Modern U.S. antitrust research supports strict enforcement of the law
Good policy should follow good research. Many would argue that current U.S. antitrust enforcement policy is built upon a foundation of now-questionable economic theory and outdated evidence. The evidence is based largely on economic research published in the 1950s and 1960s by conservative economists from the University of Chicago. Their theory held that markets generally regulate themselves, and antitrust intervention should be minimal. This thinking has dramatically influenced antitrust law over the past 40 years, which has become more accommodating of business activity.
Yet modern research does not support the idea that the best antitrust enforcement should be limited in scope. Today, Equitable Growth releases a report and antitrust and competition literature database by Fiona Scott Morton, the Theodore Nierenberg Professor at the Yale School of Management (and an Equitable Growth grantee). The review includes both a narrative overview and a database that includes each article, its authors, its publication status, and a summary or abbreviated abstract. After reviewing more than 150 academic articles covering various issues on antitrust enforcement, Scott Morton finds that modern research generally shows that past enforcement policies have generated higher shareholder profits, higher prices for consumers, fewer choices, and less competitive labor markets.
This review of antitrust literature creates a hub for recent evidence that helps understand what research says about antitrust enforcement and its impact, including contributing to increased economic inequality. Scott Morton urges the agencies to respond to this literature by pursuing stricter antitrust enforcement and uses this compilation to present policy recommendations on how antitrust enforcers can target enforcement activity to best aid consumers. Doing so will promote greater innovation, consumer choice and protection, and reallocate power back to workers, all of which can create a more equitable economy.
Scott Morton broke up the review into multiple subsections that highlight various topics of antitrust enforcement and details her findings and recommendations for each issue. Horizontal mergers occur when a company acquires one of its competitors. The research finds that market power is frequently created and exploited in these transactions, which supports the conclusion that the law been too lenient on mergers. Scott Morton recommends “that the agencies be more aggressive in challenging mergers,” and that the courts should be more open to relying on the specific facts of each case to evaluate market power.
Vertical mergers occur when a company acquires another company to which it sells goods or services or from which it buys goods or services. As a result of economic literature from the 1950s and 1960s, challenges to vertical mergers have grown rare. Recent literature, however, rejects this view. Some vertical mergers are procompetitive, while some pose serious harm to the market. Scott Morton recommends agencies look at each vertical merger in context of their efficiencies and potential to harm competition.
Exclusionary conduct means business conduct that denies a competitor access to the market in order to maintain or grow a single firm’s market power. Antitrust law has become increasingly skeptical that such conduct is an effective way to harm competition. The review covers a number of these practices, but overall both theoretical and empirical work finds that such tactics can undermine competition and harm consumers. Scott Morton recommends that enforcers should be more willing to build and bring these cases when they see anticompetitive conduct, and courts need to be less skeptical. The review also covers specific types of conduct that can be exclusionary: most favored nation clauses, predation, and loyalty rebates.
The final area deals with broader issues of antitrust policy. Common ownership is the impact on competition when mutual funds and other types of institutional investors are the largest owners of product-market competitors. Scott Morton indicates that antitrust enforcement in this area “could have a high payoff.”
Monopsony power occurs when the buyer (or an employer) faces little competition and can pay below competitive prices for goods or wages for workers. At best, monopsony power has been a tertiary concern in antitrust law. The research, however, finds it is prevalent and that antitrust enforcement can address some of the issues from its creation and exploitation. Scott Morton recommends the federal antitrust agencies should consider monopsony power as a standard element of a merger review and consider the restrictions on employment mobility or other conditions that affect competition in labor markets.
Scott Morton concludes the review by addressing the impact competition policy has on the broader U.S. economy. Although no one piece of work can cover the whole economy conclusively, overall, researchers are finding that market power is pervasive and growing and affecting the overall economy. Market power may be contributing to broader problems such a reduced business investment, stifled business dynamism, and economic inequality. These papers provide the context in which to understand the implications of ineffective antitrust enforcement.
This database is a tool for academics, enforcers, and the public to visualize the anticompetitive effects of lax antitrust enforcement. It is also an ongoing project. If you come across any academic articles that you believe should be included in our database, please send it to mkades@equitablegrowth.org or ThurmanArnoldYale@gmail.com.
