scientists too, some of whom were raised under totalitarian regeimes. One problem with totalitarian regeimes (morality aside) is that they tend to scare off the people who know how to build the cool toys. (I wonder if Imperial Japan had less of a problem with fleeing scientists, since there weren't numerous advanced free countries which spoke Japanese for them to flee to.)
But totalitarian regeims have been able to innovate in the applied sciences and even innovate using native born scientists. the Japanese attack on Pearl harbor was so devastating because their torpedoes could strike the Arizona in the 30 foot waters of the harbor, a previously unaccomplished feat. The USSR developed bacteriophage therapy to prevent dysentry in its millitary (viruses which target particular bacteria.) Granted, the theoretical basis for bacteriophage therapy was laid by d'Herelle and others outside the USSR, but most western attempts at phage therapy failed, and were abandoned after the discovery of antibiotics. Life support for a dog or human in a space shuttle seems to be a little bit innovative. (Granted, the Soviets cut corners resulting in the loss of human life, and if they hadn't the US probably would have put a man or dog in space first.)
And correct me if I'm wrong (I know almost nothing of the German missle program), but a lot of Germany's rockets weren't developed until much later in the war. That leads me to suspect some kind of innovation was required.
In the short term, strong-fisted revolutions appear to do well because they restribute wealth or leverage technology created by the former system -- or steal technology developed outside. But in the long term, there are no incentives for sustained innovation.
I agree, the most competition in totalitarian states comes from outside rather than internally so almost all innovations tend to have some millitary use, with civilian considerations being secondary or non-existant.
I'm not claiming that totalitarian governments are morally good or highly creative. Just that they're capable of producing advances in the applied sciences (mostly for millitary purposes.)
Came across this by accident and thought I'd post.
The magnetic plasma containment field of the Tokamak fusion reactor was developed by the former Soviet Union and was an innovative design.
http://en.wikipedia.org/wiki/Tokamak_reactor
Of course, this type of work is closer to your discipline than to mine.
If memory serves, the Japanese Zeros were also innovative in many ways at the beginning of WWII.
http://en.wikipedia.org/wiki/Japanese_Zero
Scientists working in Nazi Germany discover nerve agents by accident while researching insecticides (Dec 1936) by scientists at I.G. Farben
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its true.
If you look up the history, you'll find that most antitrust laws were pushed through by business who couldn't compete, and they are the same who use those laws to kill the growth of their competition. It may allow them to compete, but at what expense? If they can't compete in the free market, they should go out of business and allow others who can to take their place.
Antitust laws are only allowed for one of two reasons:
1. Politicians don't understand economics and think that every change in the market is a broken market in need of intervention (sort of like how we thought than any mild recession was a call for the printing of new money - which we now know only exacerbates the problem)
2. Politicians know they are restrictions on free competition and are bad, but it gives the pol. more power to keep them
Whichever is your theory, they should all be repealed. The only real monopoly is the government granted monopoly. Anything else that acts like a monopoly is shortlived as new firms enter in order to reap the profits. If it seems that they can't enter (eg local telephone), then leave government off for a minute and a new technology will allow them to enter (eg broadband phones). But, allow government to strangle the market (as in phones and cable for so long), you will keep away the technology. Same is true in any other area of competition or trust laws. If government had not regulated phone service, though, we must ask:
1. What would local calls have cost? (for the answer we must think about demand, cost, and any other factors)
2. Would technology such as cell phones, broadband and other competition have come sooner?
3. What can we learn from countries where local calls were always more expensive than in the US? Were they regulated? Why was it it more there? Why do they all use cell phones now?
Great site.
Posted by: liberty on April 19, 2005 01:43 PM