[The Don]

I just wanted to quickly start up an antitrust debate since I have not seen one on these forums yet. In my opinion, the only way one can be in favor of antitrust regulation is if they are ignorant to or misinformed on several economic principles (and, to a smaller extent, the nature of government intervention).

Fallacies:

1) Firms can gain monopoly status without the aid of government

I am not one to claim that it is impossible for firms to attain a monopoly status which is detrimental to consumers. I will claim, however, that this is impossible without the aid of government. Take Microsoft for example; the prices of their software would be significantly lower if it were not for the state-imposed intellectual property laws. Simply put, these laws prevent other firms from entering the market -- not the efficiency of Microsoft’s production. It is ironic that the government went after Microsoft for their monopoly via antitrust, seeing how it is the entity which caused it.

2) Competition is based on the quantity of firms in the market.

This is based on popular ‘perfect competition’ models which seem to have dominated economic thought throughout the twentieth century. It is my assertion that a market can both competitive and efficient with but a single firm. How do we know this? Because the prices are low and the firm is profiting. Under these circumstances, one particular firm is able to produce and distribute their goods and services so efficiently that their competitors cannot enter the market. Prices are low, the firm is profiting, everyone is happy. The number of firms has nothing to do with the efficiency of the market.

3) Predatory pricing is profitable for businesses

I think it is clear to everyone that predatory pricing is unprofitable for the monopolist in the short-run. I contend, though, that there is no way for this to be profitable (or at least more profitable than standard pricing practices) in the long-run. For example, Wal-Mart has held a very dominant market position for well over a decade; putting many other firms out of business with their low prices. During this time, however, they have continued to offer the lowest prices in the market, failing to artificially raise them at the expense of the consumer. They are profiting, and the consumer is receiving goods at low prices. Why is this? Why wouldn’t they just sell below cost in an attempt to drive everyone else out of business, and then raise prices to artificially high levels?

The primary reason is the fact that Wal-Mart knows that it provides goods in a world of imperfect information, namely differing tastes and preferences. They realize that just because their prices are the lowest doesn’t necessarily mean that they will put all competing firms out of business. While prices are certainly important to consumer demand, there are other factors involved. This is the nature of imperfect information and differing tastes and preferences. Because they are uncertain about the future of the market, it is unsafe for them to lower prices to the level which is very likely to put other firms out of business. Why? Consumers will harbor a grudge (change in tastes and preferences) against the monopolist when they raise their prices to artificial levels. At the same time, other firms will see the opportunity to enter the market, given the high prices and the overall dissatisfaction with the monopolist. The monopolist may again try to lower prices to below cost, driving the other firms out, and the cycle will continue... Here’s the point; this predatory pricing scheme simply isn’t more profitable than offering products at a price which is reasonable in relation to their costs. It just doesn't make sense for the predatory firm to constantly manipulate prices in the face of competition, when, under normal circumstances, they would have a dominant market position regardless. This is the reason why predatory pricing is so uncommon, not antitrust legislation.

Feel free to debate.