The Stigler Center for the Study of the Economy and the State hosted its annual antitrust and competition conference in late April. The following is a transcript of Nobel Laureate Oliver Hart’s interview with ProMarket Managing Editor Brooke Fox.
Brooke Fox
Oliver, you are a Nobel Prize winning economist. And I am dying for you to end the suspense on your take on the consumer welfare standard and whether you think we should or should not continue to use it in evaluating antitrust cases?
00:24
Oliver Hart
Well, not an easy question, because there seems to be a lot of ambiguity about what the standard is. And as someone who’s a bit of an outsider to the field, I’m a little confused. But to me, as an economist, the only thing that really makes sense is some version of consumer plus producer surplus. So, not just looking at the impact on consumers, but also if there are big efficiency gains, then those should be taken into account as well, in principle. So you really would sum the two, as opposed to just looking at the consumer side. So I think that makes sense as an economic standard. Maybe you’d put some more weight on the consumers than the producers. You know, the producers, also the shareholders, shareholders are people too. And some of them are consumers. And so I don’t think it really makes sense just to focus on the impact on consumers.
Having said that, what I’m going to argue in my talk tomorrow is that after many, many years of work by a number of people trying to figure out what the efficiency gains from mergers are, I don’t think we’ve really nailed it. So I think there’s still, we have some theories about what you can do within a company that you can’t do between two companies by contract, but I don’t think those theories have very strong foundations. So my view currently is that it’s just not clear why two companies need to merge, in order to achieve efficiencies, I think they could often do it in another way. We could be talking about horizontal mergers, we could be talking about vertical mergers. And so given that we really don’t have a clear view as to why they have to carry out the transaction to do this, I would say that then the impact, although I started off by saying one should look at the impact on consumers and producers, maybe the producer impact is really zero. They could achieve it another way. And so perhaps we should be more suspicious of mergers that we have been.
02:59
Brooke Fox
How far do you take that? If ,in this thought experiment, perhaps we say no more mergers? You know, how far? We were just in a panel on stealth mergers, or stealth acquisitions. How deeply do you take, like, a startup wanting to be acquired? Would you say, “Let’s disallow that?”
Oliver Hart
No, right, that probably is going too far. Because if we’re talking about small companies, or one big company and a small company, and it’s not one of the situations that was being described in that panel, where what’s going to happen is the big companies going to kill the product of the small company. There are going to be some cases, no doubt, which are quite benign and there’s no serious anti-competitive concern. And then, you know, I don’t think there’s… Probably many of them wouldn’t even come to the attention of the antitrust authorities. So yeah, it would be going too far to say we ban all mergers.
But I think whenever there is some concern about anti-competitive effects, then I think we should require the companies to make the case, why the merger is going to achieve efficiencies that they could not achieve in another way, including by contract. So the burden would be on them, as opposed to right now, as I understand it. And I’m an outsider so maybe I’m not understanding it properly. But it seems that the efficiencies are sort of assumed to be there somewhere. And so I’m just saying, prove that they’re there. Prove that that you have to, the only way you can get them is this way.
And by the way, the panel that you alluded to, I think Florian Ederer said at some point it wasn’t clear to him what efficiencies there were. So he’s sort of, in a way, I’m saying something which is quite consistent with what he’s saying. He’s pretty suspicious of these deals.
Brooke Fox
It’s sort of surprising to me that we haven’t tested this, or that economists or academics haven’t tested this empirically to answer the exact question that you’re posing. What are the efficiencies?
Oliver Hart
Well, it’s remarkable. I think that it’s, both theoretically and empirically, it’s all just rather vague. Nothing’s nailed down, really. One of the problems is also, with testing, is that sometimes the parties may attempt to do something contractually, and it may fail. But I don’t think we really know whether that’s because it was doomed to fail, or whether perhaps they just wrote a bad contract, and they could have really done better. And I think also, one of the things I’m going to talk about tomorrow is that contracting technology has improved. So maybe things that were harder to do by contract in the past can now be done.
Brooke Fox
This is some of your previous work has been on contracting. Right? That’s where you contributed.
Oliver Hart
Yes, yes. But I was trying to, in my previous work, I was assuming that there must be some clear benefits and costs to integration. And I was trying to understand at the formal level what they were to develop a theory along those lines. But even though I spent a lot of time on it, I’ve now sort of somewhat changed my view. I’m wondering, well, maybe the reason it’s so hard to pin these things down is that they’re not really there.
06:48
Brooke Fox
I have to end on that. That is the best.
Oliver Hart
Shocking, yes. A bit shocking.
Brooke Fox
That is quite eyebrow raising.
Oliver Hart
Yeah, I’m sort of destroying myself. I’m destroying my earlier work to some extent.
Brooke Fox
No, it’s fantastic. Thank you so much for taking the time.
