The U.S. Forgot What Antitrust Is For
Laws meant to curb corporate power and greed are—in the hands of the Trump administration and a conservative Supreme Court—being used against the public good instead.
During the summer of 1968, the African American citizens of Claiborne County, Mississippi, had finally had enough. Fed up with the endless indignities of Jim Crow, they banded together to boycott local white-owned merchants. The merchants chose an unusual response: They filed an antitrust lawsuit that accused more than 100 individuals, as well as the NAACP, of trying to quash competition between black and white businesses. In essence, the boycotted merchants were depicting collective political action as a garden-variety price-fixing cartel.
Although the merchants won in a lower court, the U.S. Supreme Court unanimously rejected their claims—and for good reason. Antitrust laws were meant to target corporate power and greed. If you squint hard enough, a political boycott may look a bit like a cartel. But antitrust has always made room for altruistic behavior. Antitrust law has even allowed self-interested agreements among companies in the same industry, if their intent was to help the overall market function better.
In other words, the law historically kept its eyes open to the reality of a complicated world. Agreements among marketplace actors are sometimes harmful—but they can also be a powerful force for progress and good.
Today, however, a strange myopia has seized judges and antitrust enforcers. As a result, the law has turned a blind eye to harmful conduct. And now, in a final irony, it is threatening to condemn responsible corporate citizenship.
President Donald Trump’s Justice Department has reportedly launched an antitrust investigation into four automakers—Ford, Honda, BMW, and Volkswagen. Their supposed offense? Agreeing with one another, and with the state of California, to develop vehicles that are more fuel-efficient and have lower emissions than federal standards require. This is a noble goal. As any introductory economics textbook explains, pollution is a classic example of market failure. The problem arises from a negative externality: When cars emit carbon, all of us—not just buyers and sellers of cars—bear the costs.
The automakers’ agreement, which seeks to reduce that externality, is the exact opposite of selfish behavior: It is likely to increase the automakers’ own costs, rather than their profits. In short, this is a very strange choice of target for an antitrust-enforcement agency. But the Trump administration is keen on lowering federal environmental standards—apparently even to the point of targeting companies that are willing to hold themselves to higher ones.
While some companies are at risk of being punished for fighting pollution, others are getting a pass despite creating a negative externality. The conservative wing of the Supreme Court recently did just that in Ohio v. American Express. The genesis of the case was an Obama-administration lawsuit against American Express targeting certain rules in the credit-card giant’s contracts with business owners. Under those rules, businesses cannot tell their customers how big a cut Amex takes from each purchase, nor can they offer a discount to shoppers who use less expensive cards. The rules obviously harm merchants, especially small businesses.
But one of their most pernicious effects stems from a negative externality. Because businesses cannot signal to their customers which payment options are more expensive, they are forced to raise prices across the board to make up for Amex’s high fees. Those fees partially pad Amex’s bottom line, but they also help fund lavish reward-points programs for its cardholders—a relatively wealthy group. As a result, everyday consumers who buy necessities with cash or food stamps end up subsidizing free first-class flights and four-star hotel stays for Amex cardholders. The Supreme Court’s conservative justices decided this scheme is actually good because it helps Amex attract cardholders—and they simply ignored the harmful spillover effects on the rest of society.
How did antitrust enforcement become such a mockery of itself?
Some 40-odd years ago, theorists in the antitrust field began a long-running love affair with neoclassical economics—and particularly a curious tool known as “partial-equilibrium analysis.” To apply it, you first define a single, narrow market. Then you ignore everything else. Partial-equilibrium modeling is more or less just a convenient way to ignore the complexities of reality. Spillover effects, altruistic motivations—all become irrelevant. All you need to know is whether prices for consumers have gone up, or output down.
This narrow scope of analysis helps explain seemingly bizarre developments like the American Express case and the automaker-emissions probe. If all that matters is the market for high-end credit cards, then harm to food-stamp users becomes irrelevant. And if all that matters is whether car prices might go up, an agreement to build lower-emissions vehicles starts to look suspicious—despite the fact that it could literally help save the world.
Antitrust law once distinguished harmful restraints of trade from agreements that benefit society. Today, it turns a blind eye to harm while seeming determined to leave no good deed unpunished. We need a return to our roots. Antitrust laws were intended to prevent monopolies from enriching themselves at the public’s expense. When those laws are instead used to prevent cleaner air and defend rules that force the poor to fund perks for the wealthy, a change is needed.
Thankfully, the laws themselves don’t need to be amended. We simply need judges who will apply antitrust law as it was intended to be applied. And we need regulators who will challenge truly anticompetitive conduct, yet use common-sense prosecutorial discretion to allow beneficial agreements.