[IP] CEI's C:Spin - The Oracles of Antitrust: Prophecy of Heresy?
Delivered-To: dfarber+@xxxxxxxxxxxxxxxxxx
Date: Fri, 02 Apr 2004 15:14:44 -0500
From: Braden Cox <bcox@xxxxxxx>
Subject: CEI's C:Spin - The Oracles of Antitrust: Prophecy of Heresy?
To: farber@xxxxxxxxxxxxx
CEI C:\Spin
This issue: The Oracles of Antitrust: Prophecy or Heresy?
By
<http://cei.org/dyn/view_expert.cfm?expert=217&Submit2.x=6&Submit2.y=10>Braden
Cox
Technology Counsel
<http://cei.org/>Competitive Enterprise Institute
April 2, 2004
The prophecies of Antitrust have spoken. The Department of Justice filed a
<http://www.usdoj.gov/atr/cases/f202500/202587.htm>lawsuit in February to
block the proposed merger of enterprise application software makers Oracle
and PeopleSoft. This action is at odds with the realities of the
<http://www3.gartner.com/5_about/press_releases/pr18june2003a.jsp>market
for enterprise application software. Unfortunately, antitrust regulators,
as mere mortals, cannot predict the futureso their judgments often create
more harm than good, especially when applied to dynamic industries.
Antitrust law attempts to predict the effect of a merger upon future
economic performance. Such a prediction requires a vision of how specific
markets work, now and in the future. Fast-paced industries are complicating
the basic inquiry of merger analysis: are consumers better off as a result
of the merger or, on balance, are they harmed?
Divine Information
The mantra of the digital economy is that ?information wants to be free.?
Rapidly changing technologies and industry structures make it easy for data
to escape economic forecasts based on artificial, static models. Antitrust
authorities compensate for their lack of information by creating an
economic ?Polaroid moment? ? a low-tech snapshot of the market using
theoretical assumptions like ?perfect information? or ?zero transaction costs.?
Businesses do the same type of forecasting for sure. Mergers are like
marriages ? entered into with the belief they will yield positive benefits.
Sometimes both end up in messy divorces ? but, generally the parties
involved are best able to decide their fate. And antitrust review is an
institutional arrangement that provides the incentive for all of a firm?s
competitors to lobby regulators against a proposed merger. Too often
antitrust action has occurred to protect competitors from competing ?
straying from the law?s stated purpose to ensure consumer welfare. We have
seen PeopleSoft attempt to influence the full gamut of decision makers ?
DOJ, state attorneys general, and consumers.
Market Intervention
Businesses are also opportunistic in their motivations to merge. Mergers
can create a unified firm that provides some form of advantage over the
competition or their customers. But this is where dynamic and innovative
industries thrive. Any advantage possessed by the merged entity is
fleeting, as firms already in the market adapt and new firms enter to
compete. Firms know that it is not sensible to raise prices and attract
competitors who would otherwise be passive.
Innovation that derives from the response of customers and competitors to
the merged entity is rarely considered by antitrust authorities. Because it
involves many parties and even those that are potential market
participants, this ?market innovation? is harder for an economist to value
than the innovation or efficiencies coming from the merged firm itself. But
market innovation is the key to understanding a merger?s effects on
competition and consumers in the digital economy.
Imprecise Antitrust Dogma
Robert Bork?s The Antitrust Paradox and Richard Posner?s Antitrust Law have
helped explain that the real dangers of mergers are almost always
overstated. Efficiency gains benefit consumers, and often a merged entity
can better serve consumers. This law and economics analysis has positively
influenced the intellectual tools of current antitrust action. Still,
antitrust authorities assume that they can accurately predict the future,
despite the disclaimer in the
<http://www.usdoj.gov/atr/public/guidelines/horiz_book/hmg1.html>merger
guidelines of the DOJ and FTC that ?information is often incomplete
and?historical evidence may provide an incomplete answer to the
forward-looking inquiry of the Guidelines.? Merger prognostication often
speaks in such uncertain terms ? leaving it up to lengthy and expensive
judicial proceedings to resolve antitrust issues. A merger delayed is often
consumer welfare denied.
Efficiency and innovation are the hallmarks of the high tech world, yet
antitrust law does a poor job at valuing these significant life-enhancing
characteristics. At a recent merger workshop jointly held by the FTC and
DOJ, many participants questioned how to consider a merger?s positive
efficiency and innovation gains. Until we receive a good answer from the
regulators, there is no antitrust oracle that can prophesy merger effects
in a dynamic digital economy.
C:\SPIN is produced by the Competitive Enterprise Institute
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