Should the United States pursue a vigorous antitrust policy? Soon after the
passage of the Sherman Antitrust Act of 1890, economists led by John Bates
Clark (1901) argued that the enforcement of such laws should be informed
by the prevailing economic theory on the merits of competition and the extent to
which firms' conduct can enhance or weaken competition. However, economic
theory since then has proven remarkably fertile in pointing out how various actions
by firms may be interpreted as either procompetitive or anticompetitive. For
example, when prices decline sufficiently so that no firm in an industry is earning
economic profits and some firms exit, this outcome may reflect a highly competitive
market adjusting to a condition of temporary oversupply, or it could indicate that
a large competitor is employing a strategy of predatory pricing to drive out its rivals.
Similarly, when a firm builds a large factory, it may be engaged in vigorous
competition and new entry, or it may be creating excess capacity as an implicit
threat to potential competitors that it may raise output and cut price quickly if
circumstances warrant. Although economic theory can help organize analysis of the
economic variables affected by antitrust policy, it often offers little policy guidance
because almost any action by a firm short of outright price fixing can turn out to
have procompetitive or anticompetitive consequences.
Given this range of theoretical possibilities, the case for a tough and broad
antitrust policy must rest on empirical evidence that shows that such policies have
worked in the broad social interest. In this paper, we argue that the current
empirical record of antitrust enforcement is weak. We start with an overview of the
budgets and actions of the federal government's antitrust authorities. We then
synthesize the available research regarding the economic effects of three major
areas of antitrust policy and enforcement: changing the structure or behavior of monopolies; prosecuting firms that engage in anticompetitive practices, namely,
price fixing and other forms of collusion; and reviewing proposed mergers. We find
little empirical evidence that past interventions have provided much direct benefit
to consumers or significantly deterred anticompetitive behavior.1 We acknowledge
that the literature has not been able to utilize all potentially fruitful sources of data
and has rarely implemented recent empirical advances in industrial organization to
analyze the effects of specific antitrust cases. Thus, the state of knowledge is not at
a point where we are ready to make sweeping policy recommendations. Nonetheless,
the economics profession should conclude that until it can provide some hard
evidence that identifies where the antitrust authorities are significantly improving
consumer welfare and can explain why some enforcement actions and remedies are
helpful and others are not, those authorities would be well advised to prosecute
only the most egregious anticompetitive violations.
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