The nation’s capital will receive a vital import next month– an original copy of Great Britain’s Magna Carta, the fundamental statement of political freedom that governments have relied upon for centuries. Meanwhile, less than a mile away, some congressmen will be trying to rewrite what Justice Thurgood Marshall called America’s “Magna Carta of free enterprise” — antitrust laws.
Five different legislative proposals were introduced to overhaul U.S. antitrust law recently. These proposals are antithetical to the nature of antitrust laws, will harm consumers, reduce consumer choice, deaden the economic incentives and replace the wisdom of the marketplace with rules that second-guess the market.
Simply put, consumers will lose if these proposals are adopted.
Congress designed the antitrust laws to be flexible enough to evolve as courts interpreted the law, economic learning evolved, and business practices changed. The belief was generalist courts providing a common law of antitrust would be far more effective than the wooden hand of direct regulation, attempting to limit market size or prices, or trying to manage the state of the market.
Time after time, this flexible nature has been vital to check potential anticompetitive harms while retaining the incentives of a free market.
First, there is proposed legislation supposedly prohibiting self-preferencing, but would it prohibit a firm from coming out with its own product and selling that product at a low price? That would be problematic to any American balancing a budget. Imagine walking into a Costco store and finding there were no Kirkland products. Not only would consumers lose the benefit of those lower cost products, but they would also lose the benefit of the competition created by those products.
Perhaps the theory is that any kind of vertical integration might be anticompetitive, so we should limit tech giants to one or two categories and not allow them to vertically integrate. What’s the result for consumers by limiting firms to individual silos? Inefficiency, increased costs, confusion. Imagine if you were to buy several items from your favorite e-commerce store, but instead of paying one bill at check out, you had to pay 20 bills.
Another bill says big tech firms simply can’t buy any other company. Antitrust laws clearly prohibit anticompetitive mergers, and the agencies are willing to challenge acquisitions by tech giants – such as Visa’s acquisition of Plaid. Many startups are created with the hopes of ultimately being acquired; limiting the set of suitors may dampen that incentive to create a new firm or product. An absolute prohibition simply does not make sense.
Advocates might say the laws won’t harm consumers because it is limited only to firms with over $600 billion in assets. Would that make sense? The law has never condemned firms simply based on size. It would discourage firms to grow, compete and innovate.
History teaches a tough lesson on efforts to use antitrust to restrict the size of successful firms. There once was an antitrust case with a firm with a clear 90 percent market dominance. There was no evidence consumers were coerced or subservient or paid excessive prices, but there were numerous competitors lobbying against the company urging antitrust enforcement. So the Department of Justice (DOJ) sued.
Sound familiar? This market wasn’t today’s tech – it was shoes. The DOJ mounted a major assault against the business practices of U.S. Shoe which lasted for decades in the mid-20th century. Judge Wysanski decided U.S. Shoe’s market power was simply too great, and he imposed an order dividing up the corporation, requiring licensing of intellectual property and limiting its market share to 25 percent in the hopes that capping U.S. Shoe would strengthen the market and protect U.S. consumers and employees. Instead, U.S. Shoe lost the incentive to integrate, compete, innovate and grow. Within two decades, the vast majority of shoe production moved overseas and the United States was no longer an innovator in the market.
There is a reason antitrust laws are known as the Magna Carta of economic freedom. They are simple sensible statements of law that protect the free market without unnecessary intrusion. Overhauling them as some members of the House are proposing could do real harm to consumers and the economy.