Obama Changing The Antitrust Rules

Beware of government lawyers with a small case load. Invariably they will change the rules of the game in order to generate work.

Such appears to be the case with the antitrust division of the U.S. Justice Department. The head of that division, Christine Varney, announced that they would ditch the Bush approach to antitrust enforcement in favor of the Clintonian view of “protecting the consumer.” The policy that led to landmark cases against Microsoft and Intel.

An article in the New York Times indicates that the government intends to vigorously pursue antitrust cases and is anxious for smaller competitors to come forth with complaints about abusive behavior by larger competitors. Ms. Varney apparently plans to more closely align U.S. enforcement along the lines of the European Commission.

One of the central points of European regulation is a consideration of the effects of alledged anti-competitive actions on competitors as well as consumers. Another way of looking at this is a company might well engage in activities that do not necessarily enhance its bottom line nor do they disadvantage the consumer but those activities might negatively affect the fortunes of a competitor.

Such would seem to be the case with the European Commission’s pending action against Intel. Its rival AMD complained several years ago to the commission that Intel was offering rebates to buyers of its chips to the detriment of AMD’s market share. Though there was a net benefit to the consumer — lower prices — the commission is expected to rule that the practice had a material effect on AMD’s operations.

Experts have tended to criticize the European Commission’s actions on the basis that the consumer benefits from rebates. Though the activity could arguably lead to fewer choices, some argue that is an outcome that should be left to the market to sort out. The argument being that if consumers want more choices competitors will provide them.

It’s possible that the Bush administration was too lax with respect to antitrust enforcement but that doesn’t mean that reverting to the previous policy is a wise decision and certainly doesn’t argue in favor of the European Commission’s model that is more industrial policy than antitrust policy.

Greg Mankiw republished an article he wrote in 1998 concerning the Microsoft action. It’s worth reading the whole thing but his closing two paragraphs make a couple of very good points:

Using antitrust laws to regulate business practices like bundling is not likely to benefit consumers. Even if the world’s smartest economists did the regulating, they would often get things wrong. And given the realities of how policy is actually made inside the Beltway, things are more likely to go wrong than right.

What company will dominate the software industry in the next century? I don’t know, and neither does anyone else. I hope it is the company with the best programmers. I fear it may be the company with the best lawyers.

The more expansive you make antitrust policy, the more likely it is to get things wrong. Not only get them wrong but do real harm to the economy. A world in which lawyers don’t have enough work is to be hoped for but likely never to be realized.

More: here (Article On Intel European Commission Action)

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