Antitrust on Trial: Why the FTC is an Arbitrary Threat to Fair Business

While primarily motivated by a desire to promote consumer welfare, antitrust has become a witch hunt which endangers the ability of businesses in general to effectively operate. Antitrust regulation was created on the idea that businesses can effectively collude to keep prices high, and that the emergence of monopolies will create a stable threat to low prices. Theoretically in “perfect competition,” businesses will be making zero profit and consumers will capture a maximum amount of utility. While even antitrust regulators acknowledge that this is not how the market functions in real life, they do not have a strong positive vision to replace the unrealistic model. Antitrust enforcement has key weaknesses that arbitrarily harm consumers and producers.

Antitrust regulation necessarily adds an element of radical risk to every business decision. While prosecutors may have a clear idea of how antitrust is to be enforced and the relevant precedent, it is difficult for businesses to keep the same legal knowledge ever-present. This requirement unnecessarily burdens small and medium sized businesses that do not have access to legal advisory council. Thankfully most antitrust cases will avoid smaller businesses, but history has shown that the state is not afraid to prosecute even the smallest businesses. Making plans for the future and setting prices become much more difficult when a somewhat arbitrary actor with nearly unchecked power comes into play. Even the method of determining the validity of the Federal Trade Commission’s claims, fair trial, takes up the precious time and money of the business being prosecuted. While this same burden applies to generally corrupt businesses (not being prosecuted for antitrust reasons specifically) they bear both a moral weight and the weight of knowledge in those circumstances, as it is much easier to avoid explicitly illegal business practices. Because monopoly and unfair pricing have been defined in so many different ways, even well-meaning businesses can stumble into a FTC suit.

The second problem with antitrust enforcement is that many historical cases have shown a lack of motivational clarity. Protection of consumers and the protection of small businesses are often contradictory to one another, yet they are both used to justify new antitrust regulation. Even from its inception, the FTC has had an identity crisis, being unable to clearly define the difference between harming competition and harming other specific businesses through higher efficiency. The greatest outcomes of competition happen to very closely mirror some of the outcomes of illegal price manipulation. 

This can be seen even in a simple thought experiment. A firm intending to take another firm out of the market to raise prices lowers their price for an extended period of time so consumers stop buying from the other firm. Unable to cover their operating costs, the other firm exits, making the market significantly less competitive. Now that there is only one firm, they’re able to raise prices with consumers having little recourse if the good does not have many close substitutes. This is similar to the Northwest Airlines case where Spirit was unable to continue offering flights from Detroit to Pennsylvania. With no change to operating cost, the Northwest Airlines lowered prices until Spirit left the market and immediately drove their prices up after Spirit left. This sort of action directly harmed budget consumers, and potentially harmed all people who wish to fly. On the other hand, a situation extremely similar to this could result just from good business practices. If one business has an innovation or other method that allows them to have lower marginal cost and sell at a lower price while still making a profit, they can drive a competitor out of the market. However, if consumers demand more than the one firm still in the market can offer, they must raise prices to avoid causing a shortage. Additionally, as the company realizes they can charge more than they used to, it would be natural for them to slowly bring their prices up. If consumers will pay more for something, we describe raising price as a good business practice rather than a detriment to society. Not punishing Northwest in the first circumstance sets may set dangerous precedent, yet punishing the stronger firm in the second example would be a grave mistake. The similar exterior yet fundamentally different internal circumstances of these two situations highlight the difficulty of antitrust enforcement.

The task of the FTC is simply too great to allow for consistent success. While they have incredible power and freedom, they would not be able to enforce or remedy all of the antitrust suits that they legally should even if they wanted to. The subset of “anticompetitive” businesses that are  prosecuted is determined by the focus of the Attorney General at that time, leading to a frightening situation for business owners, where they are unable to predict or understand which antitrust principle will come into vogue next. Without even mentioning the difficulties of finding proper punishments, the vague rules by which the FTC operates mean that they create an environment inherently harmful to trade.

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