Antitrust: Beyond pricing
Let me direct you attention to a site called Anitrust Review, written by four policy analysts, which explores various aspects of antitrust. One of the editors, Hanno Kaiser, recently wrote "An Attempt at Defining the Core Concepts of Antitrust," a readable definition of "what antitrust is all about."
The basic definition is succinct:
At its most basic level, antitrust is concerned with consumers being overcharged by businesses that are both "big and bad." To put it somewhat more technically: Antitrust is concerned with consumers being charged supra-competitive prices by firms that through anticompetitive conduct, collusive or exclusionary in nature, create, maintain or enhance some significant measure of market power.
Market power he defines as "a measure of a firm's ability to profitably charge prices above the competitive level for a sustained period of time." In other words, the ability to set prices in a market is often a function of its market share.
"Anticompetitive conduct is (i) aimed at increasing market power by (ii) reducing competitive options (iii) through means other than increased efficiency." In other words, building a better product is not anti-competitive, even if it hurts other companies and even if you can raise prices for the improved product,
"Anticompetitive conduct comes in two flavors, collusive and exclusionary." Collusive behavior is a cartel, exclusionary means driving other firms out of business.
Kudos to Kaiser for lucidly and, I believe, accurately explaining the basis for antitrust law. But I would argue that this definition of antitrust is too limited to deal with the current oligopoly problem.
As we've stated before on this site, prices are only the crudest way in which oligopolies use their market power. Actual cartels often get caught and the threat of price hikes generally gets antirust machinery in gear. There are several other ways in which oligopolies make use of their power beyond pricing.
- They can force lower costs in terms of suppliers and workers who have no where else to sell their goods and services to while keeping prices stable, even low (oligopsony).
- They can engineer government actions (contracts, lowered taxes, loans. Changed regulations, lax enforcement) in such a way as to maximize profit at the expense of taxpayers
- They can redefine the thinking of consumers about what choices are available and what constitutes value. (The clearest example is the way in which Coke and Pepsi have redefined the bottled water market in the US.)
- They can use market power to exclude, threaten, undermine, buy out, and steal from underfunded innovators.
In this way, oligopolies with market power can cause damage in the economy in ways that do not increase prices substantially, at least not on the most obvious level. Wal-Mart. McDonalds and Dell offer prices that are substantially lower than one might expect. Even ExxonMobil, Nestle, and Toyota offer prices that have gone up mostly in keeping with basic commodity prices. Where these companies and other companies are more likely to make money is in terms of the four areas notes above.
