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.