As I skimmed through the White House White Paper on innovation (HT: Patently-O), I noticed that a repeated theme in the document is that US innovation policy must “Promote Competitive Markets that Spur Productive Entrepreneurship” (e.g., p. 9). There is no real substantive discussion of antitrust issues in the White Paper, except for the following passage, suggesting that the key role for antitrust in promoting innovation is to:
Protect small businesses from unfair business practices. In many industries, small companies are critical innovators, bringing enormous benefits to consumers while putting competitive pressure on incumbent firms. The Obama Administration is committed to enforcing the antitrust laws to insure that innovative entrepreneurs are not excluded from the market by anti-competitive conduct. The Department of Justice actively investigates allegations of exclusionary conduct as part of its law enforcement mission to keep markets open and competitive.
This language is hearkens to an era of antitrust where the protection of small businesses and individual competitors was an acceptable antitrust goal. From an economic perspective, this view was long ago rejected on the basis of the new learning in industrial organization economics during the 1960s and 1970s. The last sentence is rather unobjectionable. Nobody is surprised that the Administration is interested in bringing more monopolization cases based on allegations of exclusionary conduct. But I am a little bit surprised to see the open and explicit appeal to using antitrust as a weapon to protect small businesses. Perhaps this is the product of a failure to communicate? Maybe the administration antitrust crew ought to sit down and have a talk with the administration intellectual property folks and tell them that protection of small businesses (rather than the competitive process and consumers) is no longer considered a legitimate goal of antitrust in the courts, agencies, or by antitrust economists.
I note that, back in 2007, I criticized then Presidential Candidate John Edwards for making similar (but much more detailed) statements on his intention to use antitrust “to protect fair competition for small businesses and family farmers” and as a tool to attack vertical integration in the agricultural industry. Candidate Obama’s antitrust statement pitches the standard “more is better” approach, but says nothing about protecting small businesses.
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No worries. I appreciate the comment and the clarification.
I misread you. I first read your post as welfare economics 101: protecting small businesses is not welfare optimal. I think now that you are primarily asking why Obama is pushing a legal strategy that has zero chance in the courts, which I agree seems weird. I doubt we disagree on the basic economics (I learned antitrust from John McGee and Keith Leffler), nor on the opinions of the bulk of antitrust economists. My legitimacy point was primarily that I do not think presidents set their antitrust policy to get the approval of antitrust economists. Governments obviously do not look for the approval of the bulk of economists in setting minimum wage laws, agricultural policies, or tariffs. Why should antitrust be different? That was my point in raising public choice. Granted, it was way too snarky, but I fear I have been overly influenced by John McGee, who once in class said about F.M. Scherer “His friends call him Mike. I call him Fred.” I promise to be a politer hardcore antitrust skeptic next time.
William:
I guess I’m baffled that your baffled. The two statements that courts get it wrong sometimes (in fact, some of my own research takes on the question of judicial decision-making and errors in antitrust) and that the small business goal is no longer a legitimate one in antitrust are perfectly consistent. The latter is a positive one. I didn’t make any claims about why — and yes, I know a little bit about public choice and McChesney & Shughart, Boudreaux, Tollison and others. So I do hope I’m not just being silly.
Perhaps you can explain to be what is baffling you about my statement of surprise that the administration would explicitly appeal to a “goal” of antitrust an objective that has been rejected by the overwhelming majority of the antitrust community, not to mention the federal courts and enforcement agencies.
My best guess/ interpretation is that you are attributing to me by implication the declaration that protection of small business is a “illegitimate” goal of antitrust must mean that there are other legitimate ones —and that you disagree with that implicit claim? There is nearly universal agreement in the antitrust economics profession that protection of some metric of consumer or total welfare is a “legitimate” goal of antitrust. There is SUBSTANTIAL disagreement (including from me) the competency of courts and agencies to use antitrust to achieve that goal. Some of these objections are legal, some economic, some involve the types of public choice arguments you raise.
Still, it strikes me that none of this has to do with my claim that it is surprising —- whatever you think of the legitimacy or lack thereof of “other” antitrust objectives — that the administration would choose to explicitly appeal to one that has been rejected in every possible forum.
I am utterly baffled by your use of the word “legitimate”. Antitrust is a regulatory policy, and so like every other government policy, is a public choice problem. The idea that it is set by wise judges and economists strikes me as silly. The era when antitrust protected small businesses came to an end more, it strikes me, because the automobile broke the profitability and thereby the political power of small retailers. I thought that this pretty standard at least since McChesney and Shughart’s The Causes and Consequences of Antitrust.
If you read “startup” for “small business,” then the language seems less antiquated.