Antitrust Through the Lens of Marginal Revolution
By Bryan Caplan
Marginal Revolution premiered six years and tens days ago. Alex and Tyler may not have been the very first academic economists to start blogging, but they still got in at the ground floor. I don’t know how many people read MR’s first post – 50? 100? – but over the years they’ve built a fan base of tens of thousands.
MR isn’t just a big player in the econoblog market; it’s clearly got some monopoly power. Alex and Tyler don’t face a horizontal demand curve; if they started offering a less attractive package, they wouldn’t lose all their readers overnight. In fact, MR could probably get a lot worse and still keep thousands of readers.
Now as far as I know, antitrust authorities have largely left blogs alone – even though you could easily argue that the blogosphere is a den of predatory pricing. But hypothetically speaking, what would happen if Alex and Tyler fell under the antitrust spotlight? What could they get away with? What would get them in trouble?
For the time being, Marginal Revolution is basically priced at its marginal cost of 0. But antitrust authorities would have no objection if its owners raised their price. In fact, they could ask for a million dollars a minute, and they’d be legally safe. When a firm creates a unique product, the antitrust authorities let them charge all the market will bear. So what would attract unwanted attention from the antitrust authorities?
1. Horizontal mergers. If MR wanted to merge with a close substitute – say Mankiw’s blog.
2. Long-term contracts. If MR made readers sign contracts to keep reading MR every day for the next five years.
3. Exclusive dealing. If MR made readers sign contracts promising not to read other blogs.
4. Price-fixing. If MR and Mankiw explicitly agreed to raise their prices by $1/month.
5. Predation. If MR tried to put Mankiw out of business by churning out massive quantities of high-quality posts.
If you asked economists (not lawyers) in antitrust enforcement why they’d allow Marginal Revolution to raise its price above marginal cost, what would they say? They’d probably appeal to dynamic efficiency: In the long-run, it’s socially beneficial if firms can cash in on monopoly power over products that, but for their efforts, wouldn’t have existed.
My question: Once you buy the dynamic efficiency rationale, why not let firms use their monopoly power however they see fit? If it’s OK for exceptionally fascinating blogs to charge an exorbitant price, why isn’t it OK for exceptionally fascinating blogs to merge, or insist on exclusive deals, or fix prices?
Wouldn’t that be abusive? You’re probably no more worried that MR will collude with Mankiw than that MR will start charging $30/month. If you were worried, I’d be tempted to repeat what Bart told Comic Book Guy: “They’re giving you thousands of hours of entertainment for free. What could they possibly owe you? I mean, if anything, you owe them.”
But ethics aside, the fundamental check on mergers, cartels, exclusive dealing, etc. is the same as the check on monopoly prices: entry. Personally, I think entry is a mighty force, but I can understand why someone would disagree. What I can’t understand is why antitrust authorities think it’s efficiency-enhancing to scrutinize every exercise of monopoly power except for high prices. Care to enlighten me?