Antitrust and the Regulatory Enterprise

Abstract

Since before the Middle Ages economic policy in western society has gone through cycles of greater and lesser confidence in markets. When confidence is low, the government intervenes with everything from price regulations and output limitations to licensing restrictions on new firms. Often economists are not very sensitive to this very long and cyclical history. They write as if today we finally have the right answers. But just as certainly as the strongly pro-market period of classical political economy was followed by Progressivism in the 1920s and the New Deal in the 1930s, so too the strong free market ideologies of today will someday yield to renewed interest in regulation. This cyclical history inclines people to view antitrust and regulation as competing models for determining the appropriate scope of state intervention in the micro-economy. At the margin they certainly are competing, because we are never certain about where the boundary lies. However, a better way to view the two enterprises is as complementary products. We live in a world in which the great majority of markets clear at efficient, or something close to efficient, levels of output. Even now though, a few markets are exceptional. Because of serious imperfections–chiefly imbalances of information, free rider problems, and significant scale economies–some markets fail to clear at efficient levels, at least within the time frame that our government thinks is appropriate.