Child safety, national security, national defense, counterterrorism, and consumer protection — by invoking one of these terms, the federal government can do almost anything and the public will not just go along with it, but accept it as good and necessary.
Under the guise of consumer protection, the U.S. government is seeking to block the merger of two companies — AT&T and T‑Mobile. The $39 billion deal would create the largest carrier in the United States, and move the current leader, Verizon, into the number-two slot.
The Justice Department’s Antitrust divison filed a complaint in the United States District Court for the District of Columbia on August 31. Said James Cole, the deputy attorney general, “The department filed its lawsuit because we believe the combination of AT&T and T‑Mobile would result in tens of millions of consumers all across the United States facing higher prices, fewer choices, and lower-quality products for their mobile wireless services.”
The complaint alleges that “AT&T’s elimination of T‑Mobile as an independent, low-priced rival would remove a significant competitive force from the market” resulting in “higher prices, less product variety and innovation, and poorer quality services due to reduced incentives to invest than would exist absent the merger.” The complaint also maintains that T‑Mobile “places important competitive pressure on its three larger rivals, particularly in terms of pricing, a critically important aspect of competition.”
One of those rivals, Sprint, which has more subscribers than T‑Mobile but fewer than AT&T, urged the government “to block this anticompetitive acquisition” back in March. Said Vonya McCann, Sprint’s senior vice president for government affairs, “This transaction will harm consumers and harm competition at a time when this country can least afford it.” Sprint also is now suing to block the AT&T/T‑Mobile merger.
The plaintiff, that is, the federal government, requests
That proposed acquisition of T‑Mobile be adjudged to violate Section 7 of the Clayton Act, 15 U.S.C. 18;
That Defendants be permanently enjoined from and restrained from carrying out the Stock Purchase Agreement dated March 20, 2011, or from entering into or carrying out any agreement, understanding, or plan, the effect of which would be to bring the telecommunications businesses of AT&T and T‑Mobile under common ownership or control;
That Plaintiff be awarded its costs of this action; and
That Plaintiff have such other relief as the Court may deem just and proper.
But are the government’s actions just and proper to begin with?
The federal government’s antitrust activities are based not the Constitution, but on the Sherman Antitrust Act of 1890, the Clayton Antitrust Act of 1914, and the Robinson-Patman Act of 1936, which amended the Clayton Act. Those laws are supposed to protect the public from anti-competitive practices such as predatory pricing, cartels, price fixing, price discrimination, monopolization, collusion, and product bundling. They also empower the government to regulate business mergers and acquisitions. Antitrust legislation is enforced by the Federal Trade Commission and the Department of Justice.
In Antitrust: The Case for Repeal, Dominick Armentano, professor emeritus of economics at the University of Hartford and author of several books on antitrust law, writes, “Antitrust laws have often been employed against innovative business organizations that have expanded output and lowered prices.”
That has been true from the very beginning. Standard Oil grew from a small Ohio corporation in 1870 to a multidivisional conglomerate that had 85 percent of the domestic petroleum-refining market in 1890. Owing to the company’s innovation and efficiency, the price of kerosene fell during that time from 30 cents a gallon to 7.4 cents a gallon. But in spite of the company’s loss of market share and the increasing number of competitors, it was targeted by the government, not for restraining market output and raising prices, but for the intent to monopolize. In 1911, Standard Oil Company was forcibly dissolved by the government into 34 independent companies.
The government did the same thing to AT&T in the early 1980s. The government abandoned its antitrust case against IBM in 1982, finally concluding that the legal action was “without merit.” The government also tried, and failed, to break up Microsoft in the 1990s. That case shows the insidious nature of antitrust law: it was under pressure from Microsoft’s competitors that the Justice Department went after Microsoft, though the Federal Trade Commission (expressly charged with policing “unfair methods of competition”) had previously investigated Microsoft from 1990 to 1992 but filed no charges. More than 90 percent of all antitrust litigation involves one firm’s suing another.
As concluded by Armentano,
Economic analysis of the leading antitrust cases tended to demonstrate that the indicted corporations had increased their outputs and lowered their prices and had behaved generally as competitive firms would be expected to behave in open markets facing direct or potential rivalry. The thrust of antitrust policy in these cases was, if anything, to restrain the competitive performance of the leading firm and thus protect the existing market structure of generally smaller, less efficient business organizations.
Aside from protecting inefficient companies from the innovations and lower prices of their competitors, there are other problems with antitrust legislation as well.
Antitrust is anti-freedom. Antitrust regulations inherently violate individual rights, civil liberties, and the due process of law.
Antitrust is anti-property. Antitrust regulations, by their very nature, always interfere with the rights of property owners or their agents to make voluntary contracts or agreements and to do with their property as they see fit.
Antitrust is anti-market. Antitrust regulations confound market share with market power and monopoly power. A real monopoly is always associated with government intervention. If the government is so concerned about monopoly, then it should eliminate the postal monopoly on first-class mail. It stands antitrust legislation on its head when a company such as Walmart has a large market share but is known for having low prices. The market is perfectly capable of determining which companies should be rewarded for efficiency, customer service, innovation, and pricing and which companies should be condemned. Just look at the story of A&P.
Antitrust is anti-government. That is, antitrust regulations are a violation of the proper role of government. The only defendable purpose of government is the protection of life, liberty, and property from the violence or fraud of others. The government should not be in the consumer-protection business. And even if the government is correct in all it assumes that will happen if the AT&T/T‑Mobile deal goes through (a very dubious assumption), it is not the job of government to rectify what is perceived as high prices, few choices, or poor product quality.
Antitrust is anti-competitive. Antitrust regulations are ambiguous, open-ended, arbitrary, and confusing. Under current antitrust law, if a firm lowers its prices below that of its competitors, it could be guilty of predatory pricing; if a firm raises its prices above that of its competitors, it could be setting a monopoly price; if a firm charges the same price as that of its competitors, it could be engaged in price fixing; and if a firm charges one of its customers a different price than it charges another, it could be guilty of price discrimination.
Antitrust is anti-business. Antitrust regulation is just another form of government regulation. Like all government regulation, it leads to inefficiency, higher costs, higher prices, distortions in the market, increases in barriers to entry, the co-opting of regulators, the use of the regulatory apparatus by big business to harm smaller competitors, and attempts by special-interest groups to influence legislation to benefit the few at the expense of the many.
Antitrust is central planning. This is the most disturbing thing about antitrust regulations. Under antitrust laws, the government has the authority to issue merger guidelines; intervene in mergers; approve mergers; mandate the sale of business assets or divisions before approving a merger; prevent mergers (as in the case of AT&T and T‑Mobile); split up companies; require that firms raise, lower, or change their prices; review the costs and benefits of joint business ventures; and affirm or deny businesses cooperative agreements. Intelligent enforcement of antitrust laws presupposes that regulators, bureaucrats, and the courts have the correct information concerning societal costs and benefits, market share and market power, barriers to entry, price elasticity, and consumer behavior, as well as an intimate knowledge of firms and their industries. In short, the U.S. government, like the government of the Soviet Union, has a huge knowledge problem that no amount of central planning can overcome.
As Adam Smith observed more than two centuries ago, because antitrust laws interfere with private and voluntary agreements, they are not “consistent with liberty and justice.” Not only should AT&T and T‑Mobile be allowed to merge, but the Federal Trade Commission, the Antitrust Division of the Justice Department, and all antitrust law should be abolished.