ANTITRUST LAWS AND EFFICIENCY
Economic and legal views toward regulation and antitrust have changed dramatically over the lut three
decades. During the period, industries Werede regulated, and antitrust lawabandoned its mission “to put-
: an end to great aggregations of capital because of the helplessness’ of the individual before them” (to quote from the 1945 Alcoa decision). Increasingly, regulation and antitrust are aimed toward the goal of improving economic efficiency.
What prompted the changing attitude toward antitrust policy? economists found that concentrated industries sometimes had outstanding performance. Consider firms like Intel, Microsoft, and Boeing. They have had substantial market shares, but . they have also been highly innovative and commercially successful. Whereas economic theory held that monopoly k~ prices high, historical experience indicates that highly concentrated industries often had rapidly declining prices relative to less concentrated industries. At the same time, some concentrated industries, such as agriculture and financial services, exhibited outstanding performance, No iron law has been found to link structure and performance. How can we explain this paradox? Some economists invoke the .Schumpeter hypothesis. Firms in concentrated industries collect monopoly profits, to be sure, But the size of the market also means that large firms can appropriate much of the return on research-and-development (R&D) investments, which explains. the high levels of R&D and the rapid technological change in concentrated industries. If, as Schumpeter claimed, technological change originates in large firms, it would be foolish to slay these giant geese who lay such golden eggs.
A second thrust of the new approach to regulation and antitrust arose from revised views of the nature of competition. Considering both experimental evidence and observation, many economists have come to believe that intense rivalry will spring up even in oligopolistic markets as long as collusion is strictly prohibited. Indeed, in the words of Richard Poser, formerly a law professor and currently a federal judge, The only truly unilateral acts by which firms can get or keep monopoly power are practices like committing fraud on the Patent Office or blowing up a competitor’s plant, and fraud and force are in general adequately punished under other statutes,!I In this view, the only valid purpose of the antitrust laws should be to replace existing statutes with a simple prohibition against explicit or tacit that unreasonably restrict competition. Third, the swing of the pendulum against strict antitrust enforcement came from the increasing emphasis on market forces and market!based incentives .
This position was inspired by proponents of the Chicago School, which held that most monopoly power derives from government interventions. According to this ,;ew, the major pools of monopoly power lie in areas protected by government fiat. Important examples include economic regulations and rules (see Table 17-1) in such diverse areas as foreign trade, the exemption of labor unions from antitrust laws, monopoly protection conveyed by the patent laws, barriers to entry into the professions, and restrictions in medical care. Advocates of the laissez- faire view argue that reducing government regulation would enhance competition. . A final reason for the reduced activism in antitrust has been the increase in import competition. As more foreign firms gain a foothold in the American economy, they tend to compete vigorously for market share and often upset established sales patterns and pricing practices. For example. when the sales of Japanese automakers increased, the cozy coexistence of the Big Three American auto firms dissolved. Many economists believe that the threat of foreign competition is a much more powerful tool for enforcing market.discipline than are antitrust laws.