NCPA - National Center for Policy Analysis

Trust-Busters On The March

July 25, 1997

During the late 1970s and 1980s, free-market economists from the University of Chicago gained the upper hand in formulating national anti-trust policy -- showing that markets, if left to function, will control monopolizing firms.

But advocates of greater intervention have been searching for a rationale to justify a more activist anti-trust policy -- one which would sway judges in such cases. Legal observers say they may have found what they were looking for in sophisticated mathematical calculations of business activity.

  • The new activists, sometimes known as the post-Chicago school, are described as theorists who share many of the premises of the Chicago school, but who have developed models of market structures that involve oligopolies -- small numbers of firms that take competitors' reactions into account in making decisions.
  • Observers say the post-Chicago challengers have not won many battles yet and free-market approaches still dominate policy-making -- as exemplified by the Federal Trade Commission's decision not to object to the proposed Boeing-McDonald Douglas merger.
  • In addition, anti-trust enforcers today still must consider overseas competition in deciding whether a firm has too much market power.
  • But the FTC's action against the Office Depot-Staples merger -- the two companies having only a 6 percent combined share of the office products market -- could signal the success of post-Chicago theorists.

Experts say the Staples case is novel in that it used high-powered econometric tools in order to buttress the FTC argument that there would be price increases after the merger.

Analysts say post-Chicago theorists are more apt to block vertical mergers, as well as support theories of "predatory pricing" -- the notion that a strong firm will sell its products below costs for a time in order to drive out competition. They also believe that conglomerates tend not to compete with one another, and that corporate efforts at innovation can serve as an anti-competitive strategy.

Source: David A. Price, "Antitrust Policies Get More Ammo," Investor's Business Daily, July 25, 1997.

 

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