New Economy Forum Briefing
J. Bradford DeLong
http://www.j-bradford-delong.net/
delong@econ.berkeley.edu
May 2000
The New Economy and Antitrust
II: Principles
- America, as Thomas Jefferson or Abraham Lincoln
imagined it, had no place for monopolies. For both, competition
was an essential piece of individual liberty.
- If you didn't like the deal someone was offering,
you could walk down the street and find an alternative trading
partner.
- Monopoly--someone who made you poor, limited
your freedom by telling you to "take it or leave it"
and made that stick--was not something America could afford.
- But steam power and industrial machinery
changed things, promising huge efficiencies through economies
of scale.
- But would the efficiency gains be worth the
loss of individual choice?
- Without competition, lower costs produce
not lower prices but great concentrated fortunes.
- Ohio Sen. John Sherman, younger brother of
Civil War Gen. William Tecumsah Sherman.
- When the dust of the first generation of
antitrust litigation settled, the United States found itself...
- ...tolerating oligopoly
- ...curbing monopoly.
- The hope was that this would get us
- most of the efficiency benefits from economies
of scale
- most of the benefits of market competition
as well.
- During the Great Depression, another principle
was added to the mix.
- Government should put its thumb on the scale
on the side of small producers.
- Thus antitrust became a tangled web of different
laws pursuing contradictory purposes.
- Over the past 50 years, lawyers, judges and
analysts have gradually picked that web apart.
- The Chicago school: Bork's view focus antitrust
law solely on consumer welfare.
- (Never mind that Bork's view entails the
judicial repeal of the Robinson-Patman Act, while in other areas
(civil-rights law, say) Bork exalts the original intent of legislatures
and decries judge-made law.)
- As an economist, however, I have to by and
large approve of the Chicago School on antitrust.
- Now, however, new technology has once again
ripped open the seams.
- The program has to be written and debugged
only once, no matter how many copies are sold.
- To be twice the size means your per-unit
costs are little more than half as much.
- It seems to be easier to get Microsoft FrontPage
working well when the Web server it uploads files to is running
Microsoft Internet Information Server rather than when it is
running open-source Apache.
- Software for minicomputers stagnated in the
1980s because each brand's version of the Unix operating system
was incompatible with the others.
- The World Wide Web has boomed in the 1990s
because its inventor, Tim Berners-Lee, made the software protocols
available to everyone for free.
- Our new technologies have far larger and
stronger economies of scale
- As economists Hal R. Varian and Carl Shapiro
have written, markets will not and cannot look like the competitive
markets of ideal economic theory.
- And given the size of the economies of scale,
it is not clear we want them to.
- What does this mean for antitrust?
- Technology moves rapidly to make antitrust
remedies of doubtful relevance
- Perhaps courts and prosecutors will try to
maintain the standard pattern: Tolerate oligopoly, break up monopoly.
- Perhaps courts and prosecutors will have
greater tolerance for monopolies that "play fair."
- But can such a code of standard-setting friendliness
be specified and enforced?
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Professor
of Economics J. Bradford DeLong, 601 Evans Hall, #3880