Economics versus politics in antitrust [#agworkshop]

Geoffrey Manne —  12 March 2010

Bill Northey, IA Ag Sec’y, sounds a bit like an economist (ah, turns out he has a degree in ag business and an MBA . . . ).  Yes, price of seeds has gone up, but so has yield, and so has overall value.  The issue, he says, is how to divide the surplus, and he suggests that it’s dividing the pie that drives farmer concerns.  That’s not at all a surprise, but it’s also not much of an antitrust issue.  Unless the pie could be bigger absent, say, Monsanto’s huge investment in seeds and the resulting relatively-concentrated market structure (and basing enforcement on the theoretical possibility of that counter-factual is a perilous enterprise, as Josh and I have suggested many times), this is just a question of pecuniary transfers.  Sure, they matter a lot to the parties involved and there’s always an incentive to deputize the government to put a thumb on the scale of that dispute, but that’s not a matter of allocative efficiency, and not a matter for the antitrust laws.

Now we hear Iowa AG Miller pushing for the development of “the non-antitrust laws to deal with concentration.”  By which he means the Packers and Stockyards Act.  Maybe the DOJ has their Section 5 after all!

As if on cue, AG Miller trots out the pendulum story of antitrust enforcement–“how to bring the antitrust law back to the middle.”  This is not really an accurate description, unfortunately.  Even worse, it’s not an economically-sensible concept, and measuring the efficiency of antitrust enforcement by counting enforcement actions (or looking at rhetoric) is usually just flimsy cover for an essentially-political determination.  Combine that with Miller’s suggestion that the P&S Act’s “unfair practices” language should be enlisted in the service of dealing with concentration, and the risk of false positives is much magnified.  Which, of course, is a perfect lead-in for Christine Varney.Varney:

“Biotech:  Patents have been used to maintain or extend monopolies.  We will look very closely at any attempt to maintain or extend a monopoly through the patent laws.”

“What can antitrust really do?  When we see mergers, we look closely at the resulting concentration from a merger [she mentions the depradations of Dean Foods.  I really need to blog on that case . . . ]”

“We will continue to scrutinize every merger that comes before us.  Those mergers that don’t increase efficiency, we will stop.  They will not go through in this administration.”

“Big is not bad, but with big comes an awful lot of responsibility.”

“When you have large market share, you must engage in behavior that keeps markets open.  You cannot engage in conduct to maintain or extend your monopoly.” [No–there is no such thing as false positives].

“We have criminal authority, and it is illegal for competitors to sit down together to fix prices.  We will, wherever we find price fixing, prosecute that criminally.”

“Make sure everyone’s making a decent wage and consumers have food on the their tables that is safe and healthy at a decent price.”

Holder sums up by saying “our overriding concern at the DOJ is fairness.”  He’s probably telling the truth–and that’s the problem.  Varney finishes her remarks talking about decent wages and healthy food.  “Decent” and “healthy” are not antitrust-relevant concepts, and the antitrust laws don’t really contemplate their protection.

This is why this event is so problematic–and so politicized.  You can’t talk about farmers in the US without talking about these things, but you shouldn’t be talking about these things when talking about antitrust.  And when the AAG for antitrust suggests that concentration may threaten these attributes in a way that antitrust should address, alarm bells go off.  And although the courts should be a bulwark against this–and someone here even mentioned that the jurisprudence might present a problem for the effort–there are errors, and there are ways around the courts (Section 5 of the FTC Act, and now, apparently, the Packers and Stockyards Act).

Geoffrey Manne

Posts

President & Founder, International Center for Law & Economics

5 responses to Economics versus politics in antitrust [#agworkshop]

  1. 

    I know Tom, he is right..and smarter than me. We did and do, the same thing for a living, and have lived the things he is talking about. He is not fulfilling some contract for a column or debating an esoteric concept while he holds his pipe with a patch sleeved blazer. He has tried to pay the bills after some unethical packer screwed his brains out. Let me assure you; theory stops at the cafo door. John

  2. 

    I think this is being looked at in the wrong way and I will take examples pertaining to the Packers and Stockyards Act as an example. Section 202 of the Packers and Stockyards Act has prohibitions that affect competition with comparative advantages gained from market power. One of the problems with concentration is that there are few or no alternatives when someone does you wrong. Think about the old AT&T model where you had no choice but one company before the breakup. You can think about other “natural” monopolies like electrical service. You have only one viable source of electricity because natural efficiencies of scale, then you have no real choice. In these instances, we have government that attempts to regulate the activities of these companies and in the case of many electrical or water companies, they are structured so that they are public utilities, not subject to abuse of market power for the self interest of the greed of those at the top.

    The prohibitions in Section 202 of the Packers and Stockyards Act addresses the abuse of market power by prohibiting certain actions that are normally identified with the abuse of market power. In a purely competitive state, these abuses would not be allowed to happen because competitors would gain the business of those who were felt they were cheated. Because much of agriculture, and in particular the meats markets, has a structure that more correlates to absolute monopsony power or at the least, oligopsony power (market power of buyers) the prohibitions in the Packers and Stockyards Act are particularly important. These prohibitions are being routinely broken by the big meats players who are taking advantage of their suppliers to gain competitive advantages in the market. They are, in effect, changing the definition of efficiency from one based on market efficiency to one based on their own efficiency. In this process, they break the prohibitions in the section 202, and use the gains they get by breaking those rules to compete with the other big players in meats markets. For the suppliers, it is a direct transfer of wealth from them to the consumers with the packers receiving the benefits.

    You can argue that this makes agriculture “the most efficient” based on the lowest price, but not on the maximum utility of resources in the economy. Too many economists and judges get the lowest price mixed up with efficiency while ignoring the economic theft that abuse of market power allows.

    Quite simply, we have too many Phil Gramm economists arguing for the break down of the markets as long as the lowest price and “efficiency” as measured solely by consumer welfare is considered. Of course this totally ignores the value stolen from suppliers and given to consumers by market power and it totally ignores the fact that when markets do get concentrated enough, the low ball price given to consumers will disappear as supplies decrease due to competitors being pushed out of the market. The arguments of maximizing consumer welfare are arguments of convenience and an excuse to steal from suppliers in order to win in the competition game.

    Essentially, we are promoting those to the head of the class who are cheating on their tests and have the highest grades because of cheating, not on their own actual accomplishments. It leads to the worst people heading and controlling these companies who are able to buy the politicians they want and place the judicial activism they want with the help of high powered connected K Street law firms.

    Tom

  3. 

    Thom, you seem to be under the impression that anyone is offering any real evidence to support what they are saying.

  4. 

    This is great stuff, guys. Keep it coming.

    Is anybody suggesting that output in agricultural markets is falling (or lower than it otherwise would be) because of concentration or collusion? If so, what’s the evidence?

Trackbacks and Pingbacks:

  1. On seed industry concentration and its claimed effects [#dojusda #agworkshop] | TRUTH ON THE MARKET - March 12, 2010

    […] Superpower on Russian Retail Trade Law and Government Barriers to Entry.Michael Sykuta on Economics versus politics in antitrust [#agworkshop].Michael F. Martin on My Testimony Re: Citizens United & Corporate Governance.Thom Lambert on […]