The standard argument for antitrust is that monopolies restrict output and raise price above costs. Consumers who value the good at more than cost but less than the monopoly price lose out.
This perspective is correct as far as it goes. But other considerations suggest antitrust does more harm than good.
To begin, existing evidence does not suggest monopoly or market power would be rampant without antitrust. Monopoly and market power unquestionably exist in the short run, such as when a new product emerges. Over time, however, innovation and competition erode much of this monopoly power. Thus, the need for antitrust is less compelling than it might appear.
In addition, antitrust laws have their own negatives. Mergers and takeovers can improve efficiency by permitting economies of scale or scope. The threat of takeover is one mechanism that disciplines bad management practices. And limiting monopoly profits can reduce the incentive for innovation. Thus antitrust might increase short-term efficiency but decrease long-term efficiency by reducing technological progress.
Antitrust policy also distracts attention from cases where governments, not markets, create monopoly or market power. Examples include public schools and the Post Office. More generally, governments erect numerous barriers to entry in the form of fees, permits, and licenses.
If antitrust limited itself to the most obvious and egregious cases, such as naked price-fixing, the benefits would plausibly exceed the harm. But ideal antitrust enforcement does not exist. Rather, the history of antitrust illustrates the mission creep and overextension that often characterize government intervention.
Comments