The Dangers and Arbitrariness of Antitrust
By Pierre Lemieux
The standard argument for antitrust laws and regulations is that competition, which is good, should be imposed by the state. There is something ironic in the idea that the most monopolistic organization of all, the state, should be trusted to maintain competition. We should not discount the state’s incentive to protect itself from the competition of what Bertrand de Jouvenel called “social authorities” (“pouvoirs sociaux” in the French original, literally meaning “social powers”) or what Anthony de Jasay called “private force.”
In a recent book, Thomas Philippon, professor of finance at the University of New York, argues that tougher enforcement of antitrust laws by the EU government is one of two factors explaining why European markets are now more competitive than American markets. (See The Great Reversal: How America Gave Up on Free Markets, Harvard University Press; and watch for my review in the forthcoming issue of Regulation.) The second reason Philippon gives, which I find more persuasive, is the growing regulation of product markets in America.
An example of the danger of antitrust is provided, perhaps unintentionally, by a Guardian story (“Coronavirus Crisis No Excuse for Price-Fixing, Private Schools Warned,” April 29, 2020–thanks to Mark Brady for bringing it to my attention). The British government made an antitrust threat against private schools, whose existence is threatened by the coronavirus crisis (and the lockdown imposed by the government itself):
The competition watchdog has issued a strongly worded warning to private schools in the UK, threatening hefty fines if they are found to be price-fixing during the coronavirus crisis.
The Competition and Markets Authority (CMA) said it had been made aware that a number of independent schools “may be engaging in discussions with each other about the level of discounts and/or refunds on school fees”.
This apparent absurdity is consistent not only with the letter of antitrust law, as CMA bureaucrats believe, but also with its spirit. Privately agreeing on prices is a no-no. Only governments can fix prices (minimum wages, “price gouging” laws, tariffs, etc.).
The general problem of antitrust is that politicians and bureaucrats don’t know and have no way to know the level of efficient prices, nor would they have the incentives to set them at the right levels even if they knew. Politicians follow the mood of rationally ignorant voters, the demands of their cronies, or the push of lobbyists. The bureaucrats’ interests lie in strengthening their bureaus and the perks—material and psychological—that come with that. Mission creep is built into the system. Standard public choice theory teaches as much.
Philippon’s claim that the EU bureaucracy is tougher and better at enforcing antitrust because it is largely independent of politicians amounts to avoiding the Charybdis of politics to be devoured by the Scylla of bureaucracy.
The natural tendency of a government is to control businesses and restrict competition, not to favor free enterprise or promote competition. It has indeed been the case in most times and places. Even in more modern and liberal countries, governments have usually seized any opportunity to control exchange. The fascinating New Deal statues by Michael Lantz in front of the Federal Trade Commission building, named “Man Controlling Trade,” suggests a powerful and muscular government reining in the fiery horse of commerce. (One of these statues is used as the featured image of this post.)
The Guardian’s article illustrates two other interesting phenomena. One is the assumption that the parent-customers of a private school would consider higher prices (that is, no discount) as “price gouging” even if it is a matter of the school’s survival:
Robert Verkaik, a co-founder of Private School Policy Reform, said families who paid school fees would be dismayed by the revelation. “Those parents who have spent tens of thousands of pounds to send their children to an independent school will be rightly very angry if some of the schools are working against their interests by setting uncompetitive fees.”
Such parents would resemble individuals who applaud the arrest of “price gougers” offering them goods that they can’t otherwise obtain and that they are not obliged to buy at higher prices anyway.
The other, related phenomenon is the arbitrariness that antitrust laws share with most of the regulatory state’s bans and mandates. Just as the Food and Drug Administration suspended some of its regulations that, during several weeks, prevented private laboratories from offering testing products for Covid-19, the CMA seems willing to close its eyes on some violations. The Guardian writes:
The CMA letter, written by its senior director, Howard Cartlidge … acknowledged that in the current crisis there may be a need for increased cooperation between businesses to ensure the supply of scarce products and services. This, however, did not give businesses a “free pass” to engage in non-essential collusion, he warned.
So the CMA does not give a “free pass” except for what they seem to consider essential collusion. A CMA spokesman further explained:
Where cooperation amongst businesses or other organisations is necessary to protect consumers in the coronavirus outbreak, the CMA will not take enforcement action. But we will not tolerate organisations agreeing prices or exchanging commercially sensitive information on future pricing or business strategies with their competitors, where this is not necessary to meet the needs of the current situation.
A believer in the rule of law would have thought that, like legislation, regulations had to be clearly written and publicly available in order to prevent the government and its agents from imposing arbitrary orders and whims: “a government of laws, not of men,” we used to say. Now, we learn that when the government and its agents find regulations “non-essential,” they “will not take enforcement action.” That’s like saying that a legal obligation or ban is so intrusive and authoritarian that it may not be appropriate in certain cases, and that some state agents will decide what these cases are.
Adam Smith and the old liberals understood better both the desirability of competition and the danger of its enforcement by the state. In The Wealth of Nations, Smith wrote (my underlines):
People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.