In contrast to a recent paper that argues the decline in antitrust enforcement over recent decades is due largely to the political influence of big business, Herbert Hovenkamp argues that small businesses and trade associations have historically had more influence over antitrust policy, often lobbying for less competition and higher prices.
In their recent Antitrust Law Journal article, Filippo Lancieri, Eric Posner, and Luigi Zingales (“LPZ”) explore why antitrust policy is less aggressive today than two generations ago. They argue that academic thought, such as the rise of the Chicago School, has had relatively little influence, which will surprise its critics. Nor does the decline respond to changes in public opinion, as most of the decisions leading to the decline were made by judges or other unelected officials, and much of it was not transparent to the public. Rather, the authors argue that an important cause of antitrust’s decline has been the political influence of “big business.” Further, while the arguments for reduced antitrust enforcement were articulated as promotion of economic growth, it has not succeeded in producing that result.
The LPZ article should be read as a contribution to a many-decades-long broader literature on who controls policy decisions in a complex democratic society. This debate occasionally includes antitrust policy. Debating the policy impact of diverse democratic pressures, including interest groups and lobbying, legislation, judicial decision-making and popular voting, will likely continue without end. One recent study suggests that experts and interest groups have roughly equal influence over policy, but that the opinions of ordinary citizens carry little weight. Another concludes that there is no empirical support for a link between lobbying and big business concentration. In all events, placing too much weight on any single group or institution is dangerous. LPZ hope to provide a rough metric for weighing these influences in antitrust policy.
LPZ also assume that a discernible cause-effect relationship exists between antitrust enforcement and the health of the economy. In their view, the decline in antitrust enforcement has contributed to a decline in economic performance. More likely, however, “cause” and “effect” are reversed. There is in fact little evidence that antitrust policy has affected economic growth significantly in either direction. Rather, antitrust policy reflects attitudes about the state of the economy at the time. For example, New Deal assessments that markets were functioning poorly led to ramped up antitrust enforcement, while the 1980s neoliberal assumptions of regulation run amok and markets triumphant led to less antitrust enforcement.
LPZ thoroughly document that antitrust enforcement has declined by several measures, that the public does not like big business, and that legislative and executive movements to expand antitrust are politically popular. However, the polls also indicate that highest on the list of the public’s economic concerns is high prices or inflation, whether generally or for specific items such as health care or groceries. Indeed, polls reflecting Americans’ attitudes toward economic issues generally list things having to do with prices at the top, and don’t even mention “big business” as such.
Further, the polling data say little about comparative willingness to pay. Assuming big business produces lower prices and wages, how much would you be willing to pay for a regime in which small business was more dominant? Here, however, we have something that is more reliable than polling data: consumer behavior. Chain stores that deliver lower prices and higher quality steal consumer traffic from smaller stores. For example, whatever the Robinson-Patman Act may have accomplished, its intent was not to give shoppers what they wanted but rather to insulate smaller sellers from consumer choice. Here, consumer statements in opinion polls and their actual shopping behavior often read inconsistently.
One good metric for evaluating antitrust rules is their effect on output or prices in affected markets. While effects on the macroeconomy are small, a good antitrust rule should promote competitive output in the market to which it is applied. When diagrammed, antitrust policy’s success in achieving these results displays as an inverted U-shaped distribution: too little enforcement results in lower output and higher prices because it leaves too much monopoly and collusion unchallenged. Too much antitrust also results in lower output and higher prices, however, because it interferes with output increasing structures and practices. The spot at the top of the “∩” is where output is largest and prices lowest. More antitrust is not always better.
Antitrust lore is filled with accounts of legislative and judicial reactions to interest group initiatives. LPZ lay most of the blame for declining antitrust enforcement on “big business” as an interest group but barely mention trade and professional associations. Over antitrust history and even today, these have had a far more visible influence on antitrust policy than have big business as such. The distinction is not “pure,” because trade associations can include large firms as members. Further, trade associations are more easily reachable under the antitrust laws because they are typically pursued as cartels under Section 1 of the Sherman Act. By contrast, if “big business” is acting unilaterally, antitrust remedies are largely limited to monopolization under Section 2 of the Sherman Act.
Nevertheless, a robust history shows that interest groups made up of relatively small actors used their collective power to hinder rather than promote competition. A big supporter of the Sherman Act was farmers who were attacking the railroads, even though these had seriously reduced the costs of transportation. The early twentieth-century movement favoring resale price maintenance was engineered by the National Wholesale Druggists Association, a trade group of small druggists seeking protection from lower prices charged by larger druggists. When the Supreme Court resisted that move, lobbying began to Congress. It responded with the Miller-Tydings Act, permitting states to enforce RPM agreements within their borders. Over the next 40 years, the balance of large and small retailers shifted toward the larger ones, reflecting consumer preference. In 1975 Congress responded with the Consumer Goods Pricing Act, which eliminated the exemption. The entire multi-decade history of resale price maintenance reveals a conflict between small business trade associations lobbying Congress for higher prices while larger businesses lobbied it to permit lower ones. In this case the interests in economic growth (as measured by output) aligned with the larger sellers.
An even better known dispute over prices was the one involving the Wholesale Grocers Association, which lobbied Congress and obtained the 1936 Robinson-Patman Act. The Act’s intent was to protect small retailers from larger firms who charged lower prices. Indeed, the General Counsel of that trade association drafted the Bill, which was part of an aggressive Congressional “death sentence” agenda to kill off chain stores. In later decades as the social costs of the Robinson-Patman Act became more apparent, the Supreme Court began to dial back so as to make it more consistent with the broader policies of the antitrust laws. The story parallels the one for resale price maintenance: overwhelmingly, American consumers preferred the convenience and pricing of larger stores, and the RPA attempted to hinder that choice. The Act’s lack of market power or competitive harm requirements effectively turned it into a tort provision that favored higher cost producers over consumers. It produced enormous litigation costs in a largely unsuccessful effort to head off the supermarket revolution.
Another example is the Eisenhower administration and the Brown Shoe era, an age of antitrust expansion that tracked the expanding political power of small business. The Small Business Administration was founded in 1953 as part of an Eisenhower-led effort to promote smaller firms. The SBA’s own efforts were largely directed to providing financing and other support to small businesses. Antitrust policy assumed a very different role, however: aiding small businesses by hobbling larger firms. Following the 1962 Brown Shoe decision, which condemned a merger because its lower costs harmed smaller rivals, the lower courts embarked on a two decade policy of condemning mergers that enabled technical improvements or more effective distribution, simply because they injured smaller firms who were not able to take advantage of the same advances. Other decisions of the era condemned output expanding joint ventures and even efforts by suppliers to limit the markups charged by their dealers.
Finally, consider antitrust’s “state action” doctrine, where hundreds of antitrust decisions have addressed the efforts of business firms of all sizes seeking to use state law to protect themselves from competition. The original 1943 decision, Parker v. Brown, reflected efforts by an agricultural association to create a state-sanctioned cartel of California-grown raisins. Subsequent decisions reflected the efforts of many trade and professional associations of small producers seeking to avoid antitrust liability for cartels, boycotts, or generally cost-increasing regulatory practices that exclude rivals.Recently, organized cartels of automobile dealers have obtained state approval of rules that prohibit direct sales of automobiles, a cheaper method of distribution favored by Tesla.
The question “whom does antitrust protect” is a critical one. The best answer is that antitrust policy should seek to promote markets that function at maximum sustainable output and low prices. That goal favors lower cost technologies, higher rates of innovation, competitive choice, and ultimately high economic growth. It favors particular interest groups only to the extent that these groups benefit from higher output and lower prices. From that perspective, the history of the relationship between antitrust policy and interest groups has not been pretty, but big business is hardly the worst offender.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
