The Myths of Antitrust

The Myths of Antitrust: Economic Theory and Legal Cases, by D.T. Armentano, New Rochelle: Arlington House, 1972, Pp. 287, $11.95.

Adam Smith understood quite clearly the evils of monopoly, and every freshman economics student is expected to learn the litany now made elegant by line graphs of marginal revenue, average revenue and marginal cost. Hence, a law which casts monopolists into fire and brimstone is almost as widely beloved among economists as laws against theft.

In MYTHS, Armentano means to destroy public confidence in the benevolence of antitrust policy. His attack is really two-pronged. First, he raises the fundamental question of whether any antitrust legislation or policy can be consistent with the notion of freedom of choice and market competition: If buyers prefer the wares of a monopolist to those of his would-be competitors, what ethical principle drives us to the conclusion that these buyers would be better off if the monopolist were legally barred from making such attractive offers? Second, Armentano addresses a more "practical" question: What evidence exists that actual antitrust policy has resulted in economic gains?

Armentano seems to realize that few persons favorably disposed towards antitrust in principle will be dissuaded from their philosophical position, for he devotes only a small portion of the book to examining the ethics of antitrust policy. After pointing out the fundamental inconsistency of first endorsing free market competition and next advocating laws prohibiting competition resulting in monopoly, Armentano turns to look at the empirical evidence to see whether one can show that antitrust is in the "public interest." Presumably, if there is no evidence of important social benefits from antitrust enforcement, one cannot possibly rationalize interference in market processes.

The general reader will find Armentano's review of the enforcement of antitrust enlightening. He successfully debunks the notion that governmental intervention to "correct" market structure has produced demonstrable improvement in economic performance in the "corrected" market. MYTHS should be read by students of antitrust if only because Armentano brings to light material typically excluded from standard discussions of the antitrust cases. (The standard works generally focus on the "legal" statement of policy or the "theory" adopted by the Court.) In most instances, it would appear that the results of the decisions work against the public interest. This finding conforms to a law enunciated by Procter Thomson: Bad economics make bad ethics.

While MYTHS is a scholarly work, it seems directed primarily at persons whose knowledge of economics is relatively unsophisticated. The exposition is entirely verbal (no recourse to mathematics or even geometry) and includes an introductory chapter on the theory of the market system. But consider the following passage from Chapter 2:

If all producers' outputs were so small that each had no effect on market price, then all producers take as given the one and only market price determined by general supply and demand forces. Individual prices higher than market price were not possible; individual prices lower than market price were foolish and irrational. Hence, market price became the individual demand curve facing each firm and was a horizontal line at every possible output level. (p. 28)

Since Armentano hasn't defined, say, a demand curve, the reader must be assumed to understand such concepts. Most of the book can be appreciated, however, if one is but vaguely familiar with economic jargon and principles.

The major weakness of this book is Armentano's failure to provide us with an explicit "new" theory to replace the classical theories (of competition and its dependency on market structure). The theories—or perhaps more correctly, perspectives—of Joseph Schumpeter and Edward Chamberlin are cited, but it is unclear that Armentano means to embrace one or the other. Granted that the "competitive model" has been misused in mounting attacks on open market monopoly, do we really need to discard the model?

And in favor of what? The relevancy of Armentano's empirical evidence depends on the theory one has of economic behavior, and he has not made the "correct" theory explicit. Before Armentano "converts" many economists he shall have to pay greater detail to the theoretical foundation of his position. Nevertheless, MYTHS represents a forage into an area of public policy too commonly presumed to be at worst benign; if Armentano is correct, the denial of property rights to would-be monopolists is not justified by gains in social welfare.

Dr. Ozenne recently received his Ph.D. in economics from UCLA where he studied under Prof. Sam Peltzman. He currently works as an economist for a California think tank.