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ANTITRUST AND THE CONSUMER:
THE POLICY AND ITS CONSTITUENCY
Dr. H. Michael Mann*
It is sometimes said that an active antitrust policy makes only enemies and no friends. Such a commentary, if correct, may explain much of the criticism that antitrust is, for the most part, mired in matters which are inconsequential from the standpoint of invigorating the competitive process1 and has therefore generally failed the consumer by not eliminating persistent and serious monopolistic abuses. It is my judgment that the effectiveness of antitrust in protecting the consumer has fallen short for two reasons: (1) The law's emphasis on market conduct hinders its capacity to directly address the necessary conditions for economic power, dominance of a market by a few firms and difficult entry into that market and (2) whereas an antitrust attack is usually directed at a few in number, the benefits accruing from substantive antitrust action are widely dispersed over a large number of people.
Before expanding on these propositions, first consider some estimates of the costs of monopoly to our economy, the benefits to be had from the exercise of stronger competitive forces. It has been quite well established by empirical research that monopolistic pricing tends to occur in industries in which a handful of firms account for most of the output, particularly if it is difficult for new firms to enter the market. Associated with such pricing is restricted output in the sense that output for the industry is less than would be the case if many firms were producing in the industry. This means that there is additional potential output, the difference between the monopoly and the competitive output, which could be produced and which has a value to consumers in excess of the dollar value of the output which would be sacrificed by the shift of resources from other less-valued uses into the monopolized industry. The dollar value of that additional potential output is called the deadweight monopoly loss,2 the term "deadweight" being used because the dollar value is not captured by the monopolist in monopoly profits and is lost to consumers because of the monopolist's output restriction.
A variety of estimates have been made of this deadweight loss in the United States economy. Professor Scherer, for example, estimates it to be 1% of gross national product, or about $10 billion.3 These costs, though, are only part of the monopolists' bill. Among others are:
(1) Deficient cost control which arises because monopolists are not pressured by market forces, as are competitive firms, to avoid waste.4
(2) The higher costs of production which arise from monopolistic protection of excess capacity. Professor Adelman has estimated that such costs in the oil industry, for example, run in the neighborhood of $4 billion annually.5
(3) The excessive selling costs which seem to characterize certain highly concentrated industries. These arise because oligopolists frequently make large promotional expenditures, much of which are merely self-cancelling, in competing for market position.6 Thus more is spent than would be the case if a single-firm monopolist controlled the industry.
(4) The effect of monopolistic pricing in those products which businessmen sell to each other, i.e., producers' goods, is very serious because it influences the choice of production process by purchasing industries. For instance, a monopoly price for a piece of machinery is likely to lead purchasers to economize on such machinery and thereby risk using less efficient production processes. This will necessitate a higher product price, thus forcing changes in production processes further up the line. The result is a widespread influence on efficiency throughout the economy.
The sum of all these may run the toll to 6% of GNP, some $60 billion.7 This is clearly not an insubstantial amount. And these costs do not include the income loss to consumers which results from the holders of market power earning profits in excess of those needed to reward stockholders adequately for their investment.
There is, however, another very persuasive reason for a strong antitrust policy. Even if the economic costs of market power cited here are less than certain benefits which might flow from market power (and there exists no persuasive evidence, in my view, that this is the case),8 there is another powerful argument for constraining market power. In Carl Kaysen's words,9 "the power of corporate management is, in the political sense, irresponsible power, answerable ultimately only to itself. No matter how earnestly management strives to 'balance' interests in making its decisions--interests of stockholders, of employees, of customers, of the 'general public,' as well as the institutional interests of the enterprise--it is ultimately its own conception of these interests and their desirable relations that rules. When the exercise of choice is strongly constrained by competitive forces, and the power of decision of any particular management is narrow and proportioned to the immediate economic needs of the enterprise, the political question of the warrant of management authority and its proper scope does not arise." The case for antitrust, then, rests on more than economic benefits to the consumer. It limits discretionary power, the freedom to make decisions according to one's perceptions of what is "good" for society. In a society organized around the principle of consumer sovereignty, it is no small matter that producers be constrained from having the power to decide what is best for consumers.
That antitrust can accomplish more than it has in transmitting economic and political gains to the consumer is certain. Its failure to do so lies, as suggested above, in the roots of the law and in the fact that the beneficiaries are very large in number and unorganized, whereas the losers are typically few in number and well organized.
A look at the statutory language of the key sections of the Sherman Act, the Clayton Act, and the Federal Trade Commission Act quickly demonstrates that the emphasis of the law is on business behavior, the myriad of practices which businessmen can employ to hinder and to exclude competitors. Thus the courts have interpreted antitrust as being conduct-oriented, with the test of law violation being whether a particular practice injures one or more businessmen. The law's concern has not been with market power's "economic effects on the consuming public" but with the "complaints filed by affected business firms seeking protection of their own individual interests."10 The result is that industries which are highly concentrated have been persistently able to engage in noncompetitive behavior with little risk of a skirmish with the antitrust agencies. This anomaly exists because oligopolistic firms do not, as a general rule, need to resort to the familiar litany of antitrust violations to suppress competition, e.g., trade boycotts, price conspiracies, allocation of markets, exclusive dealing arrangements, and the like. Rather, tacit understandings are sufficient to coordinate their behavior and thus to preserve a stable, comfortable arrangement with respect to the permissible bounds of competitive conduct. Most antitrust activity, therefore, involves relatively unconcentrated industries,11 those in which direct efforts to thwart the competitive process are more likely but where, short of government sanction, the anticompetitive practices would probably not be sustainable for any significant period of time.
When oligopolistic firms do come under antitrust attack for the use of anticompetitive tactics, there is a serious doubt that the conventional remedies--cease and desist orders and, in criminal actions, fines--accomplish very much toward a restoration of competition. There are, it seems, an infinite variety of practices which businessmen can pursue to maintain the status quo even if one particular practice is found unlawful. It is certainly rare in antitrust history to find any major change in oligopolistic structure--and therefore in market performance--because one or more oligopolists have been found in violation of the antitrust laws.12 And this constricted, ability of the law to deal with oligopoly is not a matter of small moment. A high percentage, perhaps as high as 50%, of our manufacturing sector is accounted for by oligopolistic industries.13 Furthermore, this percentage has been very stable over time14 and the economic and political costs of the phenomenon are, as indicated above, substantial.
Although I have emphasized the law's difficulties in handling oligopoly, these obstacles are not insurmountable. The law is a flexible instrument and, where an oligopolistic structure is intertwined with conduct, direct action is possible. Only the will is needed. And here the necessity is to communicate to consumer groups that their efforts at obtaining protection for consumers should not overlook support for antitrust as a key to the maintenance of competitive markets, a fundamental form of protection for consumers.15 This message, unfortunately, is not easy to communicate because the benefits of antitrust action are, as noted, widely dispersed.
Most antitrust action escapes publicity because it appears to be the preserve of a group of lawyers and economists who argue endlessly, and often esoterically, about the intricacies of a particular case whose winning or losing would not appear to make much difference to the welfare of society. Yet, the stakes are, as I've already stressed, considerable. Some work done at the Commission by the Bureau of Economics in the area of planning the allocation of the Commission's antitrust resources suggests that the benefits to be derived from successful attempts to increase the degree of competition may, in certain industries, well exceed $100,000,000 each. This is some 5 times the FTC's budget. Still, if these particular estimates were summed for all industries for which the benefit is over $100,000,000, and then divided by the number of consumers of the products involved, the result would nonetheless be a small per capita gain. Thus it is difficult for the individual consumer to perceive the benefits from antitrust when the outcome of a successful action is likely to have such a small economic gain to him or her as an individual.
If consumers were to view benefits to them as a group, the impact would be much more impressive. But organizing consumers to focus attention upon the benefits of a more competitive economy is much more difficult than concentrating upon, for example, more manageable local or even state issues. What is needed is an increased consumer consciousness that the benefits of procompetitive policies are substantial, a task which is clearly worth the effort of the consumer organizations.
I've suggested that an effective antitrust policy could yield substantial economic benefits to the consumer and could, in addition, deny producers the more subtle power of deciding what is in the "best" interest of consumers. The law in its present state makes it difficult--but not impossible--to undermine the necessary conditions for economic power, namely, high market concentration, and high barriers to entry. The more serious hindrance is that antitrust's beneficiaries are very large in number whereas the holders of monopoly power are few. Unless the various consumer organizations can be persuaded to contribute some attention to the support of vigorous antitrust, including opposition to attempts to weaken the present scope of antitrust authority, it will remain an uneven contest. For no policy can be effective unless its constituency--its beneficiaries--give it their active support.
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NOTES
* Dr. Mann, Director of the FTC's Bureau of Economics in Washington, was formerly professor of economics at Boston College. The instant paper is the text of an address made by Dr. Mann to the Association of Masachusetts Consumers, Newton, Massachusetts (April 22, 1972). These remarks reflect his personal views and not necessarily the official views of the Federal Trade Commission.