Antitrust

[Groovenstein]

My purpose for beginning this thread is to organize and expand my understanding of antitrust law and then to analyze (with your help, of course) that understanding philosophically. I intend this to be something of a long-term thread, as I will probably be able to contribute only in small chunks like this one. My idea for this thread began when my good friend/roommate and I were studying and discussing some antitrust law a couple of months ago. Point 2(a)(ii) below is the main point made in that discussion. Usually I only require attribution, but just in case I decide to base on a work on this in the future (which I am considering as a long-term option), I am claiming copyright on all my copyrightable contributions to this thread.

1. According to this USDOJ page, there are three major sources of federal antitrust law. They are the Sherman Antitrust Act, the Clayton Act, and the Federal Trade Commission Act.

2. The Sherman Antitrust Act

(a) Section 1 declares to be illegal every contract, combination, or conspiracy "in restraint of trade."

(i) The Sherman Act prohibits only "unreasonable" restraints of trade. NCAA v. Board of Regents of the University of Oklahoma, 468 U.S. 85, 98 (1984).

(ii) The Court's (and courts') use of the word "trade" is a definitional disaster. A famous passage from the pen of Justice Brandeis highlights the problem: "But the legality of an agreement or regulation cannot be determined by so simple a test, as whether it restrains competition. Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of their very essence." Board of Trade of City of Chicago v. U.S., 246 U.S. 231, 238 (1918) (emphasis added). Every agreement restrains trade? Trade requires agreement. One of its defining characteristics can not restrain it.

That's all for now, folks.

[gags]

I find the second paragraph (the one on monopolies) of the Sherman Act to be particularly ironic in that government officials aren't mentioned. After all, in order to maintain a monopoly politicians need to intervene in favor of one business over the others.

[softwareNerd]

Yes, but that is because you are using a different definition of monopoly. I agree with your meaning, but that is not the commonly accepted meaning.

Roughly, the common usage of "monopoly" is: a single predominant seller of a particular service, regardless of whether the seller maintains that position by offering the best value-for-money proposition.

[AisA]

(ii) The Court's (and courts') use of the word "trade" is a definitional disaster. A famous passage from the pen of Justice Brandeis highlights the problem: "But the legality of an agreement or regulation cannot be determined by so simple a test, as whether it restrains competition. Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of their very essence." Board of Trade of City of Chicago v. U.S., 246 U.S. 231, 238 (1918) (emphasis added). Every agreement restrains trade? Trade requires agreement. One of its defining characteristics can not restrain it.

That's all for now, folks.

Perhaps I am missing your point, but it seems to me that the problem involves not just the definition of trade, but the whole intrinsic theory of value as well. As I understand it, the regulations are based on the notion that a greater number of trades is inherently good, and that any rule or agreement that results in fewer trades is inherently evil. Similarly, a large number of suppliers is viewed as inherently good, while a small number is inherently evil.

The intrinsic theory allows them to remove the good from the realm of individual traders making private decisions to trade or not, and instead invoke the notion that the good can be applied to "society as a whole". Thus, the "good of society" is held to trump an individual's right to decide to trade or not to trade.

[donnywithana]

The thing that gets people worried the most is the idea of predatory pricing followed by monopolistic equilibrium. Let's say two companies have the same product, but one has significantly more money than the other to begin with. The big company can "dump" their product, or sell it below cost, and in an efficient market, it will get all of the sales, assuming it can handle the increased capacity. This would be a war of attrition, and the less financially secure company would be eliminated from competion.

When this happens, the market will move towards monopolistic equilibrium, where output will be determined by the supplier (where marginal revenue equals marginal cost). The dead weight loss will result in "society" not getting as much of the product as they would have gotten before, when the companies had to compete for sales. In other words, prices will rise, output will go down, and profit will go into the hands of the monopolist. People are afraid of this happening because they don't understand that they don't have the right to the product that the businesses are producing. They think that charging a higher price is wrong because it makes it harder for them to live as well as they want to.

From an economic standpoint, monopoly is generally bad. This is because a monopolist doesn't have to maintain the same levels of efficiency as he would if he were competing with an opponent. The monopolist also has less incentive to innovate. This, people point out, makes monopoly undesirable.

The thing that they don't realize is that monopolies aren't infallible, and they don't exist by magic. If someone's better suited to do the monopolist's job, then they can gather investors and build up a competitor. Consumers don't have to fall for predatory pricing, they can even boycott. No one has the right to deprive another of their right to their accomplishments because it's more convenient that way.

[DavidOdden]

Every agreement restrains trade? Trade requires agreement.

Well, but apart from simple sales -- "Gimme $1 and I give you my pen" -- agreements tend to say what you cannot do, either directly or indirectly. When I contract to give all of my PC-purchasing business to Dell for the next year, that means I have to buy a Dell (presumably because I like the price the offered me for this exclusive contract). Or, I may be prohibited from buying any grain after the close of the market for a price other than the closing price. There is no question in my mind that if you are stopped, prevented, constrained or hindered from engaging in an act in any way whatsoever, you are restrained. The point is, this is a voluntary restraint -- it is in the nature of the contract that you agree to a particular kind of restraint, in exchange for some favorable consideration. The question ought to be whether there is anything at all covered by the concept "restraint of trade" that is in any sense bad.

The part that I find to be a hoot is what immediately follows that quote: "The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition". Well, I don't see anything in the language of the statute that says "Oh, by the way, we really only mean when it suppresses competition". The law, as written, is unbelievably dumb and Hizzonner Brandeis does a disservice to law by invoking this "true test" business. I think the true test of how just a law is can be determined by looking at the effect, but that has nothing to do with what the law actually says. The Sherman Antitrust act on a literal reading outlaws business. That's clearly a ridiculous result (following from a ridiculous law), so in order for there to be any justice in the world, they would either have to overturn the law, or waltz around it by saying that this particular kind of restraint of trade is okay, for social reasons. So we still don't know what kinds of restraint of trade are okay vs. evil.

[Melior]

My purpose for beginning this thread is to organize and expand my understanding of antitrust law and then to analyze (with your help, of course) that understanding philosophically.

Antitrust Laws. The Antitrust laws--an unenforceable, uncomplicable, unjudicial mess of contradictions--have for decades kept American businessmen under a silent, growing reign of terror. Yet these laws were created and, to this day, are upheld by the "conservatives," as a grim monument to their lack of political philosophy, of economic knowledge and of concern with principles. Under the Antitrust laws, a man becomes a criminal from the moment he goes into business, no matter what he does. For instance, if he charges prices which some bureaucrats judge as too high, he can be prosecuted for monopoly or for a successful "intent to monopolize"; if he charges prices lower than those of his competitors, he can be prosecuted for "unfair competition" or "restraint of trade"; and if he charges the same prices as his competitors, he can be prosecuted for "collusion" or "conspiracy". There is only one difference in the legal treatment accorded to a criminal or to a businessman: the criminal's rights are protected more securely and objectively than the businessman's. [ARLx, p. 28/"Choose Your Issues," TON, Jan. 1962, 1.]

The Alleged purpose of the Antitrust laws was to protect competition; that purpose was based on the socialistic fallacy that a free, unregulated market will inevitably lead to the establishment of coercive monopolies. But, in fact, no coercive monopoly has ever been or ever can be established by means of free trade on a free market. Every coercive monopoly was created by government intervention into the economy: by special privileges, such as franchises or subsidies, which closed the entry of competitors into a given field, by legislative action. (For a full demonstration of this fact, I refer you to the works of the best economists). The Antitrust laws were the classical example of a moral inversion prevalent in the history of capitalism: and example of the victims, the businessmen, taking the blame for the evils caused by the government, and the government using its own guilt as a justification, for acquiring wider powers, on the pretext of "correcting" the evils. [ARLx, p. 28-29/ "Antitrust: The Rule of Unreason," TON, Feb. 1962, 1.]

Edited November 19, 2005 by Melior

[AisA]

The thing that gets people worried the most is the idea of predatory pricing followed by monopolistic equilibrium. Let's say two companies have the same product, but one has significantly more money than the other to begin with. The big company can "dump" their product, or sell it below cost, and in an efficient market, it will get all of the sales, assuming it can handle the increased capacity. This would be a war of attrition, and the less financially secure company would be eliminated from competion.

Can you give me an example of such a thing happening in a free market? I don't think you can, because it doesn't happen.

There are a host of reasons why this does not occur, the chief one being that as soon as this big company drops their prices, their profits will disappear and their stock will crash. As soon as they attempt to raise their prices to "predatory" levels, competitors will come back in and force the price back to the prior level. At this point the CEO and the COB will be fired and no more such foolish attempts will be made.

This is only one of the reasons this sort of thing does not happen in a free market.

[Groovenstein]

So we still don't know what kinds of restraint of trade are okay vs. evil.

The best they can do in most contexts is say that "unreasonable" restraints of trade are prohibited. Even the so-called "per se" rules don't necessarily help!

"[T]he Court has held that certain agreements or practices are so 'plainly anticompetitive,' and so often 'lack . . . any redeeming virtue,' that they are conclusively presumed illegal without further analysis under the rule of reason generally applied in Sherman Act cases." BMI, Inc., v. CBS, Inc., 441 U.S. 1, 8 (1979) (citations omitted). Okay, that sounds all nice, but then the Court reminds us that "easy labels do not always supply ready answers." Id. Great. Then the Court goes on to talk about how something can be price fixing and not price fixing, and how "[l]iteralness is overly simplistic and often overbroad." Id. at 9.

I wish there was a "vomit" emoticon.

[donnywithana]

Can you give me an example of such a thing happening in a free market? I don't think you can, because it doesn't happen.

There are a host of reasons why this does not occur, the chief one being that as soon as this big company drops their prices, their profits will disappear and their stock will crash. As soon as they attempt to raise their prices to "predatory" levels, competitors will come back in and force the price back to the prior level. At this point the CEO and the COB will be fired and no more such foolish attempts will be made.

This is only one of the reasons this sort of thing does not happen in a free market.

I'm sorry, rereading my post, I didn't make it clear at all that I was saying that this is what people are afraid will happen. My final paragraph was a refutation of everything I said before it, but I should be more clear.

People fear that predatory pricing will lead to a monopoly that can charge whatever price it wants while simultaneously losing all efficiency. However, monopolies do not simply exist magically, they must function like any other business. A monopoly known to charge high prices would lose consumer support in favor of a competitor entering the market, even if the competitor was not able to compete on a cost basis.

Also, predatory price wars assume only one round of competition, whereas in real life there are infinite such rounds. In order to constantly repel competitors, a predatory company would need to keep its prices low enough to remain the only viable company, in which case the monopoly would be deserved and beneficial.

There are two ways to profit from business ventures. One is through high prices, and the other is from low costs. Profits generated by high prices are unsustainable, as investment will flock towards the sector, driving prices down. Profits generated by low costs can create monopolies, but these are the types of monopolies that are only beneficial to society, and represent survival of the fittest.

Legislating against monopolies is shortsighted and harmful to everyone. For example, Microsoft has been attacked recently for doing everything in its power to succeed. Why? When is the last time that Microsoft forced anything upon you? If it's difficult to not buy from them, then that demonstrates how successful they've been. That's the goal of every business, and shouldn't be legislated against. I'm using Firefox right now because I think it's better than Internet Explorer. My friend Hogan has an Apple computer because he thinks it's better than Windows. That's how the free market works. Remember when everyone had AOL, but now other providers have moved in? The best product will win in a free market. That's the way it works, and that's what we should want.

Hope that was a little clearer!

Edited November 21, 2005 by donnywithana

[Proverb]

I am actually doing a research paper on this very topic. I am exploring how it might be possible to repeal the law. In doing so I have had to explore why the law is around in the first place. It seems that anti-trust law would be wholly unnecessary were it not for government involvement in the economy.

As for how it stands now, the law seems to be a vague assemblance of legal speak that allows any distraught and/or broken market competitor to attack its successful opponent in a market simply because of the fact that they are successful.

[Groovenstein]

Perhaps I am missing your point, but it seems to me that the problem involves not just the definition of trade, but the whole intrinsic theory of value as well.

You make a good point, and I don't think you missed mine. I included the note about the definition of trade because that was what sparked the discussion between my friend and I. I did not mean to imply that it was the most important point in this area, and I see how you might have thought I was implying that.

This thread is sort of an outline I'm going to put together over time. As points occur to me, I'll make them and evaluate their overall importance to the problem. The more I think about this particular point (the definition of trade), the more I think it is a minor one in the grand scheme of things.

The intrinsic theory allows them to remove the good from the realm of individual traders making private decisions to trade or not, and instead invoke the notion that the good can be applied to "society as a whole". Thus, the "good of society" is held to trump an individual's right to decide to trade or not to trade.

Thank you for this comment. This intrinsic theory of value seems to be a major philosophical problem with antitrust law worthy of more thorough analysis.

"Essentially, [antitrust] laws prohibit business practices that unreasonably deprive consumers of the benefits of competition, resulting in higher prices for inferior products and services." (Introductory paragraph on USDOJ page.)

The focus thus is on "consumers." Over time I will explore the cases and other law and see the how, why, and so on, this focus plays out. For example, if the focus is on "consumers," I'm interested to see how the courts have responded to the question "Which ones?".

Another choice passage is found in the second paragraph of the answer to question 4 on the USDOJ page. I'm interested in examining the cases to see how this disgusting attitude has been expressed:

"There can be no doubt that price fixing, bid rigging and customer allocation harm consumers and taxpayers by causing them to pay more for products and services and by depriving them of other byproducts of true competition. Nor is there usually any question in the minds of violators that their conduct is unlawful. It has been estimated that such practices can raise the price of a product or service by more than 10 percent, sometimes much more, and that American consumers and taxpayers pour billions of dollars each year into the pockets of cartel members. People who take consumer and taxpayer money this way are thieves." (Emphasis mine.)

"True competition"? I'll look at what the courts think true competition is and how in the hell they support the idea that true competition exists only where the government prevents willing buyers from transacting with willing sellers.

The taxpayers pour money? I'll look at how courts address this idea, considering that the taxpayers had their money taken from them. I would like to ask a question of the author of this passage. If you, author, had your wallet stolen from you, and the money in that wallet was spent on, say, pornography, would you say you had "poured" money into pornography?

People "take" consumer money? Then why not charge them with robbery? Oh yeah, because it isn't. People "accept" consumer money would be more accurate. But then I guess the DOJ couldn't call them "thieves." Again, I'll see how the case law addresses this idea.