Competition policy of little benefit to consumers

In 2000, the United States’ Federal Trade Commission (FTC) and the Antitrust Division of the Justice Department (DOJ) spent $146.9 million dollars investigating hundreds of alleged cases of price fixing, market monopolisation, and other anti-competitive business activities.

However, researchers from the Brookings Institution suggest that government involvement has largely been ineffective and, in some cases, has done more harm than good for consumers. In surveying landmark cases over the past century, the authors found that:

Government regulation has generally been unable to achieve lower prices or bring about a significant increase in competition.

Government oversight of company mergers has been particularly inefficient, in many cases prohibiting productive mergers that increase consumer welfare.

Antitrust enforcement has also forced companies to re-allocate scarce resources toward adherence to government regulation, to incur billions of dollars per year in legal fees, and to forego the development of new products or the pursuit of new investments for fear of being prosecuted.

The researchers claim that antitrust policy has been ineffective for a variety of reasons:

There is great difficulty in formulating effective remedies for anti-competitive behaviour, especially in an era of dynamic competition and rapid technological change.

Due to the excessive duration of monopolisation cases, the market circumstances have often changed dramatically by the time a court decision has been reached.

Political forces that influence antitrust enforcement have been co-opted by rival companies to gain competitive advantages.

Ultimately, the study concludes that the power of the market is an overlooked force in deterring anti-competitive behaviour, and leaves regulators with relatively little to do.

Source: Robert W. Crandall and Clifford Winston (Brookings Institution), Does Antitrust Policy Improve Consumer Welfare? Assessing the Evidence Journal of Economic Perspectives, Volume 17, Number 4, Fall 2003.

For more on Antitrust http://www.ncpa.org/iss/leg/

FMF Policy Bulletin\27 January 2004