cr> on Trusts and Antitrust


Sender: •••@••.••• (Glen Raphael)

A few recent posts by Paul Rozenberg and by Richard Moore were based on a
view of "the robber barons" which I take issue with. Richard wants internet
regulation in order to "protect competition". I feel such regulation will
inevitably restrict competition more than it protects it. Our disagreement
over method is largely based on our differing views of history.

The following quote is from the _Fortune Encyclopedia of Economics_, 1993
edition, the entry on Antitrust by economist Fred McChesney. Page 385-389.
For copyright reasons I'll just give a small part to summarize; if you want
more details look up this article and the sources it lists (which are
mostly from _Journal of Law and Economics_ and other peer-reviewed

  "...Economists did not lobby for the antitrust statutes, or even support
them. Rather, their passage is generally ascribed to the influence of
populist "muckrakers" such as Ida Tarbell, who frequently decried the
supposed ability of corporate giants ("the trusts") to increase prices and
exploit customers by reducing production. One reason that most economists
were indifferent to the law was their belief that any higher prices
achieved by the supposed anti-competitive acts were more than outweighed by
the price-reducing effects of greater operating efficiency and lower costs.
Interestingly, Tarbell herself conceded that the trusts migh be more
efficient producers, as did "trustbuster" Teddy Roosevelt.
  "Only recently have economists looked at the empirical evidence (what has
happened in the real world) to see whether the antitrust laws were needed.
The popular view that cartels and monopolies were rampant at the turn of
the century now seems incorrect to most economists. Thomas DiLorenzo has
shown that the trusts against which the Sherman Act supposedly was directed
were, in fact, expanding output many times faster than overall production
was increasing nationwide; likewise, the trusts' prices were falling faster
than those of all enterprises nationally.  In other words, the trusts were
doing exactly the opposite of what economic theory says a monopoly or
cartel must do to reap monopoly profits."

[..skipping several pages...]

"...With the hindsight of better economic understanding, economists now
realize that one undeniable effect of antitrust has been to penalize
numerous economically benign practices. Horizontal and especially vertical
agreements that are clearly useful, particularly in reducing transaction
costs, have effectively been banned.  A leading example is the continued
per se illegality of resale price maintenance..."

•••@••.••• wrote:
>>(3) government regulation is likely to improve on the market with respect
>>to (1) and (2).
>Of course, (3) depends on government agenciers being free from the influence
>of the regulated coporations -- something that's NEVER happened in recorded

On this we agree! "Regulatory capture" is a big part of the reason that --
in actual practice -- regulatory agencies and antitrust laws tend to
*reduce* competition. The biggest players can wield these laws like a club
to bash everybody else. (For example, the majority of antitrust cases are
brought to hinder, not help, competition.) Hang on, I feel another relevant
quote coming on:

"The recent era of antitrust reassessment has resulted in general agreement
among economists that the most successful instances of cartelization and
monopoly pricing have involved companies that enjoy the protection of
GOVERNMENT REGULATION OF PRICES and government control of entry by new
competition." [emphasis added]

This is why I don't want the FCC regulating ISPs, because it would
inevitably do so in such a way as to favor the big established players.
Private, free-market regulation favors the little guys; government
regulation favors big guys like AT&T that can't sell a decent product but
know how to work the system.

>Sorry, dude, but strategic underselling (i.e. "dumping")
>is one of the traditional means for establishing monopolies.

Rockefeller was NOT dumping. He was selling cheaply, but not below cost.
(by anybody's estimate.) Actually quite a lot of "dumping" sanctions are
brought against companies that are not selling below their cost. The fact
that somebody else can make a profit selling below YOUR cost to produce
usually means you're in the wrong business. But it happens all the time.

Glen Raphael

Glen Raphael, •••@••.•••  NewtPaint - the Newton paint program!
President, Stanford/Palo Alto Macintosh User's Group (SMUG)
<A HREF="">Glen's World</A><BR>

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