The next serious competitor may be waiting for a license, or working on a product nobody has seen yet. Neither shows up in today’s market-share figures. And much of the current antitrust debate ignores both of those figures completely, even as it ponders how aggressively the government should reshape markets.
By contrast, a dynamic approach to antitrust can enforce the law vigorously while also recognizing that competition changes over time and that government officials rarely know enough to redesign complex markets. The practical questions are which restraints deserve priority, what evidence should justify intervention, and how the law can leave room for the experiments that produce tomorrow’s competitors.
I propose two commitments.
First, enforcement agencies and policymakers should pay closer attention to government-created barriers to entry. Licensing restrictions, certificate-of-need laws that require approval before a provider can open or expand, discriminatory subsidies, procurement preferences, and legal immunities can all keep would-be competitors out.
Second, enforcers should judge private conduct by its likely effects on innovation and the competitive process. That means considering firms’ capabilities and the costs of mistaken enforcement decisions, rather than treating today’s market concentration figures as the last word. Cartels, anticompetitive mergers, and exclusionary monopolization still warrant action. But size, integration, and commercial success alone do not establish harm.
When the Referee Builds the Moat
The first commitment calls for greater attention to government restraints on competition. Antitrust usually focuses on private firms, but a legal rule can suppress rivalry more durably than a powerful incumbent can. No matter how entrenched incumbents may appear, customers can always switch, new firms can enter, and new technologies can displace even a dominant company. Licensing rules, on the other hand, can shut qualified entrants out entirely. Certificate-of-need laws can stop new facilities from opening. Procurement preferences can deny challengers the customers they need to grow, while subsidies can keep inefficient firms afloat.
Government restraints also carry other costs beyond higher prices and reduced output. When officials grant competitive privileges, firms have reason to spend on lobbying, litigation, and regulatory strategy instead of on better products and lower costs. Economists call this rent seeking: using resources to secure a government-granted advantage. Gordon Tullock showed how the contest for such advantages can consume resources that could have gone to productive innovation. Daniel Sokol’s analysis of anticompetitive government intervention likewise makes the case for scrutinizing public restraints that benefit organized interests.
Public-choice analysis—the study of incentives in politics and government—adds further warnings. Legislators, regulators, and prosecutors respond to organized constituencies, career incentives, and the appeal of headline-generating cases. The design of competition policy should account for such pressures. Agencies should identify public barriers, assess their likely effects on productivity, and focus their advocacy on restraints with broad economic consequences that are difficult to undo. Courts, too, should continue to read antitrust immunities narrowly, as the Supreme Court has long instructed.
Tomorrow’s Rivals Aren’t in Today’s Spreadsheet
The second commitment concerns how antitrust judges private conduct. Market shares, prices, and firm counts all matter, but they can only ever capture competition at a specific moment in time. Firms also compete by experimenting with new technologies, ways of organizing work, distribution systems, and business models. Joseph Schumpeter’s account of creative destruction, Friedrich Hayek’s description of competition as a discovery procedure, and Israel Kirzner’s emphasis on entrepreneurial alertness share the same lesson: some of the most important competitive possibilities have yet to show up in the data.
A capabilities approach to market analysis asks what firms can do next. Which have the technical knowledge, financing, management, and other assets to develop a product or become a serious rival? David Teece’s work on dynamic and potential competition helps answer that question by looking beyond today’s market shares.
This view also changes how we weigh error costs. A false positive—stopping conduct that would not harm competition—might serve to block a merger or business practice that could otherwise produce a new product, speed its launch, or combine firms’ strengths. These effects can, in turn, reach beyond the parties before a court: uncertainty about liability may discourage investment and experimentation across an industry.
To be sure, a false negative—allowing harmful conduct—is costly too. In some changing markets, however, new entry, imitation, technological change, or later enforcement may work to check that harm. Judge Frank Easterbrook’s error-cost analysis reminds us that a rule that courts can apply reliably may serve competition better than elaborate but unreliable predictions they cannot.
Innovation should not be considered a free pass from antitrust law. Firms can buy or shut out rivals to protect lasting market power, and claims about future benefits deserve scrutiny. But plaintiffs should have to show a probable threat to competition, rather than simply point to harm to a competitor or objections about a firm’s design choices. At the same time, courts should take potential gains in quality, security, integration, speed, and innovation seriously when the alleged harm also depends on a prediction about the future.
The Judge as Product Manager
Digital platforms show why this approach matters in practice. Search rankings, interoperability rules that let products work together, privacy defaults, app-store policies, bundles, and data access all involve tradeoffs among relevance, safety, congestion, revenue, and investment. A rule requiring “neutrality” or equal treatment may sound simple, but enforcing it could weaken curation, security, or the incentives to build tools for the platform. Antitrust should neither impose a general duty to give rivals access nor make courts permanent supervisors of product design. Antitrust liability should instead rest on strong evidence that the conduct will harm rivalry after accounting for its benefits to quality and integration.
The same care applies when a firm takes on another stage of production or distribution, known as vertical integration. Combining those stages can eliminate double marginalization—the extra markups that arise when firms at successive stages each set their own prices. It can also help firms coordinate investment, protect assets built for a particular business relationship, reduce the costs of contracting, and improve quality control.
The relevant comparison is not between an integrated firm and an imaginary world of frictionless contracting. It’s between an integrated firm and realistic institutional alternatives, each with costs of its own. Assuming firms could achieve the same benefits through effortless contracts commits the Nirvana fallacy: judging a workable arrangement against an unattainable ideal. It also overlooks what courts would need to know, and the administrative burdens they would have to bear, in order to impose that ideal. Herbert Hovenkamp’s discussion of antitrust and the design of production explains why competition law should approach that task with care.
Don’t Forget the Next Competitor
Merger review should also look beyond concentration screens that measure how much of a market the merging firms already control. Instead, it should ask: what capabilities does each bring? Could the combination turn an invention into a product or bring together assets that work better together? How many plausible future rivals would remain? And does the likely harm outweigh gains across the economy, including benefits outside the market under review?
Review should also account for the market for corporate control. An acquisition may put an invention in the hands of a firm better able to manufacture, distribute, or scale it, or to navigate regulatory hurdles. Indeed, for startups, the prospect of a future sale can help attract investment before they enter the market. Treating every acquisition by a successful incumbent as suspect could discourage the very competitive experiments that antitrust should aim to protect.
That does not give incumbents a pass to buy emerging rivals. But it does mean that the government should have to establish lasting harm that outweighs a merger’s benefits, rather than infer harm from size alone. Research on innovation competition in merger policy shows why a potential rival need not already sell a competing product for its assets, know-how, or credible path into the market to nonetheless make it a meaningful competitive threat in the future.
No School Has a Monopoly on Good Ideas
This dynamic approach draws from several schools of antitrust thought without fitting neatly into any of them.
Neo-Brandeisian scholars stress that markets operate within political institutions and that private power can matter in ways a short-term price test misses. Lina Khan’s “Amazon’s Antitrust Paradox” presses that point. But size, vertical integration, and harm to rivals cannot stand in for evidence of harm to competition. Simple structural rules are especially unreliable in industries where a service becomes more valuable as users join, innovation moves quickly, and firms combine assets that work better together. Khan’s challenge deserves a serious answer grounded in evidence.
The traditional Chicago School, associated with Robert Bork and later analysis of enforcement mistakes, focuses on consumer welfare, output, and rules that courts can apply consistently. The dynamic approach I advocate here shares the Chicago School’s concern about speculative intervention. But it puts more weight on innovation, firms’ capabilities, what they learn by doing, and effects beyond the market under review. Those effects do not always show up promptly in prices or output. The result extends the consumer-welfare tradition to account for how competition develops over time.
Post-Chicago scholarship offers models of strategic exclusion, tactics that raise rivals’ costs, and competition when firms and customers lack complete information. These models can expose real harm. They can also generate several plausible stories about the same conduct. Can a court reliably tell which story describes the market? Do agencies have incentives to sound more certain than the evidence allows? Those are questions of institutional judgment, not indifference to harm. The dynamic approach favors room for firms to experiment, backed by legal rules against demonstrable coercion and exclusion.
Enforce the Law. Leave Room for Tomorrow.
A dynamic antitrust framework would seek to discipline enforcement, rather than abolish it. Government-created barriers deserve a central place in competition policy because the law can make them especially hard to dislodge. Against private firms, enforcers should pursue cartels and clear cases of exclusion vigorously, while demanding persuasive evidence before condemning integration, innovation, or corporate reorganization. They should ask what future rivals and capabilities an intervention might foreclose just as much as they focus on what today’s market shares reveal.
The result is neither industrial planning nor institutional neglect. The aim is to protect the conditions in which rivalry can develop. Markets are imperfect, but so are the remedies available to judges and agencies. Institutional humility calls for using coercive power against proven restraints while still leaving room for entrepreneurs to adjust and experiment. In the long run, competition can discover opportunities no regulator can reliably identify in advance.
