Why You Should Care about Antitrust
Earlier this month, a congressional committee accused major technology companies of a wide range of anticompetitive behavior, and on October 20, the U.S. Justice Department filed suit against Google, accusing the company of illegally using its market power to maintain dominance of online search and advertising. We asked Prof. Fiona Scott Morton, former chief economist for the Justice Department’s Antitrust Division and the founder of the Thurman Arnold Project at Yale, to explain why antitrust violations are bad for consumers and how the government can respond.
The antitrust laws are the laws that we in the United States have on the books that prevent anti-competitive behavior and keep markets functioning for regular consumers.
What do they principally do?
They forbid collusion, when firms get together and say, “We’re going to all charge $15,” instead of setting their own prices and competing with each other.
They forbid anti-competitive mergers—that is to say, mergers that lessen competition. I’m going to try to buy my direct competitor so that I don’t have to compete with them, so that I can raise prices or lower quality.
And the third thing that’s forbidden is monopolization, which is when a usually large firm or a firm with market power uses that market power to push out a competitor, to keep a competitor in a niche.
“Citizens should care about antitrust enforcement. If there’s only one seller, you don’t have a choice about the product and you don’t have a choice about the price.”
Citizens should care about antitrust enforcement, because it is much nicer to go shopping in competitive markets than in markets with a monopolist. What’s bad about a monopolist? Well, the monopolist is the only seller. If there’s only one seller, you don’t have any choice. You don’t have a choice about the product and you don’t have any choice about the price, unless you just want to not buy. So monopoly markets are characterized by high prices, low quality, and not much innovation.
When I think about my cable provider, for example, I think about low quality and high prices and not much innovation—and I don’t have a choice about my cable provider; I just have one wire into my house and so I’m trapped unless I don’t want to watch TV at all.
What can we do about these monopoly markets? Well, there are two ways, broadly two ways, that we handle them. One is regulation and the other is antitrust.
Regulation is a very old and traditional way to handle a monopolist. Let’s say you’ve got a natural gas pipe into your house, or an electric wire into your house; society can say, “We only want one electricity source and what we’re going to do is stop that a monopolist from exercising its monopoly power and charging high prices by having a regulatory process where we choose what the price will be—we’re going to set the rates.” And the rates are going to be chosen by the government.
The other way we can go about trying to stop those monopolies from existing is by going after them and preventing them from forming in the first place—trying to protect competition in regular markets, like the markets for automobiles or the market for bread or the market for mobile phones or the market for bicycles.
If you’re a regular citizen and you’re thinking, how does this antitrust law get enforced?, it’s enforced by two parts of the government, the Federal Trade Commission and also the Antitrust Division of the Department of Justice. Increasingly, states, which also have antitrust laws, are getting involved in enforcing those laws, particularly in places where they feel the federal government is not enforcing sufficiently.
Imagine if one paycheck had to cover monopoly profits in all different kinds of areas where today we have robust competition. That would make our standards of living fall. It would also transfer large amounts of money from consumers to the holders of that corporate stock, and the holders of that corporate stock are disproportionately in the top 1% of the income distribution. So when you don’t enforce the antitrust laws, and you allow monopolies, you’re transferring money from consumers to the holders of corporations and that’s both exacerbating inequality and also, of course, making markets work worse, work badly, and we don’t want that.