Antitrust laws are a scam

[paulb]

paulb, you should see a professional about that. That was the most incoherent, rambling and idiotic and just plain bizarre post I have ever read on this forum, and that is quite an achievement. Wow!

Truth hurts now doesn't it.

[MishaK]

Truth hurts now doesn't it.

That's why you look so pained in your avatar, right?

Re: Truth, I'd be intersted to explore it if there were just one kernel of it in your psychotic post. You rant about how a company that controls over three quarters of a market and is owned by one of the richest men in the world and which produces shoddy software, is somehow being gravely mistreated by a supragovernmental entity, with one of the most advanced constitutions, consisting of representatives of some of the most democratic and transparent governments, who you nonetheless allege are puppets of some mysterious European superrich elite (who are they and how did they get so rich in Europe's tax environment? Jon Stephenson von Tetzchner who founded Opera, which filed the most recent complaint certainly doesn't qualify as superrich by any measure, certainly not as compared to Bill Gates). Sorry, no cigar. Back to elementary school for you. You lack basic reasoning skills.

[paulb]

That's why you look so pained in your avatar, right?

Re: Truth, I'd be intersted to explore it if there were just one kernel of it in your psychotic post. You rant about how a company that controls over three quarters of a market and is owned by one of the richest men in the world and which produces shoddy software, is somehow being gravely mistreated by a supragovernmental entity, with one of the most advanced constitutions, consisting of representatives of some of the most democratic and transparent governments, who you nonetheless allege are puppets of some mysterious European superrich elite (who are they and how did they get so rich in Europe's tax environment? Jon Stephenson von Tetzchner who founded Opera, which filed the most recent complaint certainly doesn't qualify as superrich by any measure, certainly not as compared to Bill Gates). Sorry, no cigar. Back to elementary school for you. You lack basic reasoning skills.

Look I knew what i was saying waht way over the top and have no expectations of having credibility for that "reasoning".
Its just my brash and daring tendency to tell things as i see it.

btw I wonder if this ugly action of the EU on Gates has something to do with his shadow. I recall reading some comments made by past business partners who were under that Iron Hammer of Gates extremely dominating , controlling personality.  Who knows maybe thats what it takes to develope a  mighty successful corp in the jungle where tigers and  bears roam. The old saying what goes around comes back around. Power complex is always confronted with power complex.

[BorisG]

What's a scam are all the paulb reviews. I know, I know, don't read them.

[bwv 1080]

(Blockbuster filed for bankruptcy the other day)

Blockbuster vs. the FTC (Keeping Future Competition Safe?)
Mises Daily: Wednesday, June 30, 2010 by S. M. Oliva



Five years ago, Federal Trade Commission staff lawyers threw a public temper tantrum, kicking and screaming until video store chain Blockbuster, Inc., abandoned its plans to purchase rival Hollywood Video. The FTC ran to a federal judge and complained that Blockbuster failed to provide enough information about the company's internal operations — in a merger "review," all a company's documents can be seized by FTC agents, as the Fourth Amendment magically disappears — and the agency needed more time to decide whether the proposed Blockbuster-Hollywood combination violated the antitrust laws. Blockbuster capitulated on that issue and ultimately abandoned the merger.

The FTC claimed victory on behalf of consumers — after all, if Blockbuster had purchased its top rival, it would have enjoyed "monopoly power" in the video-rental market and been able to raise prices and reduce services at will. Only strong antitrust regulation can protect competition in such vital markets. At least that's what the FTC said.

In defining a market as narrow as video-rental stores, the FTC excluded online rental services like Netflix and even larger retailers like Walmart. Antitrust requires static markets with a few easily identified competitors. Complexity is too messy for mediocre talents like government attorneys to manage. By defining the market as, say, three firms and only three firms, the regulators can apply simple mathematical tricks to prove the existence of "monopoly power," even if the true marketplace is heterogeneous and incapable of such rigid analysis.

It also helps when the third firm actively lobbies for regulatory intervention. In the Blockbuster-Hollywood case, Movie Gallery, Inc., colluded with the FTC to stop the merger. Not coincidentally, Movie Gallery ended up buying Hollywood itself — with the FTC's blessing — for a lower purchase price then Hollywood previously accepted from Blockbuster. It was a win-win scenario: Movie Gallery acquired a competitor for a below-market price and the FTC protected competition.

Then reality set in. Even in 2005, the video-rental store business was dying. Adam Thierer, president of the Progress & Freedom Foundation, noted in August 2005 that the signs of collapse were everywhere:

I warned that efforts by the Federal Trade Commission (FTC) to block the proposed acquisition of video rental firm Hollywood Video by Blockbuster Inc. would likely lead to the demise of both companies in the long run. Well, excuse me while I toot my own horn for a moment, but it appears that I was likely right, and sooner than I expected.
Joe Flint and Kate Kelly report in today's Wall Street Journal ("New Signs of Strain for Blockbuster" p. B5) that "Blockbuster Inc. is facing new pressures as signs increase that a sharp decline in the video-rental market is putting a strain on the company's finances." The company's stock prices fell by 9.7% on Friday, hitting a 52-week low of $4.60 per share. This came on news that Movie Gallery Inc., the industry's #2 firm, was reporting that sales at many of its stores were expected to drop by 8-10% this quarter.
What's happening is clear: technological and market evolution are finally catching up with this old business and is about to wipe it from the face of the Earth. With all the new sources of competition out there — Netflix and cheap DVDs at WalMart, online movie download services, cable and satellite movie channels plus video-on-demand, telco entry into the video business, all sorts of handheld mobile media gadgets like the PlayStation Portable, and so on — it's no wonder that Blockbuster and others in this sector are struggling.
Fast forward to 2010. In May, Movie Gallery failed to win approval for a bankruptcy reorganization plan, forcing the closure and liquidation of all Movie Gallery and Hollywood video stores. Alas, Movie Gallery's political ties to the FTC proved useless in actual market competition.

Blockbuster isn't faring much better, at least in terms of video stores. On June 11, the Wall Street Journal reported the company is on the verge of bankruptcy itself, seeking private investors to bail out Blockbuster's $900 million in debt. Blockbuster is shedding retail stores worldwide and shifting towards online rentals and standalone rental kiosks.

The Antitrust Quantum Leap

Adam Thierer said in 2005 that he hoped the FTC's inane meddling in the dying video-store market would be "a cautionary tale for future antitrust analysis of high-technology and media markets." Sadly, it wasn't. The FTC loves dying industries — witness FTC Chairman Jon Leibowitz's ongoing crusade to save traditional newspapers through a host of new government subsidies.

The flaw is not in the individual decision makers but in the regulatory model. Antitrust requires constantly looking over one's shoulder to the immediate past. In treating competition as a measurable, almost tangible item, the FTC must start from some baseline; and that's usually the point in time when the FTC suddenly takes an interest in the market.

Consider the disturbing trend of postmerger cases. While most antitrust intervention occurs before a merger takes place — and as Blockbuster demonstrated, most companies run away at the sight of FTC lawyers — there's no legal prohibition on undoing a completed merger, irrespective of how much time has elapsed.

In February 2001, Chicago Bridge & Iron (CB&I) acquired two divisions of Pitt-Des Moines, Inc. (PDM). PDM was selling assets in an attempt to raise its stock price. CB&I and PDM competed in the sale of certain types of chemical storage tanks. The deal closed even while the FTC continued its review.

Eight months after the merger closed, the FTC claimed it illegally reduced competition in four "markets" for specific types of storage tanks. CB&I was unwilling to undo a completed transaction, so the FTC litigated — for the next seven years. CB&I lost at every stage: before the commission-appointed administrative-law judge, before the FTC itself, and finally before a federal appellate court. In November 2008, CB&I sold the former PDM assets to an FTC-approved buyer.

During the lengthy appeals process, CB&I complained the FTC ignored evidence of changes to the marketplace after the 2001 merger. Indeed, the initial decision in the case ignored all such evidence and relied on the FTC's speculation about how the market would progress absent government intervention. The FTC's final decision made some allowance for postmerger evidence, but ultimately the commission said the market was not moving quickly enough to restore the competition "lost" by the merger. Throughout seven years of litigation, the FTC remained fixated on the market as it existed in February 2001. It's as if FTC lawyers see themselves as time travelers leaping from market to market in an effort to "put right what once went wrong."

The Hidden Costs

Merger "review" may be the most illogical form of government intervention ever conceived. It's predicated on the notion that lawyers with no experience in the marketplace can correctly guess the exact right level of "competition" the market needs today, tomorrow, and indefinitely into the future.

Ignorant quasi-central planning doesn't come cheap, either. In the current fiscal year, the FTC spent over $106 million on "actions against anticompetitive mergers and practices." The FTC requested an additional $8 million-plus for next year. This pays for nearly 500 full-time staff, the bulk of whom "review" mergers. Yet for all that spending, the FTC only challenged 19 mergers in the last fiscal year (and 11 in the current fiscal year, which ends in September).


In fact, only 1.3% of the mergers reported to the FTC in fiscal year 2008 resulted in any type of formal investigation. Yet over 1,700 transactions still required formal premerger notifications, which entail thousands of billable hours for antitrust attorneys. And even unreported transactions may be subject to FTC scrutiny. So every company needs some sort of antitrust counsel to protect them from the threat of investigation.

As Blockbuster and CB&I's plights demonstrate, there's not much recourse if the FTC decides to target you. The FTC doesn't respond to logic or economic principles. It doesn't matter that one can't predict the future of a given business, much less an entire industry; there's a bureaucracy to feed.

S.M. Oliva, a writer and paralegal living in Charlottesville, Virginia. Mr. Oliva is noted for his work as founder and president of the Voluntary Trade Council (2002—2008), where he wrote extensively on US antitrust policy. He is also the editor of Under Penalty of Catapult, a blog that reports on antitrust and competition policy. See his website. Send him mail. See S. M. Oliva's article archives.

[Daverz]

Is paulb our old friend from Louisiana, or a different guy?

The Diner threads seems to be mostly trolls these days.  Makes it easier to ignore, I suppose.

[Todd]

Can anyone demonstrate a case where actual consumers have been harmed - even by classic cases like Standard Oil?

Interesting, I missed this one before, but I think I'll take a stab at it.  I'll use myself and where I live as an example of how monopolies cause economic harm.  I currently use a decent DSL internet connection, though it's quite slow by today's standards.  If I want to get true high speed internet service (50 Mbps+), I have precisely one service provider to choose from.  Not surprisingly, the price is more than twice what I pay now.  Given my needs, I will not pay the monopoly price.  There are some users who have no choice but to use the overpriced service provider.  To the extent the firm's price is set at a point where marginal revenue exceeds marginal cost - a safe bet indeed - the firm is enjoying monopoly profits and creating deadweight loss, precisely as standard monopoly theory would predict.  Deadweight loss, by definition, is harmful to consumers.  There are multiple similar examples throughout the country.

Of course, the same could be argued about electricity and water suppliers, where again, I have only one choice in each category, but since they are generally considered natural monopolies and regulated accordingly, there's at least some mitigation of deadweight loss.  (It is worth noting, however, that the local electric company is exercising monopoly pricing in a new, "eco-friendly" way, with enthusiastic regulatory approval: it charges a higher price to consumers who opt to rely on so-called "renewable" energy sources [eg, wind, solar].  The irony is that where I live almost all electricity is hydroelectric!)

Back to the high speed ISP: regulators should jump in and force the network to be open to other competitors.  Prices to consumers would drop and service would be enhanced.  Sure, the profits of the current monopoly would be decreased, but consumers would benefit.  As they should.  Now, if WiMax becomes truly viable anytime soon, that may help to loosen the monopoly power of the firm, but there will be economic harm in the meantime.

In the US, anti-trust laws have been woefully under-enforced for years, under both Democratic and Republican administrations.

[bwv 1080]

Interesting, I missed this one before, but I think I'll take a stab at it.  I'll use myself and where I live as an example of how monopolies cause economic harm.  I currently use a decent DSL internet connection, though it's quite slow by today's standards.  If I want to get true high speed internet service (50 Mbps+), I have precisely one service provider to choose from.  Not surprisingly, the price is more than twice what I pay now.  Given my needs, I will not pay the monopoly price.  There are some users who have no choice but to use the overpriced service provider.  To the extent the firm's price is set at a point where marginal revenue exceeds marginal cost - a safe bet indeed - the firm is enjoying monopoly profits and creating deadweight loss, precisely as standard monopoly theory would predict.  Deadweight loss, by definition, is harmful to consumers.  There are multiple similar examples throughout the country.

Of course, the same could be argued about electricity and water suppliers, where again, I have only one choice in each category, but since they are generally considered natural monopolies and regulated accordingly, there's at least some mitigation of deadweight loss.  (It is worth noting, however, that the local electric company is exercising monopoly pricing in a new, "eco-friendly" way, with enthusiastic regulatory approval: it charges a higher price to consumers who opt to rely on so-called "renewable" energy sources [eg, wind, solar].  The irony is that where I live almost all electricity is hydroelectric!)

Back to the high speed ISP: regulators should jump in and force the network to be open to other competitors.  Prices to consumers would drop and service would be enhanced.  Sure, the profits of the current monopoly would be decreased, but consumers would benefit.  As they should.  Now, if WiMax becomes truly viable anytime soon, that may help to loosen the monopoly power of the firm, but there will be economic harm in the meantime.

In the US, anti-trust laws have been woefully under-enforced for years, under both Democratic and Republican administrations.

OK so you live somewhere with no cable or satellite or other internet providers?  And because of this the federal government should intervene on your behalf?

[Todd]

OK so you live somewhere with no cable or satellite or other internet providers?  And because of this the federal government should intervene on your behalf?

No, no, I live in an area with both cable and satellite providers.  In fact, it is the cable monopoly that provides high speed internet access where I live.

Your question had to do with providing an example of a monopoly causing actual harm to consumers.  I provided such an example, and explained why it caused harm, using actual economic concepts.  Are you refuting that deadweight loss harms consumers, or that when a firm sells at a price where marginal revenue exceeds marginal cost it is exercising undue market power and not pursuing profit maximizing behavior, which is one trait of  monopolies?

Your best response is what, a snide remark better suited to a teeny bopper?  Monopolies can and do harm consumers, and federal anti-trust laws should be used to encourage competition where that is what will benefit consumers.  Anti-trust laws do not always do that, but sometimes they most certainly do.  Your very obvious ideological bent clearly points in only one direction, and unfortunately it is not very well informed in terms of economics. 

[bwv 1080]

No, no, I live in an area with both cable and satellite providers.  In fact, it is the cable monopoly that provides high speed internet access where I live.

Your question had to do with providing an example of a monopoly causing actual harm to consumers.  I provided such an example, and explained why it caused harm, using actual economic concepts.  Are you refuting that deadweight loss harms consumers, or that when a firm sells at a price where marginal revenue exceeds marginal cost it is exercising undue market power and not pursuing profit maximizing behavior, which is one trait of  monopolies?

Your best response is what, a snide remark better suited to a teeny bopper?  Monopolies can and do harm consumers, and federal anti-trust laws should be used to encourage competition where that is what will benefit consumers.  Anti-trust laws do not always do that, but sometimes they most certainly do.  Your very obvious ideological bent clearly points in only one direction, and unfortunately it is not very well informed in terms of economics.

define the market narrowly enough and everyone is a monopolist, which is why antitrust is such a nebulous concept.  Fact is you have plenty of options for internet service so the cable co can hardly be said to have monopolistic powers. 

[Todd]

Fact is you have plenty of options for internet service so the cable co can hardly be said to have monopolistic powers.

You are wrong.  If I want high speed internet (50 Mbps+), I have only one option where I live.  That is a monopoly by any standard.  Incidentally, I opt to not use such a service since I place a low value on such service, which I previously wrote.  Others are being harmed by a lack of choice since they are forced to pay artificially high monopoly prices.  There is nothing nebulous about it.

You asked for an example of how monopolies harm people.  I provided one, using economic concepts.  I asked if you are refuting the economic basis of harm caused by monopolies, and you remain silent on the issue.  You then change the scope of your argument.  You are being intellectually dishonest, which is common among ideologues.

[bwv 1080]

You are wrong.  If I want high speed internet (50 Mbps+), I have only one option where I live.  That is a monopoly by any standard.  Incidentally, I opt to not use such a service since I place a low value on such service, which I previously wrote.  Others are being harmed by a lack of choice since they are forced to pay artificially high monopoly prices.  There is nothing nebulous about it.

You asked for an example of how monopolies harm people.  I provided one, using economic concepts.  I asked if you are refuting the economic basis of harm caused by monopolies, and you remain silent on the issue.  You then change the scope of your argument.  You are being intellectually dishonest, which is common among ideologues.

As I said, define the market narrow enough and monopolies abound.  The cable company built an infrastructure to deliver high speed internet and charge a premium price for a premium internet service that is of limited demand.  Its like complaining there is only one private jet charter at your local airport so they overcharge you.  If there was enough people really being harmed the incentive would exist for a competitor to enter the market and offer a less costly product.  The point being that a great many economists have held that real monopolies are nearly impossible in an open marketplace. Hardly worth the cost of having federal agencies try to fix the situation ( & by the time some regulator could come up with a fix and get it through court, the technology will have changed anyway - like the Justice Dept dropping its suit against IBM in the mid 90s).

anyway, not that it matters, but the original question was to find a federal antitrust case where consumers were actually harmed - the point being that most federal antitrust cases are brought by competitors (who are in a much better position to lobby regulators than consumers).

[Todd]

If there was enough people really being harmed the incentive would exist for a competitor to enter the market and offer a less costly product.

This is a favorite fallback argument of those who oppose anti-trust enforcement, but it is a seriously flawed argument.  There are barriers to entry in many businesses, and internet connectivity has a high barrier to entry, specifically the capital needed to establish a network.  If only one firm in a given market has sufficient capital to build the network, then that firm will have a monopoly.  I suppose that one can argue that such a firm has a right to monopoly profits, but the end result will be that consumers are harmed in the way I described previously.  One can also argue that if companies with sufficient capital are forced to grant access to infrastructure, then they will not invest, but that argument has little merit.

As to your assertion that "a great many economists have held that real monopolies are nearly impossible in an open marketplace," well, so?  It's pretty easy to peruse the industrial organization literature to find a great many economists who hold that monopolies can and do exist in an open marketplace.  Sometimes pro-market economists support vigorous enforcement of anti-trust laws and less pro-market economists do not support enforcement of anti-trust laws.  You have offered absolutely no support for your contention that anti-trust enforcement is hardly worth the cost.  You are falling back on tired ideological proclamations.

Now, let's look at your original question:

Can anyone demonstrate a case where actual consumers have been harmed - even by classic cases like Standard Oil?

Your question does not include anything about the federal government.  Nor does it include anything about the scale of a given monopoly, or the type of market it operates in.  Instead, it asks if anyone can demonstrate a case where actual consumers have been harmed by a monopoly.  That is what I provided.  Again, I used economic arguments to demonstrate how consumers are harmed.  You have not addressed those, and instead you have simply resorted to what you read in the press.  You are being intellectually dishonest by changing the scope of your question.

[Herman]

Is paulb our old friend from Louisiana, or a different guy?

That was clearly our former GMG-Katrina survivor; those delicious bits about the EU being nothing but a front for the "Kings of the land" and the ultra-rich, whereas Microsoft made it on the basis of sacrifice, are vintage paul best.