September 15, 2020
By Timothy Sandefur
The Goldwater Institute today joined more than a dozen other organizations in asking the U.S. Senate to resist the efforts of state and federal politicians to transform federal antitrust law into a tool of social engineering and political reprisals. In a letter submitted to the Senate Judiciary Committee just before a hearing targeting Google’s online advertising practices, we urge senators to resist the efforts now underway by politicians of both parties who are trying to erase the pro-freedom gains in federal regulations that since the 1980s have made the America’s economy more competitive and innovative than any other.
In theory, antitrust laws are supposed to prevent monopolies from hindering economic competition. In reality, however, these laws are often the largest such hindrances. That’s caused by the fact that these laws are so vaguely written that businesses are often at risk of being punished for being too innovative and too competitive. For example, one such law (the Robinson-Patman Act) forbids businesses from engaging in “predatory pricing,” which occurs when a business reduces its prices with the intent of “harming” its competitors. But how is that different from lowering prices in order to become the most successful company—something we want businesses to do? Unfortunately, the difference is often in the eye of the beholder—with the result that business owners can be subjected to severe punishment simply for running their businesses well.
One of the most pernicious problems with antitrust laws is that they are sometimes used by businesses that cannot compete fairly against other companies, and who want to block their competition with the law, instead. Often, these businesses claim that their competition is simply too “big”—and that this is running smaller companies out of business. Under this theory, companies that succeed by providing better goods and services at lower prices are liable to punishment precisely for the fact that they’re good at their jobs. Perhaps the most blatant example of his unjust use of the antitrust laws came in 1945, when a federal court declared that the Aluminum Company of America (ALCOA) broke the antitrust laws, not by acting dishonestly, but solely by being too good at their job. ALCOA had “embrac[ed] each new opportunity as it opened,” the court ruled, and “fac[ed] every [potential competitor] with new capacity already geared into a great organization, having the advantage of experience, trade connections, and the elite of personnel.” The ALCOA decision literally punished the company for succeeding through hard work and innovation.
Fortunately, in the 1980s, a group of economists and lawyers known as the “Chicago school” and led primarily by Professor (later Judge) Robert Bork, helped remedy many of these flaws by persuading the legal community that the focus of antitrust laws should always be on protecting consumers—not on protecting existing companies against being out-competed. This principle, known as the “consumer welfare standard,” helped courts turn away from the unjust decisions of the past and to create a legal environment more hospitable to innovation, efficiency, and lower prices.
In fact, the consumer welfare standard in antitrust law has proven so beneficial to the American economy that it would be no exaggeration to say that it is one of the greatest free-market successes of the past century. The consumer welfare standard is to the free market what the Endangered Species Act is to the environmental movement.
Unfortunately, efforts are now underway in some quarters to abandon the consumer welfare standard and replace it with…well, that part nobody seems to be so clear about. As law professor Geoffrey Manne has observed, many of the proposed alternatives are “simply invitations for competitors, advocates, enforcers, and courts to impose their idiosyncratic preferences on the economy.” If the consumer welfare standard were eliminated, it would almost certainly be replaced with a system in which government officials have more power to pick winners and losers in the economy—to exploit the vagueness of antitrust laws in ways that reward their political friends and punish their political enemies. That would be a terrible outcome—one that would handicap innovation and maximize the power of politicians.
Believers in economic freedom and a robust economy should insist on preserving the consumer welfare standard that has served the nation well for some 40 years—and that prevents politicians from dictating their own economic preferences through law.
You can read the coalition letter here.
Timothy Sandefur is the Vice President for Litigation at the Goldwater Institute.