Antitrust/Media Consolidation: A Liberaltarian’s Manifesto
Co-blogger James Hanley’s response to my bleg this morning (which I found very helpful even if it didn’t directly answer the bleg itself*) got me thinking.
James wrote, in pertinent part:
The public choice school has a lot to say about anti-trust. You can start with the classical/neo-classical economic argument that in a free market barriers to entry will normally be low enough to prevent monopolies from forming or persisting. If they do manage to develop, their monopolistic behavior (raising prices, reducing innovation, etc.) that creates monopoly-level profits will result in competitors eyeing them jealously and jumping into the market, destroying the monopoly and competing prices back down. That’s all basic textbook stuff. I would add that if in fact a monopoly doesn’t behave like a monopoly, shooting for the extra profit by screwing consumers over, then most likely people will not recognize it as a monopoly, and from a consumer perspective it won’t matter, so who cares (think Kingsford charcoal, which is very near to a true monopolist). The prevalence of barriers to entry is a very big point of disagreement between opponents and supporters of anti-trust, in my experience
But our anti-trust legislation stems from the late 19th/early 20th century, when the U.S. really industrialized, which required larger capital outlays and less reliance on sheer manpower. Capital intensive businesses have greater economies of scale than do labor intensive ones, so businesses were suddenly getting much larger than ever before, and there was a lot of consolidation that had never been seen before. So much of our antitrust legislation was simply a fearful response to a rapidly changing world (a pretty common mode of response, really)….
Even the anti-trust supporters great case study, Standard Oil, turns out to be less persuasive when studied closely. At it’s peak, immediately after it’s formation, Standard Oil had something less than 90% of the market, and it’s share began falling almost immediately. When the government declared it a monopoly and broke it up, it’s market share had already fallen into the 60s. And rather than acting like a monop0list, Standard Oil actually reduced the cost of oil, by something like 80%, and found uses for the fractions of the petroleum that had previously just been burned off or dumped (back then it was only the kerosene fraction that was widely used, with most of the oil product being waste, but Standard pioneered uses for that waste product). So Standard Oil was good for consumers, which is what we ought to focus on.
By contrast, most true monopolies exist only because of protective regulation. Local cable TV monopolies, for example, or the old Ma Bell long-distance telephone monopoly. Get rid of the protective regulation and you have competition, which benefits consumers.
For purposes of this response, I’ll primarily limit my discussion to oversight of mergers, which is more readily comprehensible to me than oversight of bundling and the like, and since I’m already dealing in an area where my knowledge is minimal.
1. Thinking specifically of the 2008 merger between XM and Sirius, and really of telecom antitrust in general…..As long as the FCC exists to maintain the fiction of the “public airwaves,” and also restricts broadcast licenses, it strikes me that the official libertarian position supporting media mergers is exactly backwards. Because of the (especially in the case of satellite) artificially limited number of licenses, and because of the FCC’s status as America’s Censor, media consolidation within the FCC’s purview winds up having a widespread effect on the First Amendment, and makes it easier for the FCC to do its job (which, when applied to broadcasters, is a particularly malignant job from a libertarian perspective).
2. While I take James’ point about antitrust laws being based on bad economic theory, he seems to leave open the possibility that this is more applicable to our antitrust laws rather than the mere concept of antitrust laws. I think this is important. He also suggests one of the Austrian School’s better known arguments, that truly dangerous monopolies are impossible without government regulation (see here for a summary of the evolution of Hayek’s thinking on monopoly). Accepting this as true for the moment, I think it’s also important to accept the existence of that enabling government regulation when thinking about antitrust law. Doing so results in the conclusion that some sort of antitrust law is necessary – otherwise, the trust is effectively acting in lieu of the State, but with even less accountability. This is, I increasingly think, a major blind spot amongst libertarians – if, as libertarians assume, monopolies can exist only with the protection of the government, and some form of government protection will always exist as long as government exists, then reflexive libertarian opposition to antitrust does nothing more than reinforce that government protectionism.
3. It should not be surprising that public choice has a lot to say about this topic – as structured, the incentives line up in an almost perfect symbiotic relationship between the government and the regulated entities. The regulating agency will have every incentive to permit a given proposed merger because any consolidation of any industry inherently makes that industry easier to oversee (or, put in a more cynical way, inherently gives the government more power over that industry). In the process, though, it will still want concessions (the actual regulators themselves will generally have an interest in doing their jobs as they’re supposed to do them) before permitting the merger. By contrast, the merging companies will have every incentive to cooperate with the government’s demands to the extent those demands would not put an economically disadvantageous burden on the merger such that the companies would be better off without the merger.
The result would thus usually be that the government will grant the merger while obtaining the concessions that matter, on average, most to it, but least to the merging companies. Of course, this is true with any negotiation, but what would probably make these negotiations of particular interest to public choice theory would, I assume, be the nature of the concessions – are they things which tend to protect the consumer in a meaningful way or are they things that mostly just empower the government’s authority in the industry?
4. One specific problem with our existing antitrust laws is that the DOJ and, in the case of telecom, DOJ and FCC have relevant powers that expand far beyond antitrust enforcement. This fact is a particularly weighty incentive for the government to permit a given merger (provided it can obtain concessions from the merging entities) or to use antitrust as a sword for itself rather than as a shield for taxpaying consumers. Antitrust enforcement also provides the relevant agency/agencies with an extra arrow in their quiver when it comes to the arbitrary exercise of power over the particular industry – even if the threat is never made explicitly, it exists, and thus provides the relevant corporation with a powerful incentive to “cooperate” with that agency even on things where the agency’s constitutional authority is limited. Knowing that the same agency that houses the FBI also oversees antitrust provides a pretty strong incentive for a large corporation such as a bank or a telecom to “voluntarily” provide customer records without any kind of warrant.
5. So if antitrust law is necessary, but our existing structure is both based on bad economics and uniquely subject to public choice concerns, there’s a very real need for reform of those laws. This need is true from both a liberal and libertarian perspective, and for largely the same reasons, whether they are termed regulatory capture concerns or consumer protection concerms. Two reforms occur to me:
- Remove antitrust enforcement authority from the DOJ and FCC and place in either a new, completely independent commission, or in an existing agency with very limited jurisdiction (maybe the Small Business Administration?).
- Restrict dealmaking between the government and entities subject to antitrust scrutiny. I admittedly don’t know how this could be accomplished easily, and any proposals on this front would probably require more intimate knowledge of antitrust law than I have.
- A clearer legislative definition of what constitutes a “trust” so that the enforcing agency will have less discretion in determining what cases to pursue or not pursue.
- It should also be made easier for private consumer groups to bring suit for antitrust violations, including for the purposes of seeking declaratory relief blocking a particular merger (which, AFAIK, is not currently permitted at all); at the same time, it should be made more difficult for competitor businesses to bring suit for alleged antitrust violations, since it is ultimately the consumer’s interests that we are hoping to protect.
* For the lazy, the bleg was:
How often does the government actually wind up preventing a merger vs. how often does it permit it with restrictions vs. how often does it attempt to intervene but nonetheless permit it without restrictions?