Tuesday, May 19, 2009

Anti-Monopoly Regulation

Dominick Armentano, a Research Fellow at The Independent Institute in the USA, in its latest issue of its newsletter, The Lighthouse, takes on the announcement by the US Assistant Attorney General Christine Varney last week that the Obama Justice Department plans to conduct "vigorous antitrust enforcement" actions against market leaders engaged in what it called "improper business practices."

Armentano's view is that in the 119 years since federal antitrust statutes have been on the books, they have not been empirically proven to have promoted consumers' interests.

"Indeed, antitrust history is riddled with silly theories and absurd cases that themselves have restricted and restrained free-market competition and hampered an efficient allocation of resources," Armentano is quoted as saying.

Choosing for examination the antitrust cases against Standard Oil of New Jersey, American Tobacco, Alcoa, United Shoe Machinery, and Microsoft, his view is that nothing about those prosecutions indicates that antitrust regulators can improve competitive markets for the sake of consumers. Competitive markets, he continues, "are legally open markets where all firms, including dominant firms, are rivalrous on their merits and where consumers--and not government or judges--decide winners and losers. Free markets may need protection from fraud (think Bernard Madoff), but they don't need antitrust intervention."

Armentano seems to forget that the natural state of "free markets" is monopoly, or duopoly or oligopoly. That is why anti-monopoly legislation was introduced in the first place.

It is easy to agree with Armentano's analysis that anti-monopoly watchdogs have not always been objective or efficient.

Picking the worst examples of abuse and inefficiency (if these cases qualify) does not, however justify Armentano's conclusion.

The right conclusion is to make anti-trust or anti-monopoly implementation more rigorous, objective and efficient.

To do otherwise is to place too much faith in the customer. For the customer is often short-sighted, and too often short-term-oriented.

The whole point of the theory of the division of power is that freedom needs a devolution of authority, different centres of regulation and self-regulation, so that if one fails the others can attempt to pick up the slack.

Abolishing one such centre of regulation (anti-monopoly authorities) will do nothing to reinforce freedom, and do a lot for reinforcing the hold of collusive oligopolies or even monopolies. Sphere: Related Content

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