Yesterday’s antitrust laws can’t solve today’s problems

I view antitrust law as a body of doctrine that is largely obsolete.  Here is one part of my broader argument, from today’s Bloomberg column:

Or consider the body of law assessing resale-price maintenance in the book trade. Today you can buy used books online. That constrains the prices of both used and new books, no matter how judges might rule. In 1998, the U.S. Justice Department initiated an antitrust suit against Microsoft, partly on the grounds that the company sought to extend its market power to browsers. Few people today think the company’s Internet Explorer browser failed because the government restored competitiveness; Firefox and Google built better software. Yet prosecutors spent years distracting the talent of one of America’s most successful companies, as they had with IBM earlier in a 13-year case dropped in 1982.

Policy should instead focus on the real problems that depress living standards for the middle class and the poor. Rates of inflation have been high for housing, medical care and higher education, major budget items for many people. As for housing, there are harmful restrictions on cheaper building, but in the expensive areas there is no monopolistic landlord who owns all the housing stock. So that is not an antitrust issue, nor is university tuition for the most part.

On the other hand, there is a strong case that growing concentration in the hospital market has raised health-care costs. Some major metropolitan areas have only a small number of hospital chains. Part of the problem is that highly regulated environments encourage consolidation and larger firms to deal with compliance costs, so antitrust law won’t provide an easy fix. Nonetheless, hospitals probably should be the biggest area of concern for antitrust enforcers, as competition does not now operate freely.

And this:

The major internet companies are a new target of antitrust attention, yet most of them give their main product away for free. Contrary to charges that they were going to stifle innovation, Google and its parent company, Alphabet, have led or subsidized innovation in driverless vehicles, artificial intelligence and wearable devices. Most major tech companies also are seeking to expand their innovative presence outside their main businesses, with artificial intelligence being a major new field of competition. Complainers about Amazon are more likely to be suppliers than consumers, the presumed beneficiaries of antitrust enforcement.

The best we can hope for is benign neglect, as I cannot imagine today’s politics producing an improved version of antitrust laws.  Do read the whole thing, I consider IP law, cable regulation, and a number of other issues too.


I think you are ridiculously optimistic. Do you really think the anti-trust lawsuits had no influence on Microsoft's behaviour? Microsoft might have not been able to stop google, but it could have come close. How expensive was the anti-trust case against Microsoft anyway? Anti-trust legislation is important: network effects exists and they need to be controlled in my opinion. Anti-trust laws already contains checks: it requires proving harm towards consumers for example. Anti-trust legislation has been hardly invoked in the last 30 years anyway... Worrying about excessive zeal seems absurd to me...

You stole my top post!

My substantive comment--and I will read the column later--is that before I flunked out of law school I learned what TC is complaining about, the so-called "Robinson Patman Act", which also forbids having two different prices for the 'same goods' (retailers sometimes try to avoid this law by having different inventory SKU numbers and slightly different goods, even say the color of the goods, to try and avoid this law, to the extent they even try), is a dead letter. Nobody really enforces it anymore. But TC is right as rain: if the law is obsolete, it should be removed from the books, not unlike those laws (still on the books?) forbidding cunnilingus in certain southern states, I think it was Tennessee, as a "crime against nature", not to mention gay sex.

Sigh. No wonder I flunked out. Resale is under one of the two clauses of the Sherman Act. RPA is here:

What they do with Sherman Act is define the size of the market, for all but "per se violations" (like price fixing, Matt Damon's "The Informant" (2009)) and see if the accused company has "market power". If they do, then they are guilty. But for say the market of aluminum, the defendant will argue the relevant market is not just the US market, but the entire world. If the entire world, the accused will survive. if the market is narrow, like just the USA, they will run afoul of the law. All this creates uncertainty.

DC having lots of lawyers--successful ones--will no doubt tell you more about this.

Ridiculously optimistic?

Try wilfully blind.

TC's never found an oligopoly he didn't love.

Internet Explorer arrived as a so-called part of the operating system at a time when the ecosystem of web browsers was diverse and competitive. The later success of Firefox and Chrome as a response to IE does not erase the harm of reduced and delayed innovation. In fact, establishing backward compatibility with all the IE browsers that failed to follow various internet standards was a significant drag for web site designers even after new browser competitors arrived.

It is true that IE did not fail because of government-installed competition, but the deployment of IE did wipe out a generation of browsers and delayed the arrival of the next.

A very good piece Tyler. Balanced.

But nerds know it was Apache that saved the world, a fortunate accident that an independent and platform agnostic group got to set the standards for the World Wide Web.

Had they been slow and IIS on NT been allowed to set a standard (ActiveX and everything else) it would have been an end-game. Amazon would not have an independent empire, they would not now be surging to AWS dominance (but with interoperability)

As a developer (hobby, but good stuff) I know MSFT's Silverlight is better than the HTML5 c rap they have out there. Of course you can code in any language, even a procedural language like Fortran 77 and use Python for web stuff, but for ease of development MSFT's Visual Studio is the best. So I doubt IIS on NT would have killed the net. Certainly Adobe has not killed the net, so why should MSFT?

Tyler, I really think you're getting the good and bad parts of the Google story wrong.

On the good side, the loss of MSIE market share was clearly due to Chrome and Firefox being better products, but the reason they didn't arise earlier (and we had a long drought of browser innovation) is because websites were using code proprietary to MSIE, rather than open standards. So for Netscape, as with most legal remedies for smaller companies, the government gave too little, too late--but without government anti-trust work there's no reason to believe websites would have moved to open standards and allowed better products a foothold.

On the bad side, subsidizing innovation, while good for society, is hardly evidence that there isn't an anti-consumer monopoly: see AT&T. And indeed, it might be evidence for it--market-leading profits are often due to rents. And the main competitors that Google is trying to squash, generally by giving its entrants tight integration with Search and GMail, also give their products away for free. So I'm not sure that enforcement against Google would be a net-positive at this point, as it was against MS, but we might get there. They show zero interest in calendar innovation, for instance, and have a half-broken todolist product, but both are protected by GMail integration.

...but without government anti-trust work there’s no reason to believe websites would have moved to open standards and allowed better products a foothold."

The antitrust case did not cause websites to change, and I don't know how you propose it would have; it's not as if they were parties to the case or the court issued injunctions banning, e.g., IE's broken box model implementation or ActiveX.

A non-trivial number of websites did not function properly in Firefox 1.0 -- I know because I used it, and the Mozilla Suite before that; operators gradually began to tailor their sites to work on non-IE browsers as it and to a lesser degree Safari gained popularity, especially among the tech-saavy.

Even though it did not work with every website, Firefox was able to gain traction because it was billed as more secure, faster, more feature-rich (things now taken for granted like tabbed browsing and a built-in search box), and more extensible (ad blocking extensions, mainly). It neither needed nor received any help from the DOJ.

The antitrust case made quite a bit of a difference. It wasn't its cost, or its result, but how its mere existence shaped Microsoft's strategy. It told Microsoft that Embrace, Extend and Extinguish was going to get the company killed by regulators. I don't think that it's that big of a stretch that Microsoft's decline coincides with the suit. Friends of mine that worked there at the time have agreed, but it's a complex subject.

Tyler, this is a topic where you can get a lot more information very quickly. It's not as if Horowitz hasn't written on his side of the story, or is unwilling to talk to people about it. What were your sources for the article?

They never stopped with the Embrace, Extend, Extinguish, they just started lobbying a lot more.

Are you talking about Sherman One or Sherman Two? That is, are you endorsing price-fixing or unconstrained mergers? Anyone can criticize resale price maintenance; almost everyone has. But it's a whole different kettle of fish to endorse price-fixing or unlimited mergers.

TC is talking Sherman 2, see my post upstream. Market power and the way the relevant market is defined are the keys to winning or losing. The traditional formula is over 33% market share will cause the DOJ to sue you, but it all depends on the relevant market they pick: is it the 'local' market? (cement companies, even office supply stores, yes that has been litigated and the 'national' argument surprising lost in the Staples litigation), the 'national' market? or the 'international' market? The Sherman 2 defendant always tries to define the market as the biggest market (the international market). Hard to argue if you're a cement company (they are pretty local, since cement is heavy and hard to transport--usually, though Pemex is getting pretty good at economies of scale), but easy to argue if you're a steel company competing internationally, since steel gets shipped all over the world.

Google and Facebook collect 64% of all revenues derived from digital advertising, and almost 80% of the marginal dollar spent on digital advertising. And there's nothing "free" about what Google and Facebook provide - I'm sure the companies who advertise with Google and Facebook would prefer to have more options for digital advertising rather than only two companies that dominate the market and set the price, a price the advertisers pass on to their customers. As for hospitals, almost all of their revenues don't come from "customers" but from third party payers; indeed, hospitals can negotiate much higher reimbursement from third party payers simply because of market dominance, while small independent providers have to accept much lower reimbursement rates. It's goofy: Aetna (just to take one example) will pay one rate to a hospital and a much lower rate to independent providers for the exact same service in the same community. It's for this reason that consolidation has become the preferred strategy in health care. Cowen has selected very unusual industries to make an anti-antitrust argument that makes little sense in the context. If you read the entire piece in Bloomberg you will see that Cowen and Smith mostly agree on goals, but Cowen's emphasis isn't just to fine-tune and update regulations but to end regulations and not just to fine-tune and update corporate taxes but to end corporate taxes. There's a reason for the stalemate in Washington: one side insists on the entire loaf and won't settle for a half.

Your hospital example and advertising example run parallel--in both, the customers ultimately bear a higher cost because the costs borne by the intermediary are rolled into consumer prices (whether premiums or product prices).

The difference is that Google and Facebook have achieved their level of dominance through being "better," in a market-driven way, and there is no evidence of them stifling competition through underhanded tactics.

Facebook isn't necessarily "better" than anything. It is a good example of a natural monopoly in that most of its value derives from the fact that everyone is already using it and most people don't have the appetite to actively use multiple social networking sites. Facebook will be around for a while at least until they miss out on some new innovation and become a victim of creative destruction -- until then, they are the social networking equivalent of the VHS video tape or the QWERTY keyboard.

Myspace was exactly as much a "natural monopoly" as Facebook is... until suddenly it wasn't, right?

Consider a world where Facebook decided to use it's monopoly power to charge every single user $5/month? How many months do you think it'd be around still? That's not exactly what most people think of when you claim something is a natural monopoly.

They stay the most popular social network because despite their flaws, they opened up their APIs enough and stay on top of spam and other things enough that people decide to keep using them. LinkedIn has a nice and profitable niche. Twitter has theirs. Instagram, Pinterest, etc... lots of successful "social network" sites. Google+ tried to compete head on, but hasn't been able to compete successfully in the space. Facebook is feeling the pressure from some of the others and actively adding features or co-opting them in order to stay competitive. That's not "natural monopoly" behavior.

What you're seeing isn't a natural monopoly, it's the natural result of competition in an industry with extremely low consumer discovery and switching costs. If it occurred that you could export your Facebook info and friends to a competitor which was much better by clicking a couple of buttons, Facebook would just as quickly go the way of MySpace, but the "better" competitor most people prefer hasn't actually arisen yet.

Network industries create real problems that society has to deal with somehow. The choice isn't between antitrust and no regulation. The choice is between the relatively general-abstract framework of antitrust (with its emphasis on economic efficiency) and industry-specific regulatory schemes. Would you rather have the DOJ Antitrust Division bringing some lawsuits or the FCC running the Internet?

Good to hear from you, Pithlord.

Not surprisingly, your rhetorical question is perhaps a little too pithy. I'd like to hear you spell out your views.

'I view antitrust law as a body of doctrine that is largely obsolete.'

And Dean Manne thought laws against insider trader worth being abandoned.

'Few people today think the company’s Internet Explorer browser failed because the government restored competitiveness'

And we are all using OS/2, a superior operating system, right? An extended bit of history from a decade ago, back when Microsoft was losing out to superior technology - 'IBM (IBM) will receive $775 million in cash and $75 million in credit for software from Microsoft (MSFT) to settle claims that resulted from the federal government's antitrust case against Microsoft in the 1990s, the companies announced Friday.

The payout is one of the largest that Microsoft has made since U.S. District Judge Thomas Penfield Jackson ruled in 2000 that Microsoft engaged in anti-competitive practices. Jackson's ruling cited IBM as a company that Microsoft had forced to "desist from certain technological innovations and business initiatives."

For example, Microsoft didn't charge all computer makers the same amount for its Windows operating system, allegedly using higher prices as a cudgel against PC companies that didn't comply with Microsoft's wishes.

IBM had irked Microsoft in the '90s by pushing its own OS/2 operating system as a Windows alternative and putting its SmartSuite productivity software on IBM PCs, cutting into the market for Microsoft Office programs. IBM also was an early supporter of Java, a programming language that doesn't need Windows to run.

IBM hadn't sued Microsoft, but still pressed for retribution for the behavior cited by Jackson. Microsoft reached a similar deal with Gateway Computer for $150 million in April.

Microsoft has spent more than $3 billion in recent years settling lawsuits by rivals, including a $1.6 billion deal with Sun Microsystems in 2004 and a $750 million truce with America Online, part of Time Warner, in 2003.

Wash.-based Microsoft still faces other legal challenges, including a lawsuit by RealNetworks and an appeal of a $600 million antitrust ruling against it by European regulators.

Even so, Microsoft's general counsel, Brad Smith, said he believes the antitrust issues are close to being resolved. IBM had been the biggest rival with a pending claim.'

Hey remember the bogus article here trying to explain why people don't trust the media?

I have a better explanation:

CNN lied about the debates last night. Deliberately...and without investigative reporting the public will have no idea who tells them to LIE in such a blatant matter.

Gabe Harris

We should have MORE laws about media. The Fairness Doctrine should be reinstated. And they should not be able to get away with lying so much. Fox lies constantly and people believe them, which affects elections and everyhting else.

Let me guess, your support for the Fairness Doctrine is predicated on the suppression of news sources you don't like.

Personally, i think most news sources today are violating campaign finance laws by coordinating with campaigns to provide in-kind donations in the form of favorable coverage. Billion dollar penalties all 'round and jail for the journolists and editors.

The airline mergers have been wonderful. Now airlines don't even compete for lower fares when fuel prices tank. They don't compete.

Are there any studies suggesting that airline consolidation has been welfare-reducing for consumers? I didn't used to fly nearly as much as I do nowadays, but I generally don't find much room to complain.

Airlines are, imho, a bad example to use for this. I assume you were being ironic in claiming that you have no room to complain? I'm 6'1" and 250# and I can't fly comfortably on any flight more than about 3 hrs in Economy. (by comfortably, I mean being able to breathe and move my arms and legs to avoid cramping - I don't expect much.) So, I don't fly. That definitely harms me, despite the low prices for these awful seats. Anyway, given their awful performance (bankruptcy after bankruptcy) over the last 30-40 years, they aren't a clean example of anything (union power, management's incompetence, federal regulation, etc.). The current airline industry "competition" is definitely "welfare reducing" for me.

And what's the deal with airplane food, am I right?

The question isn't whether airlines are good or bad on the whole; it's whether the problems can be attributed to a lack of competition stemming from recent consolidation. Adding more airlines to the marketplace isn't going to suddenly inspire Southwest to take seats out of their planes.

Southwest may be a poor example for this comment , though probably unintended. Its one of the few that over a decade or more, maintains consistency , same pitch length for seats etc , pleasant staff and is often a pleasure to fly compared to some of the competitors. And often low fares when bought in advance , bags fly free and no change fees other than fare difference.

Southwest was a purely random choice, and personally it's far from my favorite airline--I dislike their focus on second-tier airports and detest unassigned seating--but I think its relative consistency also proves the point. If it hasn't had to adapt significantly to continue competing in a more consolidated environment, that would suggest the consolidated players don't have egregious market clout.

...."that would suggest the consolidated players don’t have egregious market clout."

Good point.

SWA fares are significantly higher than they used to be

@LI Zhi - eat more chicken. And buy two seats, prices are cheap, and fold down the armrest...

The average state of an airline is bankrupt, so it's not like they are sitting on the money.

Leaving aside price fixing and horizontal mergers antitrust law has been close to dead for about 25 years. Its high water mark was probably the Justice Department case against IBM in the late 1970's. It lost intellectual respectability due to the work of the Chicago school economists in the late 1950s and Richard Posner, which eventually filtered down to the courts and is reflected in case law that makes antitrust cases difficult to bring. Aside from price fixing and a few horizontal merger cases, I doubt there is much in the way of Justice Department antitrust enforcement or private antitrust litigation anymore. Back in the 1970s into the early 1980s big law firms had antitrust departments. Those don't exist anymore and haven't existed for around 25 years -- because there isn't a lot of work. Working in the Justice Department's antitrust division would have been a high prestige job in the 1970s. It would be a low prestige job today -- because the opportunities to move on to a good law firm would be quite limited.

Uhm, no.

Almost all of this is false, precisely because you can't leave aside price fixing and merger cases. Enforcement in those areas is high, with the explosion of records due to email making those cases easier to discover and prosecute than before. BigLaw firms all have antitrust groups: merger review is a necessary part of almost any deal valued over $78M, and when the DOJ or FTC issue second requests, becomes a major profit center for firms due to the scope and length of the review. Go on any large firm site and search for antitrust/competition.

I don't know how to measure "prestige" at working at DOJ or FTC, but those jobs *are* in demand, precisely because the exit options to BigLaw partnership are so common, and so lucrative.

In my experience, antitrust is no longer the intellectually prestigious field of law that attracted minds like Posner, Easterbrook, and Bork, because it's largely been solved by those same thinkers, so to speak--the courts have developed a coherent set of rules, and all that's left is to just apply them to the given case. There are a few niche subfields that are still of interest (state action doctrine, IP monopolization), but the core of antitrust law--Rule of Reason analysis--has been extremely stable for the past 30 years or so. That hasn't stopped unsavory business folks from engaging in anticompetitive conduct, but it has taken a lot of the intellectual vitality out of antitrust--at my law school (a large T14) there antitrust course options were extremely limited.


or Their*

That's embarrassing.

I am obviously (eponymously) biased, but that is basically not accurate in any way. Rule of reason analysis has *not* been stable for the last 30 years, merger analysis has changed dramatically, and the field continues to generate legal and economic scholarship at a rapid pace.

If it's been "solved", then that's news to law professors, judges, economists, and practitioners.

Perhaps "solved" is too strong a term, but from the perspective of a non-practitioner--which strikes me as the relevant frame of reference when discussing the prominence and intellectual vitality of a field--antitrust law has been considerably more stable over the past 30 years than Fourth Amendment jurisprudence or administrative law, areas in which the fundamental rules of the game have changed over that same span. My antitrust course in law school involved very few cases from this century (and most of those were lower court cases illustrating concepts rather than important precedents), and when I worked on the articles selection committee of the main law review the only submissions we tended to receive on the subject were in the niche subfields I discussed above, with none nearly so ambitious as, say, Easterbook's "Limits of Antitrust" (nor so well-written, I might add). A quick review of the Yale Law Journal's most recently completed volume suggests my journal's experience was hardly unique in this regard.

I don't have any particular ill-will towards antitrust law--it was my preferred path when I first started law school, and I still consider it dramatically more interesting than the field I happened to fall into--but I also have no illusions about where it stands in the informal pecking order of things these days (where my own field, again, is considerably lower).

I don't really know what the "pecking order" is, informal or otherwise, so it's hard for me to really comment there. I guess White Collar is atop the food chain, since they have the highest rates, but I really don't know. Likewise, I can't compare the changes in antitrust law to 4th amendment law or admin law, since those aren't my fields. I'll take your word for it if you say they've changed a lot - I can only go off my Crim Pro class (and I know nothing of admin law at all).

I do think you're maybe being thrown off by the lack of recent jurisprudence on the topic. That's not because things aren't happening however, but because of the HSR Act: merger reviews are now happening at the agency level mostly, rather than at the court level. The "law" continues to change however, it's just being reported on the DOJ and FTC websites now, instead in law reports. This includes changes to how conglomerate mergers are reviewed (i.e., GE/Honeywell), whether retail merger can *ever* be anticompetitve (Staples/Office Depot I), the efficacy of divestitures (Halliburton/Baker Hughes), the use of behavioral remedies (most of the telecom mergers of the late 90s, early 2000s), the introduction, use, and limits of complex pricing models requiring teams of microeconomists (Albertsons/Safeway, the dollar store deals), etc...

I'm really not trying to get into a pissing contest here - I don't know how this compares to other fields. I do think it's pretty much totally inaccurate to say that "the courts have developed a coherent set of rules, and all that’s left is to just apply them to the given case" however. When we try and get deals cleared, we mostly cite to agency enforcement actions (or lack thereof) however; we're not citing to caselaw, since most cases from more than ~15 years ago are pretty much hopelessly out of date. They just don't reflect modern antitrust law thinking. I read the 60s cases in the law school, but they're there like a museum - in a "wasn't that quaint" kind of way. AmEx is the only recent case which I'd guess will have legs actually.

What AnAntitrustLawyer said. I always say that you cannot learn modern antitrust law from the cases. The action is in merger enforcement (cartel too, but that's a bit different) and that happens at the agencies. And, actually, tends to get dumbed down substantially if/when a complaint is filed in court.

This is a bit of a scattershot post it seems, since almost every case cited by Tyler is a Section 2 case (monopolization), but the title and takeaways talk about antitrust generally. There is a great deal of academic support for the proposition that Section 2 cases should be tough to bring. And in point of fact, they are tough to bring, and victory by the government in these cases is rare. The result is that they take up very little in the way of judicial or regulatory resources. There were exactly *zero* Section 2 cases brought by DOJ under the Bush administration, and while there have been a few under Obama, they remain quire rare.

Further, courts share the skepticism of academics on these cases: the highest profile Section 2 case since Microsoft, AmEx, was just overturned a week ago, precisely because of the consumer benefits of AmEx's steering rules.

It's Section 1 cases (price fixing), and Clayton Act (M&A control) that are the focus of modern antitrust enforcement. It's a bit of a red herring to say that antitrust law is trying to solve yesterday's problems by referencing Microsoft (Section 2), Standard Oil (Section 2), Kodak (Section 2), and Alcoa (Section 2). That's a cogent argument against Section 2 perhaps, but those cases are relatively rare relative to Section 1 and Clayton Act cases.

Well its needed in traditional industries, like brewing:

I should add the abstract:

We provide an empirical analysis of the Miller/Coors merger in the U.S. brewing industry.
We document an abrupt increase in retail prices just after the merger for
MillerCoors and its closest competitor, Anheuser Busch (ABI), both in absolute terms
and relative to imported brands. We reject the hypothesis that the price increases
can be explained by movement from one Nash-Bertrand equilibrium to another. The
results are consistent with the merger facilitating coordination between MillerCoors
and ABI. The results also support substantial marginal cost efficiencies, that consumer
surplus loss arises due to post-merger coordination, and that total surplus increases.

When I majored in economics in the 1970s, I learned that free market competition means that anti-trust laws are unnecessary. When I worked in corporate strategy in the 1980s-1990s, I learned that free market competition is the enemy.

Now we all buy craft beers

In the engineering control theory I learned, way back in the day, a parameter was "in control" if there were no systematic effects of that parameter on the process results. The idea was to reduce the variability of the result due to a particular parameter (or set of parameters) so that it was no longer "important" in determining results. This doesn't mean you allow it to vary randomly, but just the opposite: you control the parameter's range so that it is so small that its contribution to (random) variation is negligible. It is a given that more control is more expensive (labor, capital, resources) than less, at least if the defect rate & quality is ignored. By arguing that Section 2 is "little used" and enforcement victory is "rare" it does NOT follow that it should be eliminated, rather that is where it should be. The over-all problem with the type of analysis TC engages in is the street light problem. Section 2 provides two things: a way to enforce anti-monopoly regulations, and a way for companies to avoid being accused of monopolistic behavior. You can analyze the enforcement actions, its a lot more difficult to study whether company behavior was/is being modified to avoid becoming subject to enforcement action. Is any law a deterrent or does it just act as a trigger for penalization? My subjective unschooled opinion is that we need more Section 2 enforcement - Miller/Coors is one obvious example - the consolidation of banking is another.

Anyway, it seems to me that the "experts" who should be making CONSTRUCTIVE suggestions to improve our anti-trust laws would be macroeconomists. How should our anti-trust laws be modified to account for global trade/competition while specifically protecting american consumers? Nobody's mentioned Ma Bell in this thread - I find that instructive. (I sure wish I'd not sold my AT&T shares during the break-up!)

Isn't an argument for monopolies an argument for centralized control?

Is the announced intention of government action always the actual results it achieves?

The answer to both questions is "No".

As someone who practiced antitrust law (as a government lawyer at the FTC) I agree with your assessment. I have a few peripheral comments. It is good to have the threat of the law to control the worst behavior. From the inside, it was very difficult to find winnable cases. Companies have gotten used to this maturely developed law and can better plan their activities. I am also aware that many companies have antitrust lawyers on retainer so they can run plans by the lawyers. The inclusion of economists in the case selection has been a huge benefit. I felt that, at least at the FTC, care was taken to hire very good young economists. The only hesitancy I have with current practice is that agencies should stop granting promotions based on prosecution of cases. (At least they did that when I was there, late in the 20th century.) They should be rewarding good analysis, including analysis that recommends against bringing cases.


I'm curious, could you please summarize in a sentence or two what you understand the laws relating to resale price maintenance (relative to books or otherwise) to be, as they form the basis for your article?

Hospitals and medical services are the worst area imaginable. Here's what your "free market" of price gouging vulnerable sick people brings you:

From a Bill Maher post:
“The pricing can have serious consequences for the payer… Hospitals whose costs for a CT scan run at about $100 may charge a patient $2,850… In 2013, the average hospital with more than 50 beds had an overall charge-to-cost ratio of 4.32. That is, the hospital charged $4.32 for every $1 of its own costs. However, at most hospitals that they examined, the researchers found that the charge-to-cost ratio was far higher in departments that were technologically advanced. The highest was in the CT department, with an average ratio of 28.5.”

The worst thing is that hospitals won't tell you ahead of time how much a test will cost. You apparently have no right to know whether this test your doctor recommended, is going to bankrupt your entire family or not. No matter how intelligent you may be, if you don't have any estimate of the cost ahead of time, you can't protect yourself.

Hospitals often seem to be charging what the market will bear. And when patients are not even allowed to know the cost ahead of time, the market will bear a lot of price gouging.

When I want to phone a lab to find out how much a certain test will cost, sometimes I can not get a person at the phone number my doctor's office gives me, unless I put in an account number-- which I do not have, since I am not yet a patient of theirs. So I can't even ASK how much the test will cost, much less give an answer.

People talk a lot of government transparency. How about medical system transparency? Oh, of course not, I forgot-- We live in a laissez faire capitalist system with inadequate regulation, where everyone vulnerable is screwed over financially to the maximum. And, like school kids in corrupt charter schools, and prisoners in prisons that contract with private companies to guarantee the companies a certain number of "customers' per month, sick people too are vulnerable and also get screwed over royally.

Hospitals are doing all kinds of money grubbing. My local hospital had a property across the street appraised for far more than the market value of that size and type of building. Then it paid that sky high price for it. The building happened to belong to the spouse of a hospital board member. And they have the gall to call themselves a nonprofit and to solicit community donations.

Consider why hospitals and medical services are as you say... until you get to things like elective surgery (Lasik, etc...), where they advertise and compete on price and open up their books about results to prospective patients?

What's the difference there?* Every wondered?

If you know, then further consider if that difference is the results of a "free market", or of government regulations and incentives distorting the market?**

*One is a customer-paid market, the other is typically 3rd-party payer, i.e. primarily employer insurance and government programs.
**Of course, the health care industry is one of the most heavily regulated and controlled (and least "free market") in the United States, similar to financial services and education. Employer health plans are a result of distortions from tax treatment rules and previous government price fixing. Medicare and government reporting rules create a maze of bureaucracy, etc...

Firefox is the product, Mozilla is who created it.

Would be a great Conversations With Tyler topic to discuss with Richard Epstein! My own gut feeling is that antitrust laws probably deter a lot of collusion in industries where the world feels much smaller than tech or telecom. When you're a business owner, you already know you're leaving money on the table just to keep your sanity. If you could strike a deal with your competitors so you can all live with a bit more security, it would be really tempting to do it.

Right until someone starts another business and is willing to make money no lower margins.

Lots of research done on this subject and plenty of empirical results.

Yeah but in the meantime I think a cartel can be pretty durable. A lot of businesses are pretty niche, require a lot of insider knowledge, and aren't so huge or lucrative that they attract a lot of attention or lure many newcomers. The field can feel pretty small, you may know all your competitors by name, and you all may feel a collective need for survival. Even if you don't buy that, what about for instance the talent unions? A lot of libertarians will at least agree that the government shouldn't enforce anticompetitive contracts, should allow yellow dog contacts, and shouldn't have collective bargaining laws that favor unions. But as best I can tell, the talent cartel (SAG, AFTRA, AEA) would be dominant even without those advantages. And what about OPEC - isn't it more durable than economists would have predicted?

I suspect a little antitrust done right can improve the situation, but antitrust done wrong can blow it up. So there's a political science question whether we're capable of doing antitrust right or whether we should leave it alone.


Predatory pricing in health care exists because the industry is a highly regulated cartel. Do not blame the "free market" for outcomes that result from the rejection of free-market principles.

Beliefs in laissez faire free market ideas naturally lead to crony capitalism, because the biggest richest most powerful corporations can afford to buy government and make it do what they want it to. And they always do. It's no accident that the most powerful libertarians in the world are the Kochs who spend tons of money on elections of candidates who do their bidding in government.

So Solyndra was created by proponents of free market ideals?

You'd have a better case if the people who are against the free market and pro-government regulating everything weren't the worst crony capitalists.

If the government doesn't have the power in the first place (or the regulatory commission, or whatever), then people can't pay off the politicians and bureaucrats to use that power on their behalf.

Jill October 5, 2016 at 10:49 pm

Beliefs in laissez faire free market ideas naturally lead to crony capitalism, because the biggest richest most powerful corporations can afford to buy government and make it do what they want it to.

I am sorry but are you aware of what "laissez faire" and "free market" mean or are you just suffering from cognitive dissonance? If the most powerful corporations supported laissez faire and free markets they would not buy governments but if they did, they would do so in order to do nothing. That is, crony capitalism is impossible under laissez faire and/or free markets. It is the social market that allows crony capitalism. As we see with Hillary Clinton and Obama. They cooked up Obamacare with the co-operation of the insurance companies precisely because none of them want a free market and those companies wanted competition stiffled and billions in tax payers money thrown their way. Which is what has happened.

It’s no accident that the most powerful libertarians in the world are the Kochs who spend tons of money on elections of candidates who do their bidding in government.

Indeed it is no accident. Because most billionaires know which side of their bread is buttered and always argue for more regulation. It suppresses competition. So the highly anti-competitive Bill Gates is not a libertarian but a friend of the Clintons. As is Warren Buffett. The Kochs are small beer in a market dominated by Leftist crony capitalists.

The two big parts of antitrust law are merger regulation and rules against price fixing. The rules against price fixing are hugely important, but are so clear and uncontroversial that we take them for granted. Merger regulation is less clear, but we take it for granted that Morgan-style mergers of 80% of industry capacity are illegal, and it's important that they are.

Right-that's why InBev was barred from taking over SABMiller, correct?

Oh, wait..

Divestment of SAB Miller brand was part of the deal's terms.

The beer merger is fascinating, because the parties eliminated the US overlap and aren't that big overall in the rest of the markets with active merger enforcement.

Leaving them free to form a behemoth to try to take over the rest of the word market.

To its credit, the Obama Administration has quietly blocked a few of the most egregious announced mergers. What I'm struck by, however, is how little interest there is left of center in anti-trust these days compared to, say, back in the 1970s.

Here's a 2015 oped by old-timer lefty economist Robert Reich whose headline sums up our current time:

"Whatever Happened to Antitrust?"

If President Hillary gutted antitrust enforcement, would her core identity politics supporters much care or even notice? From the NYT in February 2016:

"“If we broke up the big banks tomorrow,” Mrs. Clinton asked the audience of black, white and Hispanic union members, “would that end racism? Would that end sexism? Would that end discrimination against the L.G.B.T. community?,” she said, using an abbreviation for lesbian, gay, bisexual and transgender. “Would that make people feel more welcoming to immigrants overnight?”

"At each question, the crowd called back with a resounding no."

From her speech 3 days ago

"In a speech in Toledo, Ohio, on Monday, Mrs. Clinton assailed recent bad behavior by major companies. (She mentioned Wells Fargo — which opened millions of bank accounts without customers’ permission — five times.) An accompanying fact sheet posted to her website outlined her priorities for antitrust law."

I think Clinton supporters would kind of notice if Clinton gutted anti-trust law.

And the shortest possible answer to that question is: economics.

If you think a company gives its main product away for free, you have not identified its main product.

The current government of Mexico has increased anti-trust enforcement by inviting in more competition against its oligarchs, especially against arch-monopolist Carlos Slim, knocking about $20 billion off his net worth.

I wrote in Taki's Magazine in 2014:

The left has lost most of its former interest in anti-cartel activism. For example, Piketty, the paladin of the 21st century left, mentions the word “monopoly” only twice in his 685-page Capital in the Twenty-First Century. And one of those appearances is on a page that’s devoted to sniping at criticism of Mexican monopolist Carlos Slim.

This Lebanese-Mexican businessman was sold the national telephone company in 1990 by his close personal friend Carlos Salinas, president of Mexico. The next year, Salinas allowed Slim to inflate prices 170 percent. ...

In return, Salinas demanded at a private dinner party on February 23, 1993 that Slim and Mexico’s other 29 oligarchs donate $25 million each to the ruling party’s campaign war chest, a total of $750 million. Oppenheimer notes:

"Telecommunications magnate Slim … supported the motion, adding only that he wished the funds had been collected privately, rather than at a dinner, because publicity over the banquet could “turn into a political scandal.”"

Now, you might think that there is something unseemly about a regular contender for the title of World’s Richest Man making his fortune off the relatively small Mexican economy. We’re constantly told that Mexicans have to be allowed to flock to America to escape starvation in their own land. Yet one well-connected monopolist is permitted to pile up an enormous trove by charging exorbitant fees for the lifeblood of any economy, communications.

A 2006 article in the New York Times pointed out:

"As a result, said Mr. Ortiz of the Bank of Mexico, economic growth is one percentage point less than it could be with real competition. There are not enough jobs to keep workers from migrating to the United States ..."

I did read the whole thing. "One study has demonstrated that prices were more likely to go up than down after an antitrust indictment. "

Oh come on. You cite a study from 1993 looking at cartel cases between 1973 and 1984. This is a topic on which there has been a huge amount of research and publications. I'm not saying all the literature goes against that proposition, but in a busy field to cite just one paper from 23 years ago smacks of cherry-picking.

Not at all scientific, but I think every cartel case I've ever been involved in happened amidst and industry downturn. Which makes some sense when you think about it.

"Rates of inflation have been high for housing, medical care and higher education, major budget items for many people. ... The major internet companies are a new target of antitrust attention, yet most of them give their main product away for free."

Free in a crudely absolute analysis ... But from an opportunity cost standpoint, perhaps Google and Facebook should be paying us for all the information about us they are selling to advertisers?

Google and Facebook are worth a little under $600 billion combined. Would they have not bothered if they were only worth a little under $300 billion together?

"The major internet companies are a new target of antitrust attention, yet most of them give their main product away for free."

But they also demand you give up certain rights to privacy in order to use their product. Google in Europe is pretty clearly a monopoly - it's really the only credible search engine. But to use it one has to give up a right to privacy, which is abhorrent. The only way to give Europeans a choice - to maintain their privacy or not - is to impede Google enough so that there can be new, significant entries to the market which respect privacy.

Firefox doesn't work in Europe?

There is some interest on the libertarian right in following up on North Carolina State Board of Dental Examiners, and using federal antitrust law against cartels stitched together by state and local governments. Alito, Thomas and Scalia were the dissenters based on states rights. It would be interesting to hear Tyler or Alex opine about that issue.

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