Antitrust Basics: Regulatory Uncertainty

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.

For more, see Wayne Crews’ and my study, “The Case against Antitrust Law: Ten Areas Where Antitrust Policy Can Move on from the Smokestack Era.” Further resources are at


Stephen Greenblatt – The Swerve: How the World Became Modern

Stephen Greenblatt – The Swerve: How the World Became Modern

This book-about-a-book is a colorful history of Lucretius’ On the Nature of Things with the larger purpose of shedding light on the origins of modernity. Lucretius argued for a materialist view of science and philosophy that has far more in common with modern thought than with early Christian doctrine.

Perhaps not coincidentally, On the Nature of Things was nearly lost for nearly a millennium. During this long post-Roman dormant period, Lucretius was occasionally copied by monks and forgotten by the secular public. But a nascent humanist movement led to a growing number of book-hunters interested in finding and reviving old texts.

This movement eventually became the Renaissance, and Lucretius was unknowingly one of its leading intellectual inspirations. As far as afterlives go, Lucretius has had a good one.

Greenblatt writes well, and his accounts of the early humanist bookhunters and their interactions with disinterested monks in their monasteries are particularly vivid, though the contrast between the two camps was probably not quite as dramatic as he portrays it. He also has a good eye for the big picture, and traces the arc of Lucretius’ influence over an impossibly long timeframe. If you ever doubt the power of books, Greenblatt puts up a strong affirmative case.

The Swerve would pair well with Christpher Krebs’ similar but rather darker A Most Dangerous Book: Tacitus’s Germania from the Roman Empire to the Third Reich.

James S.A. Corey – Tiamat’s Wrath: The Expanse, Book 8

James S.A. Corey – Tiamat’s Wrath: The Expanse, Book 8

This book’s theme is hubris. Though the book’s universe and most of the characters are secular, it has an underlying tone of angering the gods. The totalitarian Laconian regime is continuing to consolidate its rule over the entire 1,300-world ring gate system, and the main characters are continuing a small underground resistance in ways reminiscent of dissenters under Stalin and Hitler. But High Consul Duarte, in his hubris, attempts to wake up the forces that destroyed the civilization that destroyed the protomolecule’s long-gone creators. It goes about as well as one would expect.

There is also a bit of game theory involving the prisoner’s dilemma game. Duarte’s misuse of it results in a spectacular mistake about a third of the way into the book, and at least two facepalms from this reader. The book ends on a rather large cliffhanger, presumably to be resolved in the series-concluding book 9, which will likely come out in 2020.

Neil Gaiman – Neverwhere: A Novel

Neil Gaiman – Neverwhere: A Novel

Heavy on the atmosphere. I imagine this book was written with a film adaptation in mind. The plot is a typical ordinary-guy-goes-on-magical-quest story. Most of the book takes place in London Below, an alternate-reality version of London where the protagonist sees strange sights, meets strange people, and to his surprise, finds himself much happier than in his ordinary life. The imagery is dreamlike, with characters and settings somewhat disjointed and not always wholly making sense. Something about it evoked in this reader’s imagination a poorly lit, musty-smelling place, with recently rained-on worn brick buildings framing dirty, potholed streets, in a perpetual night punctuated here and there with dim blue, red, and yellow neon lights. The characters and story are far less memorable than this sort of imagery and feeling Gaiman evokes. A good cinematographer with the right sensibilities could have a field day recreating London Below.

Antitrust Basics: Rule of Reason Standard vs. Consumer Welfare Standard

Regulators have used two different standards to judge antitrust cases over the last century or so: the “rule of reason” standard and the “consumer welfare” standard. This post will briefly introduce them both.

The rule of reason standard was used for most of antitrust regulation’s history. It heavily relies on a judge’s discretion—whatever they think is reasonable is the rule. This usually, but not always, contains an implicit big-is-bad ideological bent. The rule of reason standard is less well defined than both the preponderance of evidence standard used in most civil cases and the reasonable doubt standard used in criminal cases. It also gives weaker protections to defendants.

The consumer welfare standard slowly replaced the rule of reason starting in the 1970s, and gained mainstream acceptance by the 1980s. Under the consumer welfare standard, big is OK, so long as no consumers are harmed. This stricter standard has resulted in fewer antitrust prosecutions, and nearly two decades since the last landmark case, which ended in a draw against Microsoft.

In the current populist moment, the pendulum is swinging away from the consumer welfare standard and back towards the old reason of rule standard.

Supreme Court Justice Louis Brandeis is one the intellectual fathers of the rule of reason standard. In 1911, during testimony before the Senate Committee on Interstate Commerce, Brandeis said, “I have considered and do consider, that the proposition that mere bigness can not be an offense against society is false, because I believe that our society, which rests upon democracy, cannot endure under such conditions.”

This feeling that size itself should a prosecutable offense ebbed and flowed over the decades, giving antitrust enforcement a distinct uncertainty and lack of clarity during the rule of reason era. In fact, during the New Deal, President Franklin Roosevelt reversed course almost completely, and wanted the government to actively encourage business cartels. After World War II, the old rule of reason standard resumed. Enforcement peaked in the early 1960s, then gradually receded.

During the rule of reason era, a company could never be quite sure if it was violating the law or not. An acceptable practice one year might not be if power changes hands in the next election, or if a new judge rules differently on a case than his predecessor would have.

Antitrust regulation had long been dominated by lawyers. Economists dating back to Adam Smith believed that monopolies were unsustainable without government help, with real-life examples limited to the Dutch East India Company and similar government-backed enterprises. If a company raises prices, another company can make a nice profit by undercutting it. If companies collude to restrict output to raise prices, the temptation to cheat is too strong to resist, and the cartel collapses on its own. As such, on-the-ground antitrust policy was of limited interest to economists. For them, this rarity was mostly a theoretical construct that existed in blackboard models.

Justice Department and Federal Trade Commission lawyers resented economists and their analysis both for ideological reasons and the fact that economic analysis, if consistently applied to antitrust law, would put most antitrust lawyers out of a job. After Arthur C. Pigou’s 1920 book “The Economics of Welfare” came out, welfare economics became all the rage. In this subfield, economists weigh a policy’s costs and benefits to the welfare of everyone involved and judge it accordingly. A welfare economist looking at antitrust isn’t going to care one way or the other about a company’s size. The question he is looking at is, does the current market structure benefit consumers or not? This approach led to the coining of the consumer welfare standard sometime in the 1960s.

By this time, a growing law and economics movement began to apply economic reasoning and methodology to antitrust regulation. A few economists were even able to get jobs at the Justice Department and Federal Ttrade Commission, though they likely won few popularity contests at first.

The new law and economics movement was at first largely centered at the University of Chicago, though law and economics departments now exist at most major universities. Early Chicago figures such as Ronald Coase, Aaron Director, and Frank Knight influenced a new generation of competition scholars who made the consumer welfare standard the mainstream practice in antitrust law. These scholars include Richard Posner, George Stigler, Yale Brozen, Robert Bork, Harold Demsetz, and Sam Peltzman, among others.

The most famous defense of the consumer welfare standard remains Robert Bork’s 1978 book “The Antitrust Paradox,” which was one of the first major law books to heavily incorporate economic analysis.

As the consumer welfare standard slowly and informally supplanted the rule of reason standard, antitrust activity greatly slowed. In 1981, the federal government dropped a 13-year long antitrust case against IBM after more than a decade of technological advancement and market competition rendered the case moot. In 1984, the government broke up the AT&T monopoly it had previously enforced, and the last hurrah for old school antitrust came with the Microsoft case, which ended with a settlement mostly in Microsoft’s favor. Since then, some mergers have been blocked, but always on consumer welfare grounds rather than the fear of bigness that had motivated Justice Brandeis.

Contrary to stereotype, most advocates of the consumer welfare standard do not oppose antitrust law. Even Robert Bork defends antitrust enforcement, arguing on p. 311 of “The Antitrust Paradox” that “Antitrust is valuable because in some cases it can achieve results more rapidly than can market forces. We need not suffer losses while waiting for the market to erode cartels and monopolistic mergers.”

This ignores both knowledge problems and public choice-style incentive problems facing regulators, as numerous scholars have noted. The best antitrust policy is no antitrust policy. But so long as antitrust regulations remain on the books, it is best to rein in their harm as much as possible with a strict consumer welfare standard for enforcement.

For more, see Wayne Crews’ and my paper, “The Case against Antitrust Law: Ten Areas Where Antitrust Policy Can Move on from the Smokestack Era.” Further resources are at

This Week in Ridiculous Regulations

It was a four-day week for the federal government as the nation celebrated Independence Day. Meanwhile, agencies published new regulations ranging from the Paper and Packaging Board to claiming mines.

On to the data:

  • Last week, 73 new final regulations were published in the Federal Register, same as the previous week.
  • That’s the equivalent of a new regulation every 2 hours and 20 minutes.
  • Federal agencies have issued 1,433 final regulations in 2019. At that pace, there will be 2,778 new final regulations. Last year’s total was 3,367 regulations.
  • Last week, agencies published 340 notices, for a total of 11,174 in 2019. At that pace, there will be 21,668 new notices this year. Last year’s total was 21,656.
  • Last week, 1,084 new pages were added to the Federal Register, after 1,799 pages the previous week.
  • The 2019 Federal Register totals 32,253 pages. It is on pace for 62,506 pages. The 2018 total was 68,082 pages. The all-time record adjusted page count (which subtracts skips, jumps, and blank pages) is 96,994, set in 2016.
  • Rules are called “economically significant” if they have costs of $100 million or more in a given year. One such rule has been published this year. Six such rules were published in 2018.
  • The running compliance cost tally for 2019’s economically significant regulations currently ranges from $139.1 million to $175.8 million. The 2018 total ranges from $220.1 million to $2.54 billion, depending on discount rates and other assumptions.
  • Agencies have published 35 final rules meeting the broader definition of “significant” so far this year. 2018’s total was 108 significant final rules.
  • So far in 2019, 248 new rules affect small businesses; 13 of them are classified as significant. 2018’s totals were 660 rules affecting small businesses, with 29 of them significant.

Highlights from last week’s new final regulations:

For more data, see “Ten Thousand Commandments” and follow @10KC and @RegoftheDay on Twitter.

Mark Miodownik – Liquid Rules: The Delightful and Dangerous Substances That Flow Through Our Lives

Mark Miodownik – Liquid Rules: The Delightful and Dangerous Substances That Flow Through Our Lives

The follow up to Miodownik’s delightful Stuff Matters, which is about solids. That book was my introduction to materials science, which as it turns out is darn interesting. Liquid Rules adds liquid materials to the picture. Miodownik has an academic background, but is an excellent popular writer. For this book, he uses the narrative device of a plane ride to segue from liquid to liquid, and to give the reader frequent short breaks from scientific explanations and the occasional molecular diagram. Various chapters cover water, gasoline, coffee, chocolate, wine, glues, ink, magma, and more. Hopefully Midownik will complete the trilogy with a book on gases.