Antitrust Policy Found to be of Little Benefit

23 January, 2004

Antitrust Policy Found to be of Little Benefit to Consumers

An important study just published in the respected Journal of Economic Perspectives should be of interest to all those involved in competition policy in New Zealand, Roger Kerr, executive director of the New Zealand Business Roundtable, said today.

The article, 'Does Antitrust Policy Improve Consumer Welfare? Assessing the Evidence', asks whether there is any hard empirical evidence that competition or antitrust policies work in the broad social interest.

The authors, noted economists Robert Crandall and Clifford Winston, are Senior Fellows in the Democratic Party-aligned Brookings Institution. Both appeared in hearings before the Commerce Commission last year.

Their study finds little empirical evidence that antitrust interventions in the United States "have provided much direct benefit to consumers or significantly deterred anticompetitive behaviour." In particular, action to block mergers was found to have been particularly inefficient, in many cases prohibiting productive mergers that increase consumer welfare.

The researchers note that competition policy poses great difficulties for regulators, especially in an era of dynamic competition and rapid technological change.

It is also often hijacked by rival producers to gain competitive advantages - producer rather than consumer interests are predominantly represented in antitrust cases.

Ultimately, the study concludes that "any deterrent effect of the antitrust laws may be relatively small compared with the well demonstrated ability of competitive markets to deter anticompetitive monopolies, collusion and mergers." This "leaves antitrust policy with relatively little to do."

The authors do not make policy recommendations but suggest that "the economics profession should conclude that until it can provide some hard evidence that identifies where the antitrust authorities are significantly improving consumer welfare and can explain why some enforcement actions and remedies are helpful and others are not, those authorities would be well advised to prosecute only the most egregious anticompetitive violations" - such as blatant price fixing and merger-to-monopoly cases - and to "treat most other apparent threats to competition with benign neglect."

Mr Kerr said that the study is relevant for New Zealand for two reasons.

First, no comparable empirical investigation has been undertaken as to whether the administration of the Commerce Act, which is costly in terms of public and private sector resources, has benefited consumers or the economy. This gap should be filled. It is not obvious that such an investigation would reach findings that differ from the American experience reported in the study.

Secondly, the government has taken a more interventionist approach to competition policy and to the regulation of industries such as telecommunications and electricity. The role of the Commerce Commission has expanded considerably, and some of its work has been of poor quality. Paradoxically, given the point made about the force of market competition, the government has adopted anticompetitive measures such as giving the ACC a statutory monopoly and increasing the power of unions in the labour market.

"The Brookings Institution authors caution that interventions on competition grounds can do more harm than good. The onus should be on the government to produce empirical evidence that its competition policies have a firm foundation", Mr Kerr concluded.

Source: Robert W Crandall and Clifford Winston, 'Does Antitrust Policy Improve Consumer Welfare? Assessing the Evidence', Journal of Economic Perspectives , Vol 17, Number 4, Fall 2003, pp 3-26, available at:

http://www.criterioneconomics.com/documents/crandall_winston_antitrust.pdf

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