Antitrust Inframarginalism Regulation

The Price Helix in Inframarginal Perspective

Is the current inflation caused by corporate greed?

The answer is very likely yes.

But is it caused by monopoly?

The answer is very likely no.

The difference between these two answers tells us a great deal about why progressives should take an inframarginalist approach to political economy rather than an antimonopoly approach.

That is, it tells us why focusing on who gets the surplus generated by production is more helpful for progressives than obsessing about market concentration.

To see why the present inflation is likely about greed but not monopoly, we need to spend some time thinking about the concept of inflation, and, in particular, distinguishing between the inflationary spiral itself and the triggers of that spiral.

The Inflationary Spiral

As Olivier Blanchard pointed out a few months ago, inflation itself is a spiral, or a tug of war, bred of a conflict over the distribution of wealth.

In inframarginalist terms, it is a conflict over the distribution of surplus.

When a firm produces a good at a cost of $3 and sells it to a consumer who is willing to pay at most $7 for it, production generates a surplus of $4. The price the consumer pays divides that surplus between buyer and seller. If the price is $6, for example, then the seller gets $3 of the surplus (which we call “profit” in the economic sense) and the buyer gets $1 of the surplus.

The price suppliers charge the firm divides the firm’s share of surplus (i.e., divides the firm’s profit) between suppliers and the firm. If a supplier raises its price by $1, then the firm’s costs increase from $3 to $4, and its profits fall from $3 to $2. By raising its price, the supplier has redistributed one dollar of surplus from the firm to itself.

In an inflation, suppliers and the firm battle over the division of profits—they fight over price—but the battle gets out of hand because the battle isn’t just between one firm and its suppliers but between many firms and many suppliers. As a result, price increases by suppliers feed back into the willingness of consumers to pay the firm for its products, and that enables the firm to increase its own prices and profit levels in response to changes in supply prices.

Indeed, the economy is a great feedback loop. Rarely do a particular firm’s suppliers find themselves buying all of their own inputs from supply chains leading back to that firm. Firms sell to other firms’ suppliers and other firms sell to their suppliers.

But when we consider a large enough cross section of firms, it is the case that those firms ultimately sell to their own suppliers as a group. The economy is a tangled web, and although individual strands rarely loop back on themselves, the web as a whole does loop back.

As we learned in Econ 101, the economy is a great feedback loop. Choose a proper cross section of firms and you will find that if you follow the chain long enough, the firms actually indirectly supply themselves. Note that workers are one kind of supplier.

Consider that $1 supplier price increase again. The firm might not be happy to lose $1 of profit. In order to make up for the loss of that dollar to suppliers, the firm might, in response, raise the price it charges to consumers. That would allow the firm to appropriate an additional dollar from consumers as a substitute for the dollar of profit that the firm lost to the supplier price increase. The firm might therefore raise price from $6 to $7, reducing consumers’ surplus from $1 to $0 (recall that the maximum consumers were willing to pay for the firm’s output was $7).

If the supply price increase is limited to this one market, and this one firm responds by increasing its own price, then the analysis ends here. Consumers will be made worse off; suppliers will be made better off; and the firm’s fortunes will remain unchanged.

But if many suppliers have increased their prices, and many firms have responded by increasing their own, then the firms’ price increase will feed back through the tangled web of supply chains that is the economy—back to the suppliers from which the firms buy.

Suppliers will find that the price of the inputs they need to buy to create the products that they supply to firms has increased. In our example, after the firm increases price from $6 to $7, the firm’s suppliers will now find that their own costs have increased by $1. The consumers who purchased goods from the firm for $7 instead of $6 will have increased the prices they in turn charge for the goods and services that they supply to others. And those others will in turn have increased their prices, and the price increase will have propagated through the tangled, looping web until it at last reached the firm’s own suppliers, who will experience it as an increase in the price of the inputs they purchase to make the things that they supply to the firm. Their input costs will increase by $1. (In reality, the a $1 increase in a supply price is unlikely to feed back into a $1 increase in costs, but a one-for-one feedback loop will do for a simple numerical example such as this.)

The $1 in extra input costs that the firm’s suppliers now incur will eat up the extra dollar of surplus they appropriated via their initial supply price increase. The extra dollar they charged to the firm will have turned out to be an extra dollar charged to themselves.

If suppliers want to preserve the extra dollar of surplus that they initially gained from the supply price increase, they will need to raise the supply price they charge to the firm again by another dollar. So suppliers raise price by an extra dollar. That price increase in turn redistributes to suppliers the additional dollar of surplus that the firm had appropriated from consumers by raising the firm’s price to $7 from $6. The firm now pays a supply price of $5 (the initial supply price was $3 and suppliers have now twice raised price by a $1) and once again takes only $2 of the surplus.

If the firm wishes again to make up for this reduction in profits, the firm must again raise its own price to consumers. But isn’t that impossible, because price is already $7 and the maximum that consumers are willing to pay is $7?

The answer is no. The willingness of consumers to pay has now risen from $7 to $8. Why? Because when consumers passed the firm’s original price increase of $1 on to suppliers, they effectively generated an additional dollar of income for themselves when they responded by raising the prices they charged to others. That additional dollar of income made it possible for them to pay an additional dollar for the firm’s product. Their willingness to pay went up.

(Note that consumers here can be individual persons, for whom the good is an input into their production of labor services. Or they can be other firms that produce other goods or services that eventually serve as inputs into the production of the supplies that the firm needs to make its own good. So when I say that consumers responded to the firm’s price increase by raising the prices they charge to others, I mean that they either demanded higher wages (in the case of consumers who are workers) or charged higher prices for the goods or services that they produce (in the case of “consumers” that themselves are firms).)

The firm therefore has leeway to raise price to $8 and the firm will do that if it wishes to restore its erstwhile profit level of $3. So altogether we have seen that an initial price increase of $1 by suppliers triggered a $1 price increase by the firm, which then triggered a subsequent $1 price increase by suppliers, which then triggered a subsequent $1 price increase by the firm. This cycle of price increases can continue for a long time.

That is the inflationary spiral.

Photo: Robert E. Mates.

In other words, the lines in Blanchard’s struggle over the distribution of surplus are drawn as follows.

On one side, you have a firm’s suppliers seeking to obtain a greater share of the surplus generated by the firm.

On the other side, you have the firm itself seeking to obtain a greater share of the surplus that it generates.

Firms and their suppliers can’t both obtain a greater share of the surplus. Suppliers raise prices, reducing firms’ share of the surplus. Firms then raise prices, seeking to recoup what they have lost.

As a result, the higher prices that firms charge eventually raise the costs of the firms’ suppliers, reducing their share of the surplus and leading them again to raise the prices they charge to firms. Firms respond by raising their prices again, and so prices rise and rise.

The Triggers of That Spiral


Photo: William H. Short.

Inflation spirals when suppliers and firms disagree over the proper division of the surplus. If there were no disagreement, the spiral would not get under way. Suppliers would raise prices to the point at which they would achieve the agreed surplus and firms would not respond, because they would be in agreement with suppliers that the resulting distribution of surplus is fair.

If the firm in our example were satisfied with $2 of profit, the firm would not respond to the supplier’s initial $1 price increase by raising its own prices by a dollar. The firm would eat the loss. And if all firms were to respond in this manner, then inflation would not ensue.

But, by the same token, because the heart of the spiral is a disagreement regarding what a fair distribution of surplus should be, an inflationary spiral can, in principle, develop at any time. And it can develop for what an economist might be surprised to discover are purely intellectual—indeed, even ideological—reasons.

If some cross section of America’s businessmen were to wake up one morning feeling that they are not getting a fair share of the surplus, and if they were to raise prices accordingly, and if their suppliers were to be unwilling to accept the smaller share of the surplus allocated to them by those higher prices, and if their suppliers were therefore to raise prices themselves, then we would be off to the inflation races.

This rarely happens, however, because the feedback loop only appears in the aggregate. Many minds would need to change at the same time. So if one supplier were to wake up and want more, that is not likely to lead to an inflationary spiral.

Indeed, if the supplier operates in a competitive market, the supplier might not even be able to raise prices, as competitors would simply take the supplier’s market share and the supplier would not be able to sell at all at higher prices. But if many suppliers were to wake up and want more, inflation would follow—if firms decide to contest this change by raising prices themselves.

Note that the distinction I have been drawing between a firm and its suppliers is arbitrary, because an economy is a feedback loop. At whatever level of a supply chain one wishes to focus—at whatever point along the loop—the focal point contains the firms of interest and the firms and workers that sell to them are the firms’ suppliers.

Given that mass shifts in views regarding the proper distribution of wealth are not common, and that the current inflation does not seem to be driven by one, we need to look for this inflation’s causes elsewhere.


Photo: William H. Short.

Inflation that isn’t triggered by an ideological shift must be triggered by a structural change in the economy—a change that is broad enough in effect to cause many firms to raise their prices at the same time. Something must have happened to markets that gave one side of the conflict—suppliers or firms—the opportunity to take a larger share of the surplus, and the other side must have fought back by raising prices itself, leading to a tug of war.

Here is where the conflict between inframarginalism and antimonopolism comes into play.

The Antimonopoly Story: Crises Desensitized Consumers to Price Increases

Antimonopolists want to say that monopolies triggered the present inflation by using their monopoly power to raise prices.

If we imagine that the firm in our example is a monopoly, then antimonopolists want to argue that in 2021, when the present inflation started, this firm took the initiative to raise price from $6 to $7. Assuming that many other monopolies raised their prices as well, a feedback loop would have followed. Consumers would have passed the cost of the price increase on through the supply chain to the monopolists’ suppliers, which would in turn have raised prices by a $1, and then the monopolies would have responded by raising prices again by a dollar in order to hang on to the gains from their initial price increase. Consumers would have been able to pay that additional dollar because of the extra income they generated from passing on the original price increase. The inflationary spiral that appears to still be running today would have followed.

But this argument falls victim to the venerable question: why now? Antimonopolists themselves have argued that markets have been growing more concentrated for decades. They date the commencement of the trend toward concentration to the importation of Chicago School thinking into antitrust during the Carter and Reagan Administrations. If markets have been concentrating for decades, why would firms have waited until 2021 to raise prices and trigger an inflation?

Antimonopolists’ answer has been to argue that firms could not exploit market concentration to raise prices until the pandemic and the Ukraine war created the circumstances that would allow them to do so. To understand their argument, a trip through the mainstream economic account of the present inflation is required.

Mainstream economists argue that the present inflation was triggered by two structural factors: first, supply chain disruption triggered by the pandemic and the Ukraine war, which caused supply to fall below demand; second, pandemic stimulus checks, which caused demand to exceed supply.

According to the mainstream account, the first factor drove up firms’ costs, leading them to raise prices. The second factor enabled firms to raise prices even further. This fed back into further increases in costs for suppliers, and thence to further increases in prices by firms, leading to an inflationary spiral.

Antimonopolists accept that supply chain snarls and stimulus-driven demand increases provided the initial inflationary impetus. But they insist that this alone was not enough to get the spiral going. They argue that all that this did was to create the psychological prerequisites for an inflationary spiral.

At this point, they argue, market concentration stepped in to create the inflation. Specifically, they argue that once consumers had experienced an initial increase in prices due to the pandemic and later the Ukraine war, they became psychologically primed to attribute price increases to forces majeures of this kind. Antimonopolists argue that this created an opportunity for big firms tacitly to collude to raise prices further.

Market concentration matters here because tacit collusion is possible only when the number of players in a market is small. But according to antimonopolists, concentration alone was not sufficient for tacit collusion to take place until consumers were primed by crises to accept higher prices.

Big firms could tacitly collude to raise prices because consumers, believing that price increases were an inevitable result of the global crises, were willing to pay those higher prices. Consumers would not recoil in righteous indignation, punishing firms by buying less, but instead would continue to buy at the higher prices.

In economic terms, consumer willingness to pay increased by more than the extra money they received from stimulus checks justified. That extra demand created an opportunity for firms tacitly to collude to increase prices.

The Inframarginalist Story: Firms Rationed with Price

The antimonopoly account of inflation doesn’t actually withstand scrutiny on its own terms. But I will get to that later.

What’s important to notice now is that the argument is more complex and overdetermined than it needs to be when it comes to making a progressive, moral case against business behavior during this inflation.

Progressives seem to think that they need to tell a story about market concentration, collusion, or monopoly, in order to blame firms for the present inflation.

They don’t.

All the elements they need to make a moral case are right there in the mainstream account. No collusion or monopolization is required.

That’s because when supply chains snarled and demand surged, firms had a choice. They could have responded by rationing their inventories based on a rule of first-come-first-served or some other principle of distributive justice.

Instead, they chose to ration with price.

That is, when supply chains snarled and stimulus checks caused demand to outstrip supply, firms could have kept their prices where they were and just let their goods to sell out. That amounts to rationing based on a rule of first-come-first-served. Instead, they chose to raise prices.

In the short run—which is all that matters when it comes to getting an inflationary spiral started—raising prices doesn’t increase supply. It takes time to ramp up output, especially when ports are clogged or sanctions against Russia foreclose sources of supply.

But raising prices does ration output to those who can afford to pay the highest prices, which usually means the rich. It also has the rather nice attribute, from the perspective of firms, of increasing profits. In the short run, the inventory that firms have on hand has been acquired at low, pre-crisis costs. Every additional dollar that firms charge for that inventory is profit. It is a redistribution of surplus from consumers to firms.

It therefore follows directly from the mainstream economic account of the current inflation that the root cause of the inflation was corporate greed—specifically, the choice of businesses to ration with price instead of based on some other metric.


In partial equilibrium terms, we have something like this. We start with a competitive market for the firm’s product.

Then there’s a supply disruption or a demand surge that restricts output in relation to demand. Graphically, the supply curve kinks upward rather steeply. The firm then has the option to charge a low price at which the good sells out or to charge a high price that rations access to those with the highest willingness to pay. The high price also generates extra profit.

If the firm chooses the ration price, buyers pass the price increase along through the tangled loop of supply chains that is the economy. Buyers’ ability to pass the increase along effectively increases their willingness to pay for the good, so the demand line rises. The passing-along of the price increase travels through that tangled loop until it increases sellers’ costs, which is reflected in an increase in the supply line. This increase in the supply line reduces firm profits at the current price (the area below the original “greedy, inflationary price” and the higher supply line). The firm moves to restore those profits by increases its price in turn. We are off to the inflationary races thanks to the firm’s initial decision to ration with price instead of letting goods sell out in response to the shortfall of supply relative to demand.

There Is No Efficiency Justification for Rationing with Price

Economists used to argue that rationing with price is necessary, notwithstanding its ugly distributive effects, because it is efficient. Keeping prices low and letting goods sell out forces people to wait on interminable lines, wasting time that could be spent doing more productive things.

As I’ve argued elsewhere, in the information age that’s no longer true. It takes the time required to open up a webpage to reserve a place on line—or to know whether a good has sold out.

Economists also argue that non-price rationing leads to wasteful attempts to subvert the rationing system. People invest in bots, for example, designed to subvert digital lines. But, as I’ve also argued elsewhere, that argument is an example of the Nirvana fallacy. It ignores that people already waste lots of resources attempting to subvert the price system. People expend great effort on wasteful attempts to acquire the money they need in order to be able to pay the prices that firms use to ration access to their products. Theft and corruption are examples.

Indeed, the vast infrastructure of the criminal law and its administration, as it relates to financial crimes, is a monument to the waste associated with operating a price system.

Economists also sometimes argue that rationing with price allocates goods to those who value them the most. But few really believe that. Economists have known for a long time that willingness to pay is a poor proxy for utility because the rich are often willing to pay more than others for things that they value less than others do. As I’ve argued elsewhere, it’s unclear that place in line is a less accurate proxy for value than willingness to pay.

All of which is to say that a firm’s decision to ration with price is not necessarily efficient.

But, as we have seen, it is profitable.

And indeed a firm’s decision to ration with price is inefficient to the extent that it can trigger an inflationary spiral. The reason inflation is inefficient is that it makes it difficult for buyers to plan; prices start to change so fast that they don’t know what their money will buy tomorrow. That shuts down economic activity.

The Greed of Firms Both Small and Large Will Trigger Inflation in Response to Supply or Demand Shocks

It’s important to understand that monopoly or even market concentration is not required to tell a story about greedy price-rationing.

Whether a firm is a monopoly, or a big player in a concentrated market characterized by tacit collusion, or a bit player in a highly competitive market, the firm will have the option to raise price in response to supply or demand shocks—so long as the shocks cause industry demand to exceed industry supply in the short run.

To see why this is true in competitive markets having lots of small sellers, consider what happens when industry supply falls below industry demand.

Some group of buyers won’t be able to find sellers who are willing to sell to them. That’s what it means for demand to exceed supply. We can imagine these buyers going from seller to seller begging for access to goods. Each seller, no matter how large or how small, will face a choice: the seller can either say “sorry, I’ve already promised by stock to someone else.” Or the seller can say “I’ll redirect my stock to you if you pay me a more than the other guy.”

That is, every seller, no matter how big or small, faces the choice whether to ration based on a rule of first-come-first-served (or some other basis apart from price), or to ration with price. When prices rise in competitive markets in response to supply or demand shocks, that’s because each tiny market participant is choosing to ration with price.

Each is choosing to exploit the crisis to make an extra buck.

What is true of competitive markets is true of concentrated markets as well. Supply and demand shocks can drive up the profit maximizing price in the market, but the big firms that have the preexisting power to charge such prices don’t actually have to adjust their prices upward in response. They can continue to charge their legacy, pre-crisis prices.

When they choose instead to raise prices, they are exploiting the crisis to make an extra buck.

The progressive case that corporate greed lies at the heart of the present inflation does not, therefore, require an antimonopoly story. All it requires is the basic recognition that, when firms raise prices in the short run in response to supply or demand shocks, they are engaged in one thing only—exploiting a crisis to redistribute wealth to themselves, and thereby triggering an inflation that could make everyone worse off.

Why This Is an Inframarginalist Story

The inframargin is the category of market transactions in which surplus is generated and distributed. In a competitive market, the marginal buyer and seller place the same value on the good and so their exchange generates no surplus.

The greedy price-rationing story is an inframarginalist story because it emerges from a laser focus on the way prices distribute surplus in markets.

When the inframarginalist sees prices rising, the inframarginalist asks whether the price increases are necessary to cover costs. If not, then the price increases are redistributing surplus—and posing the question whether that redistribution is desirable.

It’s thanks to this process of thought that the inframarginalist perceives that short run price increases during a crisis are not driven by costs. Output adjustments, even costly ones, take time, and until they have been undertaken, firms are selling their legacy, low-cost inventory.

It follows that short-run price increases are elective. They are effectively a policy decision on the part of firms to take advantage of a shortage to redistribute surplus to themselves.

Antimonopolists miss all of this because they spend their time looking for market concentration. For them, redistribution is an afterthought—the stylized consequence of monopolization or collusion.

Implications for Inframarginalism in Relation to Antimonopolism

As I suggested above, the inframarginalist story is a better story for progressives to tell than the antimonopoly story because it is simpler and broader. All you need is evidence that demand exceeds supply. You don’t need market concentration and you don’t need claims about the psychology of consumers or the social behavior of firms.

To be sure, the inframarginalist story does require claims regarding the efficiency of price increases during a crisis that are not needed to make the antimonopoly case. But the notion that willingness to pay is not a particularly good proxy for value, or that in the digital age we don’t spend much time waiting on physical lines anymore, are hardly controversial. Claims regarding consumer psychology and firms’ capacity for tacit collusion are.

The inframarginalist story is also a better story because it represents a more fundamental critique of the economic system. It points to a structural flaw in markets as such, rather than to a market imperfection.

The inframarginalist story basically says: in a crisis, prices in every market—perfect or imperfect, competitive or monopolized, concentrated or unconcentrated—are going to rise even though efficiency does not require that they do, so long as firms remain greedy, profit-seeking entities. There’s nothing that can be done to restructure markets in ways that will prevent this from happening. The only solutions are government regulation of price, taxation of profits, or a reorientation of executives’ legal duty of care away from profit maximization.

The antimonopoly story says: during a crisis, prices are going to rise primarily in concentrated markets, and the solution is to deconcentrate them. There’s no problem with markets as such, and, as a result, greed is for the most part good—it leads to competition in markets and ultimately to efficient outcomes. The problem we face today is merely a problem of market imperfection. If we solve it, then government can go away.

Progressives’ current romance with antimonopolism in the inflation context has been particularly painful to watch because it has lately swept in a scholar who really knows better, and caused her to shoot herself in the foot. Isabella Weber made a splash last year arguing that that the Biden Administration should consider price controls as a solution to the present inflation.

But then last winter she released a paper arguing that tacit collusion explains the inflation. Although I suspect that Weber continues to support price controls as an inflation remedy, the implication of her paper is that price controls may not be the solution after all. Instead, an economy-wide campaign of deconcentration might do the trick.

The inframarginalist account of the present inflation provides stronger support for price controls because it applies regardless of the level of concentration in markets.

The Antimonopoly Account Is Also Incoherent

As I suggested above, the antimonopoly story is not just too complex and too narrow, it also does not withstand scrutiny on its own terms.

That’s because consumer desensitization to price increases will drive up prices in all markets, regardless of the level of competition and regardless whether firms in concentrated markets are tacitly colluding or not. Concentration and tacit collusion therefore aren’t actually required for the story that antimonopolists wish to tell.

If consumers become desensitized to price increases, prices will rise in competitive, unconcentrated markets. Imagine a perfectly competitive market consisting of numerous small sellers. If consumers become desensitized to price increases because pandemics and wars suggest to them that increases are inevitable, then firms that once could not sell to consumers in the market, because their costs, and hence the minimum prices they were willing to charge, were too high, will now be able to sell to consumers in the market. Other firms in the market that have lower costs will observe this and will raise their prices to match those of the high-cost firm. For if consumers can now afford to pay that firm’s prices, they can now afford to pay that price to any firm. As a result, the market price will increase.

The analysis does not change for markets that are concentrated but also competitive. The increase in demand will bring a higher-cost competitive fringe in the market, and the higher prices that fringe needs to charge in order to enter the market will enable all firms in the market to increase their prices.

Prices will also rise in concentrated markets in which firms are already engaged in tacit collusion, so long as the increase in demand also increases the profit-maximizing industry price. Perceiving that demand has increased, big firms will collude further to raise their prices. But they won’t do this because the increase in demand facilitates collusion, but rather because they are already colluding to charge the profit-maximizing price and the profit-maximizing price has increased.

It is possible that firms in concentrated markets might find it easier to initiate tacit collusion when consumers expect price increases. If each firm knows that the others expect consumer demand to rise, creating opportunities to increase prices, each firm may be more confident that a price increase will be matched by other firms.

But against a backdrop in which firms would raise prices in both concentrated and unconcentrated markets and whether they have been colluding or not, it is not clear what any additional price increases due to greater ease of collusion contribute to the inflation story. For the story to work, antimonopolists would need to show that price increases absent the additional collusion would have been insufficient to trigger the inflation. This antimonopolists have not begun to do. Without it, consumer desensitization tells an inflation story without the need for concentration or collusion.

Indeed, consumer desensitization to price increases is a demand story and not a concentration story. And as a demand story, it just puts us back at the basic structural fact of this inflation, which is that it was triggered by an excess of demand over supply that firms big and small chose voluntarily to exploit.

Weber and her coauthor seem to have been led to think otherwise by listening to a bunch of earnings calls in which representatives of firms in concentrated markets suggested that they were raising prices because they were confident that competitors would not try to undercut them.

But to the extent that executives can be assumed to understand what they are doing—which is not a foregone conclusion by any means—all this shows is that, when firms engaged in tacit collusion encounter demand increases, they raise prices. It does not establish that they started tacitly colluding for the first time due to the demand increases. And it does not establish that firms in unconcentrated markets encountering the same demand increases are not raising prices as well.

The antimonopoly argument turns out to be based on a snapshot of how big firms in concentrated markets behave. But if you only look at behavior in those markets you are not going to be able to perceive whether their performance is unique to them or not.

* * *

Progressives want to tell a story about greed and inflation. To tell it with the greatest possible generality and power, they should ditch the antimonopoly blinders.

Photo: Marnia Lazreg.
Antitrust Regulation

Monopoly Is Constitutive of the Division of Labor

We say that direct democracy is not practicable because we don’t all have time to vote on every matter of government. Therefore, we delegate to elected representatives. That delegation concentrates power in the hands of the representatives. But we don’t worry too much about that because we regulate our representatives’ behavior. If they do wrong, we throw the bums out of office. It follows that as between individuals we do not condemn all concentrations of power as a general matter, but instead permit those concentrations that we believe will be good for the community, and regulate them to make sure that they are in fact good for the community.

Antitrust does the same thing with respect to business firms.

Antitrust permits concentrations of economic power when their owners wield it for the benefit of society. Antitrust condemns concentrations of economic power otherwise. Antitrust lets the phone monopoly persist for so long as it provides cutting edge service.

The view that all monopoly is non licet is tantamount to the view that no one should ever have more power in any domain than any other person. That, of course, is incompatible with the administration of anything so large as a society, in which the division of labor, and hence the concentration of power in the hands of particular people or organizations in particular domains, is essential. What prevents such concentrations from leading to abuse is oversight and regulation—not deconcentration.

The concept of the virtuous monopoly is inherent in the concept of the division of labor. To oppose monopoly per se is to oppose the division of labor.

Antitrust Monopolization Philoeconomica

The Twice-Anti Monopoly Progressive

Keynes was no antimonopolist.

One of the most interesting and unnoticed developments of recent decades has been the tendency of big enterprise to socialise itself. A point arrives in the growth of a big institution – particularly a big railway or big public utility enterprise, but also a big bank or a big insurance company – at which the owners of the capital, i.e. its shareholders, are almost entirely dissociated from the management, with the result that the direct personal interest of the latter in the making of great profit becomes quite secondary. When this stage is reached, the general stability and reputation of the institution are the more considered by the management than the maximum of profit for the shareholders. The shareholders must be satisfied by conventionally adequate dividends; but once this is secured, the direct interest of the management often consists in avoiding criticism from the public and from the customers of the concern. This is particularly the case if their great size or semi-monopolistic position renders them conspicuous in the public eye and vulnerable to public attack. The extreme instance, perhaps, of this tendency in the case of an institution, theoretically the unrestricted property of private persons, is the Bank of England. It is almost true to say that there is no class of persons in the kingdom of whom the Governor of the Bank of England thinks less when he decides on his policy than of his shareholders. Their rights, in excess of their conventional dividend, have already sunk to the neighbourhood of zero. But the same thing is partly true of many other big institutions. They are, as time goes on, socialising themselves.

John Maynard Keynes, The end of laissez-faire (1926).

In Robert Skidelsky’s great three-volume intellectual biography of Keynes, there is but a single reference to antitrust—an entreaty by Felix Frankfurter that Keynes should lend some support to the antitrust project.

Keynes opposed the early New Deal’s state-sponsored cartels because they restricted output when the economy required more investment. But, like many in the early 20th century, Keynes viewed monopoly as an inevitable and possibly salutary adjunct to industrial progress.

Indeed, Skidelsky suggests that Keynes found debates over market structure—including self-righteous antimonopolism—dumb.

Writes Skidelsky:

Keynes used to come away from Manchester with feelings of ‘intense pessimism’, provoked by the short-sighted individualism of the Capulets and Montagues, . . . the sermonising of those who wanted to put the industry through the wringer, the ingrained dislike of any suggestion of monopoly.

Robert Skidelsky, John Maynard Keynes: The Economist as Saviour, 1920-1937 262-63 (1995).

(This post originally appeared as a Twitter thread.)

Antitrust Monopolization Regulation Tax

Wealth and Happiness

In a new paper, Glick, Lozada, and Bush have done both antimonopolism and the antitrust academy a service by making the first real attempt to put the movement in direct conversation with contemporary antitrust method.

GLB have a simple message: welfare economics long ago stopped using willingness to pay to measure consumer welfare, and antitrust should too.

What is more, welfare economics today pursues an eclectic set of approaches to measuring welfare. Some of them suggest that the dispersal of economic power and the availability of small businesses can make people happy.

It follows, argue GLB, that it is entirely consistent with contemporary welfare economics to take these things into account in evaluating mergers or prosecuting monopolies.

The Social Welfare Function

GLB start with the problem that welfare economists faced at the beginning of the 20th century: how to compare the value that different people—say a producer and a consumer—obtain from a transaction in the absence of some universal measure of value.

If the producer gets a profit of $2 and the consumer pays $5 for a bag of apples, did the transaction confer the same amount of value on the two? Are $2 worth the same to the producer as a-bag-of-apples-for-$5 is worth to the consumer?

If there were some universal measure of happiness—denominated in, say, “utils”—then we could answer that question.

We would look up the consumer’s change in pleasure associated with swapping $5 for apples and compare it to the producer’s change in pleasure associated with making a $2 profit. If the former were 50 utils and the latter 30 utils, then we could say that the transaction did not confer the same benefit on both parties.


Economists eventually decided that they would not be able to find a universal metric of happiness. But they hoped that they might be able to glean some information about happiness from the behavior of economic actors.

The first approach that they hit upon was the pareto criterion. It said: the only bad transactions are those into which the parties do not enter voluntarily, because those must make at least one party worse off (the party who would not voluntarily enter into the transaction).

Any transaction the parties do enter into voluntarily is, in contrast, good, because they wouldn’t be willing to enter into it unless the transaction made neither worse off.

It followed that voluntary transactions could be treated as welfare improving—or at least not welfare reducing. The parties were signalling, through their willingness to enter into them, that the transactions were at least not undesirable.

If the producer and consumer voluntarily transact in apples at $5, then welfare could be said not to have been reduced and indeed potentially to have increased. That was the pareto criterion.

It helped welfare economics a bit. But it also failed to answer an important question: what about people who are affected by a transaction but who are not entering into it themselves?

If, for example, two producers merge, and, as a result of the merger, they are able to charge a higher price, consumers are affected. But consumers have no choice over whether the merger takes place.

The pareto criterion tells us that the merger does not make the merging parties worse off. But it tells us nothing about whether the merger makes consumers worse off.

Some way of comparing the costs of the transaction to consumers with the benefits to the merging producers is needed, but the pareto criterion cannot provide it.

Willingness to Pay and Potential Pareto

The solution proposed by some economists in the early 20th century was to use willingness to pay as a measure of happiness.

The idea was that if a consumer would be willing to pay $10 for an apple, then that would be a measure of the pleasure the consumer would get from consuming the apple. By noting that a person should be willing to pay cash for cash on a dollar-for-dollar basis, one could proceed to do with dollars what economists had originally hoped to do with utils.

To return to our example of an apple purchased for $5, if the consumer were in fact willing to pay $10 for the apple, then the value to the consumer of the transaction would be the $10 the consumer would be willing to pay less the $5 price that the consumer actually paid for it.

And the value of the transaction to the producer would be the producer’s $2 profit. It would then follow that the consumer did better than the producer in the transaction because the consumer generated a “surplus” of $5 whereas the producer generated a profit (“producer’s surplus”) of only $2.

This willingness-to-pay approach made it possible to evaluate a merger of producers.

If producers were to merge and drive the price up to $7, then the producers (who, if their costs are as before, would now make a $4 profit) would end up better off than the consumers (who would now enjoy a surplus of $10 less $7, or $3). The merger would reduce the welfare of the consumer by $3.

If antitrust were to adhere to a consumer welfare standard—the rule that mergers that reduce consumer surplus are to be rejected—then this merger would fail the test and be rejected.

As GLB note, the willingness to pay concept made it possible to consider tradeoffs as well.

The merger might, for example, also reduce the costs of production of the merged firms from $3 to $0.50, thereby increasing the merging firms’ profits on the transaction from $4 to $6.50.

If one were to view the goal of the antitrust laws as the maximization of total welfare—meaning the maximization of the combined surplus of producers and consumers, however that surplus may be distributed between them—this cost reduction would justify the merger. It would expand the sum of producer and consumer surplus from $7 ($2 for the producers and $5 for the consumer) to $9.50 ($6.50 for the producers and $3 for the consumer).

Moreover, the merger might even be said to satisfy the consumer welfare standard if one were to adhere to the peculiar sophistry that any increase in total welfare should count as an increase in consumer welfare because the increase in total welfare could be redistributed to consumers.

Because the merged producers could be forced to pay the $2.50 increase in total welfare to the consumer, leaving the consumer with $5.50, which is more than the $5 he would have without the merger, the deal could, according to this peculiar sophistry, be classified as consumer welfare enhancing.

At least in potential. And if such a transfer were made, then the consumer and the producers alike would welcome the deal (the producers would be left with $4, which is more than the $3 in profit earned without the deal). Hence GLB refer to this as the “potential pareto criterion”. It is also called the Kaldor-Hicks efficiency criterion.

Wealth Effects

Economists should have, and, indeed, did, realize from the start that willingness to pay was a doomed approach because a person’s willingness to pay changes with his budget.

Between People

Two people who would be willing to pay the same amount for an apple if they had the same wealth would likely be willing to pay vastly different amounts if one were poor and the other rich. The rich person might be willing to pay much more for the apple than would a cash-strapped poor person.

One can avoid this problem by supposing that the poor man is willing to pay less for an apple because he in fact would derive less pleasure from it. He might have to deny his child meat in order to be able to afford the apple, and that might ruin his meal.

But viewing actual pleasure as perfectly consonant with willingness to pay amounts to shoehorning subjective feelings into budget constraints.

It is just as likely that the poor man who did make such a substitution would feel a great deal of guilty pleasure. His rational faculties might enable him to forego that pleasure and give his child meat. But that does not mean that his pleasure centers would not be the worse for it. They would be.

If wealth effects matter, however, then one cannot compare producer and consumer surpluses—or indeed the surpluses generated by any two people.

One cannot say, for example, that a merger that decreases cost by $2.50 is on net a good thing if it results in a price increase of only $2 because $2.50 is more than $2, so the total amount of pleasure generated by the economy has gone up. For if the producers are rich but the consumer poor, then the $2 cost to the consumer might inflict more pain on him than the $2.50 increase in profits for the producers.

Redistribution of those $2.50 in benefits to the consumer is now required for efficiency and not just to achieve distributive justice. If efficiency is about increasing the total amount of happiness generated by the economy, and those $2.50 make the consumer happier than the producers, then efficiency requires that the $2.50 go to the consumer.

If the only implication of wealth effects were that redistribution from rich to poor is required for efficiency, then wealth effects would not be particularly problematic for progressives.

But very often a policy change not only creates a benefit and raises a price, as in our merger example, but also inflicts an economic cost in the sense of precluding some production—or aspect thereof—that consumers value.

The merger might, for example, not only reduce apple production costs by $2.50 but also lead to slightly less tasty apples. Perhaps the merger saves on costs by enabling the sale of an orchard that produced particularly tasty apples but was also relatively costly to maintain.

If the consumer’s maximum willingness to pay falls by $2 because the apple is less tasty, then the willingness to pay measure suggests that the merger should go ahead. The benefits in terms of a reduction in costs of $2.50 exceed the costs in terms of a reduction in the value of the apple to consumers of $2. There is a net gain of $0.50.

To be sure, if the price again rises to $7 as a result of the merger, consumers find themselves even worse off than before. Their surplus falls to $1 (a maximum willingness to pay of $8 less a price of $7).

But the merging producers can, at least in theory, make up for this by transferring $2 to the consumer to offset the price increase and by transferring at least $2 of the cost reduction they enjoy as well, ensuring that the consumer ends up with at least the $5.00 in surplus the consumer would have enjoyed without the deal.

And the producers, who initially enjoyed an increase in profits of $5.50 ($2.50 in cost reductions plus $2.00 from the increase in price) end up better off so long as they do not pay more than $5.50 to the consumer.

So all parties can, in theory, end up better off.

That’s because the benefits created by the merger exceed the costs by $0.50. Once one uses transfers to correct for the resulting price increase and to compensate the consumer for his loss, which is smaller than the producers’ gains, there is necessarily some net gain left over that producers and consumer can divide up, leaving them all better off.

The potential pareto criterion is satisfied and, if the transfers are actually made, so is the consumer welfare standard.

If wealth effects matter, however, then one cannot reliably compare the $2.50 benefit in terms of production cost savings to the $2 loss associated with the reduced tastiness of the apple. If the consumer is poor, then the consumer may place a dollar value on the reduction in tastiness of the apple that is far below the actual loss of pleasure the consumer would suffer in consuming a less tasty apple.

If there were utils and we could compare the value of the production cost savings to the producers to the reduction in the consumer’s happiness associated with the less tasty apple, we might find that the producers’ gain is 100 utils and the consumer’s loss is 1000 utils, resulting in a net reduction in happiness due to the merger.

Wealth effects prevent the consumer from registering his dissatisfaction in terms of willingness to pay, however, and so the merger appears to offer a net gain when in fact it does not.

It follows that the producers will never be able fully to compensate the consumer for the loss without incurring a loss themselves, and so according to the potential pareto criterion the merger should be blocked.

If we nevertheless treat willingness to pay as a measure of welfare, however, the deal will appear to be welfare increasing and the deal will go through, reducing overall happiness.

Wealth effects cause willingness to pay to lead to bad policymaking.

Within People

Wealth effects also undermine the commensurability of values with respect to the same person.

To see why, let’s go back to the example in which the merger raises prices but doesn’t reduce the tastiness of apples.

If unwinding the merger would reduce the price of an apple from $7 to $5, it is clear that the consumer becomes $2 richer. He saves $2, which he can now spend on other things.

In order for willingness to pay to be a useful proxy for welfare, one would, then, like to be able to say that the consumer is made just as well off by the price reduction as he would have been had he been given $2 in cash in lieu of the price increase.

But if willingness to pay depends on wealth, we cannot say that a $2 cash payment would leave the consumer in the same position as the consumer would be had price fallen by $2.

If a consumer cares more for apples the richer that he is, then the consumer will prefer a $2 cut in the price of apples to a $2 cash payment. Given his stronger preference for apples, the consumer might want to plow the $2 savings on apples into buying more apples, and that money would buy more apples at the lower apple price than would a $2 cash payment used to purchase more apples at the higher price.

It follows that the consumer would require a cash payment in excess of $2 in order to be made as happy as he would be if the price of apples were reduced by $2.

Similarly, we might ask whether taxing away $2 from the consumer when prices are low would leave the consumer just as happy as the consumer would be were he to experience a $2 price increase.

Again the answer would be “no.”

When the price of apples increases, it is clear that the consumer becomes poorer; his wealth buys him less. If the consumer’s taste for apples decreases with poverty, however, then the consumer will prefer a $2 increase in the price of apples to having $2 of cash taxed away from him.

Because he prefers other things to apples as he becomes poorer, the consumer will place a higher value on cash, which he can use to buy things other than apples, than he places on the price of apples.

But if a tax of $2 makes him less happy than he would be under an increase in the price of apples of $2, then a tax of less than $2 is equivalent, from his perspective, to an increase in the price of apples of $2.

So, overall, we have the peculiar result that a $2 price reduction is equivalent to a cash payment of more than $2 but a $2 price increase is equivalent to a cash reduction of less than $2.

Commensurability would, of course, require that all these things be equal.

And so we see that wealth effects not only prevent us from saying that a $2 gain to the producers creates the same amount of pleasure as a $2 gain to a consumer, but also that a $2 gain to the consumer via a price reduction creates the same amount of pleasure as a $2 cash payment. And the same can be said of losses.

GLB don’t acknowledge that between- and within-person incommensurability both stem from the same problem of wealth effects. But they do a good job of discussing both.

They also spend considerable time refuting the arguments of mainstream economists that within-person incommensurability is small and can be ignored.

But even if it were small, and indeed, even if wealth effects were not a problem for commensurability between persons either, willingness to pay would remain a highly problematic measure of value.

There is no basis for supposing that, just because two people having the same wealth level are willing to pay the same amount for a particular good, they will get the same level of pleasure from it.

Indeed, it is possible that two people who place the same relative values on all goods, and so are willing to pay the exact same amount for each good, might experience very different levels of pleasure from consuming them.

One person might take almost no pleasure from any good. Another might be sent into fits of ecstasy by the smallest purchase.

So long as the relative pleasure conferred by each good vis a vis the other goods is the same for both people, each will be willing to pay the same amount for each good. They will divide their budgets between goods in exactly the same way despite deriving very different levels of pleasure from them.

The Return to the Social Welfare Function

As GLB relate, welfare economists responded to these limitations by giving up on what might be called the overall “revealed value” approach to measuring welfare embodied in the pareto criterion and potential pareto (i.e., willingness-to-pay-based) criterion.

These criteria took a common revealed value approach because they both tried to read value from the actions of economic agents.

Whether a transaction satisfied the pareto criterion could be determined by checking to see whether the parties entered into it voluntarily. If they did, then it followed that neither party was made worse off.

And if a consumer purchased an apple at $10 but not at $11, one could infer that the maximum the consumer was willing to pay for apples was $10 and use that number to determine by how much the consumer could be compensated, pursuant to the potential pareto criterion, for the loss of an apple.

Under both approaches, economic agents were assumed to reveal the pleasure they take in goods via their actions, enabling economists to identify changes in welfare associated with various policies without needing direct access to the pleasure centers in consumers’ brains in order to make those determinations.

With the demise of willingness to pay, welfare economists would no longer try to find a way to read the pleasure and pain of consumers through their economic behavior.

Instead, they would return to the direct approach that they had abandoned more than fifty years before; they would try to measure happiness directly.

They took a variety of approaches to this problem. They would ask people if they are happy or not in various situations; they would study health indicators such as longevity, freedom from disease, and so on, in various situations; they would consult psychologists and neurologists.

Based on the results of these inquiries, they would identify the material circumstances most likely to be conducive to happiness and recommend economic policies (such as antitrust cases) that produce those circumstances.

Medical inquiry might determine, for example, that spinach is good for consumers. Welfare economists would then respond by ranking policy choices that lead to more spinach consumption higher than those that lead to less.

This was a departure from the willingness to pay approach, according to which welfare economists would have given spinach consumption the ranking implied by the dollar value that consumers revealed themselves to be willing to pay for spinach relative to what they would pay for other things.

Now other branches of science, and not revealed preference, determined the ranking.

This takes us up to the present state of welfare economics.

And for GLB, this completes the argument for taking political power and small businesses into account in doing antitrust.

According to GLB, one can no longer argue that, because consumers are manifestly willing to pay high prices charged by dominant firms, consumers like big firms and like the influence they have over politics.

Consumers’ willingness to pay is no reliable measure of the pleasure they get from buying the products of politically influential, small-business-destroying monopolists.

Instead, as already mentioned, GLB point to studies that suggest that consumers are happier in democratic environments free of concentrations of economic power. And that consumers are happier when they have access to small businesses.

It follows, argue GLB, that it is perfectly reasonable, per current practice in welfare economics, to argue that mergers that increase consumer surplus in the willingness-to-pay sense nevertheless make consumers unhappy, and should therefore be targeted for antitrust enforcement.

The Willingness to Pay Measure Is about Choice, Not Happiness

GLB’s paper presents a powerful rejoinder to any antitruster who might have been under the misapprehension that willingness to pay is a good measure of happiness. There are surely some out there.

But I suspect that the paper will not win too many converts, because what attracts people to willingness to pay is not that it is a good measure of happiness, but instead that it is the best way of doing justice to consumer choice that we have.

Welfare economics embodies a tension felt throughout the modern human rights project regarding who decides what happiness means.

Do we study human beings as if they were complex robots, figure out what makes these machines happiest, and impose those conditions on them? Or do we let the machines decide what makes them happiest?

GLB tell the story of welfare economics as if the field has always been interested only in the first option: to figure out what makes people happy and then impose those conditions upon their economic lives.

Under this assumption, GLB’s conclusion follows immediately from the arc of welfare economics. Willingness to pay is not a good measure. Others must be found.

But, as GLB acknowledge, economists have known almost from the inception of the willingness to pay approach in the 1940s that it was unsound. Why hasn’t the field moved on?

GLB chalk it up to “zombie economics.”

The real reason is that many people want to preserve a space in which consumers can vote for what they want through their purchase decisions.

That is, these people don’t view economics as a descriptive science but rather as a democratic project. It is the project of empowering consumers to vote on the character and magnitude of production through their purchase decisions.

The willingness to pay measure is ultimately built upon such a foundation, because willingness to pay is measured by observing the prices at which consumers do and do not buy.

The measure is highly imperfect, even incoherent, but it is the only way economics knows to recommend policy changes that account for the votes consumers have cast in markets. It honors their choices.

Happiness surveys, public health information, and the like are based on consumer input, but they are not based on purchase decisions—they are not based on circumstances in which consumers are forced to put their money where their mouths are.

Of course, the question whether consumers should take direction from experts regarding what to buy, or make those choices themselves, has already been resolved in favor of consumer choice.

Neither GLB nor anyone else will be able to impose purchases on consumers unless consumers vote to elect political leaders who take the GLB approach.

If antitrust enforcers decide to follow GLB’s paper, but consumers don’t like it, consumers can always vote political leaders into office who will sack those enforcers or give them new legislative commands to follow.

The premise of the economic project of enabling consumers to vote through their purchase decisions is, however, that the electoral process is defective.

The assumption is that, at least with respect to industrial production, consumers are better able to choose by voting through purchase decisions than by voting for elected representatives to direct production.

That is the subject of public choice theory. It is the view that, at least with respect to some matters, markets are more democratic than democracy.

People who hold this view won’t be swayed by GLB. In their view, markets are most likely to maximize happiness if they are structured to read it in consumers’ purchase decisions, not if they are structured by consumers’ elected representatives to achieve happiness according to any other measure.

Ultimately, the battle in antitrust over the consumer welfare standard, is, like all battles over regulation, a battle over the legitimacy of the electoral process.

And yet progressives have spent remarkably little time contesting the public choice view of the electoral process and government regulation as inherently vulnerable to capture.

I suspect that is in part because many progressives share the public choice intuition.

Indeed, distrust of government seems to be one of the major reasons for which some progressives have focused in recent years on strengthening antitrust instead of pursuing the projects that earlier generations of progressives thought were more likely to be effective, such as price regulation and taxation.

Even an antitrust that imposes an external standard of happiness on markets instead of trying to read a standard from consumer purchase decisions pays a certain amount of respect to those purchase decisions. It is oriented toward preserving markets and empowering consumer choice within them.

In contrast, taxation and price regulation are relatively indifferent to those goals. They represent a pure privileging of choice via the electoral process over choice via markets.

And to many people from both left and right operating in an essentially anti-statist culture, that’s scary.

The irony, then, may be that the worldview required to overturn the consumer welfare standard in antitrust is undermined by progressives’ own attraction to antitrust as a vehicle for progressive change.

Antitrust Monopolization World

Does It or Doesn’t It?

An important part of the Chicago Revolution in antitrust was the argument that no monopoly is forever. Eventually, someone will innovate and offer a superior product that the monopolist cannot match. And, just like that, the monopolist will be history.

Microsoft’s lock on operating systems looked assured in 1998 when the Justice Department tried to break the company up. But that remedy was never ultimately imposed. And in the end it didn’t matter. For, less than ten years later, smartphones arrived, and now most people do most of their computing on operating systems not made by Microsoft.

It seems to follow that antitrust action is a waste of time.

So interesting, then, to hear all the talk of late about how, despite its best efforts, China won’t be able to catch up with the West in chip production.

Not for decades.

Maybe never.

We are told that chip production relies upon an entire ecosystem of designers and suppliers. That experience matters. And so on.

But if that’s right, then the view that no monopoly is forever must be wrong—or at least not absolutely true in all cases. If the Western chip fabs have a near-permanent lock on the market, then it can’t be the case that we can always rely on markets to erode monopoly power. It can’t both be true that China can never catch up with the West on chips and that no position of market dominance is forever.

So which is it?

I suspect that those who think China can never catch up are wrong.

It may well be the case that the learning curve on chip production is such that a latecomer will never be able to catch up with a first mover absent technology transfer. But the argument about the impermanence of monopoly power has never been that newcomers will one day master the incumbent’s technology. It has always been that newcomers will one day introduce a completely different technology that carries out the same tasks as the old technology, only ten times better.

To this day, Microsoft continues to dominate the market for PC operating systems. What eroded Microsoft’s power was the introduction of a different technology—smartphones—that required a different kind of operating system. Microsoft didn’t start out with a lead in mobile operating systems, and, in the event, Microsoft lost the race.

So the question about whether China can overcome her lack of cutting edge chip supply and find a way to go head to head with the West as computing revolutionizes everything from military equipment to passenger vehicles is really the question whether China can come up with different technologies that do computing better—not just more semiconductors.

I don’t know the answer to that question. But it is perhaps useful to note that while China is not a leader in the design and production of conventional chips, China is a leader in quantum computing—which promises vastly greater processing speeds—and in artificial intelligence.

Indeed, it is worth asking whether TikTok’s success at challenging both Google’s dominance in search and Facebook’s dominance in social media doesn’t contain a lesson. At the same time that at least some Americans were quaking in their boots regarding these American tech giants’ size—and calling for antitrust enforcement—TikTok was quietly applying superior artificial intelligence to revolutionize the core functionality of both companies. TikTok is a Chinese company.

The view that technological advance always ultimately erodes dominant positions is perhaps most closely associated with Joseph Schumpeter, who called this process “creative destruction.”

The question, then, is whether the West should worry that creative destruction will erode its dominant positions.

If the Chicago School of antitrust is right, the answer is “yes.”

Antitrust Tax

British Direction

Energy companies are making windfall profits in both the United States and the United Kingdom.

In the United States, progressives in the Biden Administration blame monopoly and call for more antitrust enforcement.

The theory is that the antitrust enforcement will cause firms to compete more heavily.

Which will cause them to lower prices.

Which will cause their profits to decline.

Which will cause both rich and poor people to pay less for energy.

Which will make poor people a little richer, completing the redistribution of a portion of those profits.

In the United Kingdom, the government just taxes away the windfall and mails checks to the needy.

When you really want to get something done, you take a direct approach.

The only direct way to redistribute is: tax and transfer.

Antitrust Monopolization

Antitrust Preemption

The best way to regulate the tech giants is to tax the immense scarcity rents they generate. Instead of doing that, the Biden Administration has gone all-in on antitrust action, which can’t touch those scarcity rents, even if antitrust action does succeed at making tech markets more competitive, which is unlikely.

When I make this point, people tell me: “don’t worry! Taxation and antitrust action aren’t mutually exclusive. The Biden Administration is also pro-tax.”

Well, is it?

The Canadians are planning on taxing the tech giants, and instead of rushing to complement this sound policy, by imposing our own tax, the Biden Administration is threatening to retaliate if they don’t scupper their plans.

An administration, like everything else, has a budget constraint, denominated in attention as well as dollars. If it is going all-in on one thing, it’s not going all-in on another.

And to go all-in on one policy, an administration may need to reject others in order to maintain the coherence of the one it favors, which seems to be happening here. The Biden Administration is complaining that it’s unfair for Canada to single out American tech companies for taxation, something that would have less bite if America were singling them out itself.

So, please don’t tell me that yes, you agree that antitrust probably can move the needle only very slightly, if at all, but why not try it anyway?

If you’re trying it, you’re not trying the stuff that actually works.

Antitrust Monopolization

Some Goliath

I do not understand Paul Krugman here:

Yes, there’s a profit-maximizing price, but the cost to a business of charging somewhat less than its profit-maximizing price is small, because lower margins would be offset by increased sales. (To be formal about it, the losses caused by deviating from the optimal price are second-order.) This wiggle room means that corporate pricing may be strongly influenced by intangible considerations, like fear of alienating buyers. . . . Given this reality, it’s not foolish to suggest that some corporations have seen widespread inflation as an opportunity to jack up prices by more than their costs have increased without experiencing the usual backlash.

Paul Krugman, Do Democrats Have a Technocrat Problem?, N.Y. Times (Feb. 22, 2022).

I agree that corporations don’t have to worry about experiencing the usual backlash. Because they are experiencing way, way more than the usual backlash, and not just from consumers, as shown in the poll to which Krugman cites, but also from, you know, The White House.

I mean, if you asked me what the worst time ever would be to jack up prices, I would say that it’s in the middle of a global pandemic in which any price increase is going to be viewed by a surly public as price gouging.

But I guess that’s just me.

There’s something else I don’t get about this argument.

Monopoly power is the power over price that comes from artificial scarcity; it comes from firms voluntarily holding something back. But firms are producing and selling more than ever before, at least if the amount of stuff transiting through ports is any measure. Savannah, for example, was recently operating 50% above pre-pandemic levels.

How can firms be holding something back while increasing their output by anywhere near that order of magnitude?

It’s possible that they could go even further but purposefully aren’t. But we have almost no true monopolies in this country in the sense of single firms alone serving entire markets. The meatpacking market that is so concerning the Biden Administration is concentrated, but it still has four large players.

How does a group of three or four firms ramping up output to meet surging demand still manage to hold something back, especially when the true extent of demand is unknown (as it always is) and holding back by too much while other firms continue to increase supply is a recipe for a catastrophic loss of market share?

The answer is: by actually coordinating output directly with each other—forming a cartel—just as we often see firms that are trying to reduce output in response to declining demand meet to try to manage the reductions in a mutually profitable way.

But no one seems to be alleging that American industry is cartelizing. Antimonopolists want to break up large firms, not bust cartels.

It’s much more likely that the price increases are what they appear to be: driven by scarcity.

I’m also a bit confused about this:

And perhaps an even more important point, cracking down on excessive industrial concentration and market power would help reduce inflation, regardless of the role market power played in causing inflation in the first place. As an old line puts it, you don’t have to refill a flat tire through the hole.

Antitrust cases last a long time. The Department of Justice sued AT&T in 1974. The company was broken up in 1982. If inflation is still 7% in 2030, it will have become structural, and only another Saturday Night Massacre will save us.

There are plenty of good reasons to want to eliminate monopoly pricing, and industrial deconcentration is one way to do that. But reducing inflation isn’t one of those reasons. I’m all for faster antitrust enforcement, but the reality is that the courts and inflation move at very different speeds.

And that’s before we even consider that antitrust action is a one-time fix. You can only deconcentrate the economy once. But inflation is a perennial problem. Once all those antitrust cases have gotten prices down ten years from now, antitrust won’t have anything to offer in combating the next inflation, either.

Even if Krugman is right about market power and the current inflation, what being right here gets progressives is almost nothing. Here’s how Krugman puts it:

Nobody sensible would argue that opportunistic exploitation of market power is the main factor behind recent inflation. But contrary to what some people might want you to believe, economic theory by no means rules out the possibility that it may be a factor.

It cannot be ruled out that monopoly is a factor in inflation? The progressive movement I signed up for pursues policies that it knows make a difference. Like taxing the rich. Not stuff that “can’t be ruled out as being a factor.”

And Krugman is usually all about the big stuff. So why not one, but two columns now trying to defend the possibility that monopoly might matter albeit not as much as other things?

Sadly, I think that’s because antimonopolism has eaten the progressive mind over the past few years.

It’s no longer mere policy serving as a means to an end.

It’s now ideology. An end in itself.

Progressives know that Goliath must be slain, and they are going to insist on it, no matter what, even if the most that can be proven about Goliath is that he can’t be ruled out as a secondary cause of the economic problems we care about.

Some Goliath.

Antitrust Monopolization

Progressive Cologne

So here’s my suggestion: Give Biden and his people a break on their antitrust crusade. It won’t do any harm. It won’t get in the way of the big stuff, which is mostly outside Biden’s control in any case. At worst, administration officials will be using inflation as an excuse to do things they should be doing in any case. And they might even have a marginal impact on inflation itself.

Paul Krugman, Why Are Progressives Hating on Antitrust?, N.Y. Times (Jan. 18, 2022).

It probably won’t work, so let’s do it?

We need to do it for other reasons, so let’s do it for the wrong reason?

There’s a word for this: Obsession.

Meanwhile, elsewhere in the piece, Krugman dismisses price controls, which are one remedy that would actually solve a few problems in the highly efficient (and hence unwise-to-break-up) industries, like meatpacking, to which he’d like to take the antitrust axe. (Not even price controls would, however, help with inflation.)

Krugman did write the introduction for a recent edition of the General Theory, but he diverges from his teacher on antitrust.

Keynes famously thought inflation, or the lack thereof, had nothing to do with competition, monopoly or any other microeconomic phenomenon, which is why he disdained both the N.R.A. and Thurman Arnold. Instead, he invented a whole new branch of economics—macroeconomics—to explain it.

But if there’s no intellectual foundation for progressive antimonopolism, why does it so appeal? As Krugman’s evocation, elsewhere in the piece, of J.F.K. talking tough to the steel industry suggests, it’s a macho thing—progressives thumping their chests at corporate America.

If that sounds a bit savage, there’s a cologne for that, too.

Antitrust Monopolization

Victor Hugo: Pro-Trust

[T]he prosperity of [the town] M. sur M. vanished with [its mayor and leading business owner] M. Madeleine; . . . lacking him, there actually was a soul lacking. After this fall, there took place at M. sur M. that egotistical division of great existences which have fallen, that fatal dismemberment of flourishing things which is accomplished every day, obscurely, in the human community, and which history has noted only once, because it occurred after the death of Alexander. Lieutenants are crowned kings; superintendents improvise manufacturers out of themselves. Envious rivalries arose. M. Madeleine’s vast workshops were shut; his buildings fell to ruin, his workmen were scattered. Some of them quitted the country, others abandoned the trade. Thenceforth, everything was done on a small scale, instead of on a grand scale; for lucre instead of the general good. There was no longer a centre; everywhere there was competition and animosity. M. Madeleine had reigned over all and directed all. No sooner had he fallen, than each pulled things to himself; the spirit of combat succeeded to the spirit of organization, bitterness to cordiality, hatred of one another to the benevolence of the founder towards all; the threads which M. Madeleine had set were tangled and broken, the methods were adulterated, the products were debased, confidence was killed; the market diminished, for lack of orders; salaries were reduced, the workshops stood still, bankruptcy arrived. And then there was nothing more for the poor. All had vanished.

Les Miserables