Beware the Mad Dogs of Antitrust

by Don Boudreaux on February 9, 2022

in Antitrust, Competition, Myths and Fallacies, Seen and Unseen

Other problems infect Lonsdale’s call for siccing the dogs of antitrust on Amazon, but this letter to the Wall Street Journal is already too long.

Editor:

Calling on antitrust authorities to separate Amazon’s web-service division (AWS) from Amazon’s other divisions (“The Case for Splitting Amazon in Two,” Feb. 8), Joe Lonsdale exhibits a flawed understanding of antitrust doctrine, of economics, and of economic history.

Mr. Lonsdale commits a subtle but telling error by claiming that the consumer-welfare standard “holds that certain anticompetitive behaviors may be permissible if they provide value to consumers.” In fact, the consumer-welfare standard holds that all practices that provide value to consumers, regardless of their impact on rival firms, are competitive. The great benefit of the consumer-welfare standard is precisely that it recognizes both that real-world competition takes many forms, and that the only appropriate standard under antitrust for judging the merits of any business practice is whether or not it promotes consumer welfare. If the practice does, it’s competitive and lawful.

So how are consumers faring? Quite well! That the low prices enjoyed today by Amazon’s customers perhaps result from Amazon’s shareholders spending some of their wealth to make these low prices possible is no antitrust offense.

Mr. Lonsdale will reply that these low prices become an offense if they are “predatory.” But assertions of predatory pricing are like assertions of sightings of Big Foot: Proof is never found. The profit motive is too powerful, entrepreneurs too creative, and markets too dynamic to make predatory pricing a viable monopolizing strategy in reality. History knows of no unambiguous instance of a private firm, operating in the market, that sold at allegedly predatory prices only to later gain monopoly power used to harm consumers for any length of time. History, however, does know of many instances of government officials and courts – especially before the consumer-welfare standard became dominant – mistakenly identifying competitive prices and practices as “predatory” and then using antitrust to deny to consumers the benefits of competition.

Antitrust doctrine, economic theory, and economic history combine to counsel strongly against unleashing on Amazon the dogs of antitrust.

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

Add a Comment    Share Share    Print    Email

Previous post:

Next post: