Antitrust laws are not enforced to the letter. They are a matter of regulators’ and judges’ discretion. If they were applied literally, every business transaction would be illegal:
- A company that sells a product at a lower price than competitors can be charged with predatory pricing.
- A company that sells a product for the same price as competitors can be charged with collusion.
- A company that sells a product at a higher price than competitors can be charged with abusing monopoly power.
This exhausts all pricing possibilities. Fortunately, antitrust laws are not enforced consistently, so ordinary businesses do not need to worry. With laws like these on the books, such discretion is a good thing. While regulations do not need to satisfy philosopher Immanuel Kant’s hyper-strict categorical imperative to be acceptable policy, antitrust regulation falls short of any reasonable standard of sound policy.
A century of case law has evolved some antitrust guidelines that companies can try to comply with. But judicial precedents can be overturned with no warning any time a new case is brought. There are few bright-line legislative or judicial standards for antitrust enforcement. Under the “rule of reason” standard that prevailed before the consumer welfare standard took over in the 1970s and 1980s, there were none. Antitrust enforcement is mostly guided by a mix of inconsistent judicial precedents, regulators’ personal discretion, and political factors unrelated to market competition; cases are not always chosen on the merits.
Even the mere threat of antitrust enforcement can have a preemptive chilling effect on innovation, attempts at new business strategies, and potential efficiency-enhancing arrangements. Uncertainty is the enemy of investment. In the long run, this can have significant negative impacts on consumer welfare as fewer new products come to market, and companies seek fewer ways to lower prices.
Discretion does have a place in regulation. Written rules can’t possibly cover every situation, and they should have some flexibility to allow reasonable exceptions. But when an entire branch of law is based almost entirely on discretion, as in antitrust regulation, uncertainty reigns—with all the predictable negative consequences that come with regulatory uncertainty.