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Antitrust Law Obstructs Beneficial Market Forces

Here’s a letter to the Wall Street Journal:


Holman Jenkins correctly argues that among the ways that competitive markets efficiently prepare for the long-run is to encourage, during slack times, price-fixing among firms with high fixed costs (“Government Punts to Business,” May 2). Large capacity is costly, and when customer demand is temporarily weak, prices that cover only the additional costs incurred to supply the relatively few units demanded contribute too little toward covering the cost of maintaining larger capacity that would prove useful over the long-run.

But since the late 19th-century privately arranged price-fixing among rival firms is, in the language of antitrust law, illegal per se – that is, always and without exception. Economist George Bittlingmayer, in a series of pioneering studies, rightly criticized this prohibition on price fixing. He showed that, in addition to encouraging otherwise inefficient mergers, this prohibition of price-fixing blocks the market’s ability to maintain optimal capacity over the long run.

Antitrust-law’s blanket prohibition of price-fixing among rival firms – a prohibition unfortunately endorsed by mainstream economics’ much too narrow and mechanical definition of competition –is thus one way that government obstructs markets’ disposition to attend to the long-run.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030


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