SOURCE: Center for American Progress
David Balto, Senior Fellow at the Center for American Progress Action Fund.
CAP Action Senior Fellow David Balto Testifies Before the Senate Judiciary Committee. Read the full testimony. (CAP Action)
I am providing this testimony so the committee recognizes the significant challenges that the next Assistant Attorney General and the Antitrust Division face. Antitrust enforcement is the cornerstone to a competitive marketplace and when that enforcement is docile or misdirected consumers will suffer. Unfortunately, during the past administration the Antitrust Division embraced a minimalist course, largely trying to reduce the scope of enforcement and the use of antitrust in private litigation. This minimalist approach was based in significant part on the “Chicago School” theory that antitrust enforcement more often makes mistakes and markets almost always lead to the best result. When there are abuses by firms that use market power to exclude competition, Chicago School proponents argue, the market will self-correct because market power is temporary and entry barriers are minimal.
Even if this belief had some theoretical support, recent changes in the economy have severely undermined its proscriptive value. This belief in the near-perfect market was severely shattered by the economic downturn. The assumptions that markets are self correcting and regulation is inferior have fallen to the wayside. As Republican FTC Commissioner Tom Rosch said in a recent speech “if not dead [the Chicago School] is on life support…. [M]arkets are not perfect; imperfect markets do not always correct themselves; and business people do not always behave rationally.”
The facts of the minimalist approach to enforcement need to be clear. Over the past eight years, the division brought no enforcement actions against dominant firms; it went more than five years without bringing a merger challenge in federal court; it adopted an amicus program that sought almost exclusively to narrow the scope of antitrust law; and it adopted an unnecessarily adversarial attitude toward other enforcement officials, especially its sister antitrust agency, the FTC. [2] The results in many markets are not surprising. A lack of merger enforcement has led to oligopolistic market structures which foster coordination, higher prices, and diminished services. Moreover, the lack of merger enforcement has created many entities that are “too big to fail” and thus, candidates for government bailout. A lack of dominant firm enforcement has led to less innovation and economic growth. The general lack of enforcement may lead business to believe the cop has left the beat, perhaps leading to greater efforts at coordination and price fixing as well as predatory conduct.
That has to change. The economic downturn makes competition enforcement even more vital as consumers have suffered from higher prices, lower output, and fewer services in increasingly concentrated markets. Lax antitrust enforcement has weakened the economy as markets have become more concentrated, leading to higher prices and less service.
What are the key challenges for the new head of the Antitrust Division?
CAP Action Senior Fellow David Balto Testifies Before the Senate Judiciary Committee. Read the full testimony. (CAP Action)