Antitrust Laws Need Regulatory Reform

A MAJOR goal of the new Republican Congress is to reduce the burden of regulation on the American economy. Among the regulatory laws that have most outlived their usefulness, and are most deserving of radical reform, are the antitrust laws.

These laws are based on the idea that competition only exists when there are many firms in an industry, none of them are too large, and none of them collude to fix prices. Although there is nothing in them that says it is a crime for a business to be too big, in practice it is.

The Justice Department and the Federal Trade Commission (FTC), which share jurisdiction over the antitrust laws, are always on the lookout for a company that dominates its market, even if it does so simply by offering the best products at the best prices. They are always suspicious that size will somehow translate into market power, with adverse consequences for consumers.

In fact, there is no evidence that consumers have ever been hurt by mere corporate bigness. Indeed, the Commerce Department reports that there has been virtually no change in corporate concentration for the last 25 years.

The latest target of the government's obsession with bigness is Microsoft, the world's largest software company. Some 80 percent of the world's personal computers run on Microsoft operating systems, including the well-known DOS and Windows systems. Four years ago, the FTC launched an antitrust investigation of Microsoft. When the case bogged down for lack of evidence, the Justice Department took it up again.

What the case against Microsoft really boils down to, however, is simply that it has been too good at what it does, and its competitors have not been so good.

A prime example is Apple Computer, which at one time had the dominant operating system, which many people still believe is the best. But Apple made a serious strategic error early on when it refused to license its system to anyone else, in hopes of forcing people to buy all of their software directly from Apple. By contrast, Microsoft licensed its system widely, leading to a vast proliferation of software programs based on it. The greater availability of such programs, and the limited availability of Apple programs, caused Microsoft to take off while Apple lagged behind.

Now, Microsoft's competitors are trying to win in court what they could not win in the marketplace. What is less clear is what interest the United States government has in the matter. Presumably, it must be that people are paying higher prices or are suffering in some other material way from Microsoft's dominance of the computer operating system industry. However, computer and software prices are not rising, but falling. Where is the evidence that consumers, as opposed to Microsoft's competitors, have suffered?

Increasingly, economists view the antitrust laws as outdated and ill-suited to the economic conditions of today. They point out that these laws first came into existence at a time when the US had high tariffs against imports. Thus it made sense for the government to be concerned about maintaining competition in the US economy.

Today, however, with the passage of GATT and NAFTA, US trade barriers are a small fraction of what they used to be. Consequently, there is less reason to be concerned about companies growing too large.

But even if one believes that antitrust laws still have a role, the high-tech industry is probably the last place they are needed. The US computer and software industry is without a doubt the most competitive industry in the world today. Competitive advantage is fleeting and companies on top one day are gone the next.

Even if every regulatory item in the Republican Contract becomes law, there is still more to be done. Antitrust law reform should be high on the regulatory reform agenda for the second 100 days.