 Well, I hope you're all enjoying day two of Mises University, all right I guess day three if we count the opening night festivities I know I'm having a good time enjoying talking to many of you about markets and competition and you know you may have the impression from listening to some of the lectures that Austrian economists are the only Thinkers the only writers who have anything positive to say about markets, right? We talk about these other economists these bad people, you know who Who have a different take on how markets work than the Austrians do but you know It really isn't the case that all non Austrian economists are hostile to markets I mean, of course you have a few, you know crazy Marxists and the weird sorts of people I interact interact with on social media Who think that markets are completely bad and wrong and we should replace them all with? with governmental decision-making but actually most economists even those who are not trained in the Austrian tradition You know they do see positives in markets, right? They think that markets are good at accomplishing certain things in fact They would probably say that yeah markets are pretty good for producing Most goods and services, you know shoes toothpaste computers automobiles, etc Kind of mundane everyday goods and services. Yeah, we probably don't want the government put in charge of toothpaste Or or shoes we see some reasons why that you know we see some drawbacks, but Let's not go overboard Right there there's certain things that markets don't do well and for these things we need some kind of intervention policy intervention to fix them for example Markets don't incorporate external benefits and costs so-called externalities They don't we don't necessarily have a price that incorporates all of the potential spillovers Positive and negative that can lead to undesirable or suboptimal market outcomes Markets aren't good at supplying Certain kinds of goods and services so-called public goods like education Healthcare law police defense and so forth So we need the state to fund these public goods through taxation and then provide them to anybody whether you want them or not Basic science has become in recent decades one of those so-called public goods that gets a lot more attention I'll talk about that a little bit more in my later lecture in the week when we discuss big tech And finally there's the claim that well on an unregulated Competitive free market things might be okay for a while, but eventually there's a tendency For monopoly power to emerge right one firm will out-compete a bunch of other firms until it gets super large And maybe we might only have one firm dominating the entire industry Amazon Wal-Mart, etc And we need to rein those firms in to keep them from abusing their so-called monopoly position So we need a body of antitrust law We need competition policy in the form of regulation and so forth to make to sort of correct these errors in Market outcomes so these are all examples of what your professor might call market failure So you probably heard your professor say well markets are fine But we need government to intervene to correct market failures I want to talk in particular about this last point the claim that left to their own devices markets will produce There's a tendency for monopolies to emerge and that we need to do something about them in order to have competitive markets Many economists believe we need the government to play an active role in keeping markets competitive What do they mean by competitive? Let's think about the the word competition right, I mean in everyday language a competition refers to some kind of a State of affairs in which one or more parties are competing to beat each other in some kind of a contest Right, so we think about competitions in sports or a competition in school This is a photo from a few years back at Mises you of a really intense chess competition between Tom Woods and Walter Block Both of whom in addition to being very accomplished libertarian scholars are also Very good chess players We also use the word competitive, you know as an adjective to say well, you know that contest was particularly competitive Right, so me versus you know LeBron James in one-on-one would not be super competitive But me versus some other old out-of-shape guy might be more competitive Okay, so if it's more even we refer to that process or contest as being more Competitive so, you know, this is just sort of the ordinary language notion of what it means to compete It refers to rivalry or a situation in which rivals are trying to best each other to achieve some outcome or some goal Now if you were paying attention to the judges lecture last night as I'm sure you all were you might have noticed Him in his discussion of the interstate commerce clause He said right the states were prohibited from imposing trade barriers tariffs on interstate commerce and were also the ideal was for the states to be prevented from creating monopolies Did you catch that now what was meant at the time by creating a monopoly? It did not mean allowing a firm to get seventy five percent market share Right, that's not what a monopoly meant the common law natural law notion of monopoly is an exclusive grant by the state To one particular operator right if what was the example was Talk about chairs right manufacturing chairs and in one part of New Jersey and sending them to another part of New Jersey Wasn't it chairs? You know if the state of New Jersey were to say only Maxwell here in the front row only Maxwell is allowed to produce chairs with four legs made out of wood If anyone else tries to produce a chair and bring it to market that person will be fined or imprisoned Right then we would say Maxwell has a monopoly on the production of that type of chair Okay, so having an exclusive license a grant of special privilege Even a patent can function as a legal monopoly in this sense, right? That's what people in the 18th century and in the common law tradition understood monopoly to mean Among economists particularly in the last hundred years the term competition has been and been transformed to mean something else Right, so when mainstream economists talk about a competitive market They don't mean a market in which one or more firms are engaged in some sort of rivalry trying to out-compete the other firms They mean a firm that has a particular Particular structure. There's a certain number of firms in the market behaving a certain way You've probably heard of so-called perfect competition, which we'll discuss in a moment and how any deviation from that represents imperfect competition a sort of less than desirable state of affairs Right so in in sort of neoclassical economists a Market is competitive if there are so many firms competing against each other That no firm has the ability to charge a price higher than the price that just covers its cost So the ability to raise price over marginal cost is taken as a sign of monopoly power or so-called market power In in in any particular market you see a lot of discussion today about Trying to measure these markups empirically using various statistical tools And we look at the average markups in this industry or that to determine whether those industries are competitive or not Whether the entire US economy is more or less competitive and so forth. So let me briefly review these more mainstream treatments of monopoly and competition and then Explain what Austrians how Austrians have approached this issue because as you can imagine The Austrian approach has been rather different. How many of you seen it have seen a picture like this in your econ class Yeah, lots of hands going up, right? This is the way economics textbooks describe what they call a This is a firm under conditions of perfect competition Okay, so what is what is the what is the situation facing a perfectly competitive firm? Well, the demand for this firms product is not the usual downward sloping demand curve Right, but it's rather a demand curve. That's horizontal or perfectly elastic Meaning that this firm is in competition with so many other firms in the same market Producing identical or near identical products that a consumer will not pay one penny more for your product Than the product of one of your rivals There's no differentiate no differentiation by consumers Among across different sellers and so no firm can charge a price higher than what any other firm charges So there's a market, right? There's a market for this product as a whole with supply and demand curves Determining the market price and then every firm can sell as many products or as few products at the market price Without affecting that price Okay, so the so the marginal revenue the revenue from selling an additional unit of the good or service is just equal to the price You can never charge higher than the market price. You wouldn't want to charge lower than the market price Okay, so firms face this horizontal perfectly elastic demand curve Given marginal cost and average cost curve Right, the firm will choose to maximize profit at least in the short run But by by choosing a quantity remember you can't choose a price the price is given to you by the market So you choose a quantity such that you know where marginal revenue is equal to marginal cost The the additional revenue the price from selling one more unit is exactly equal to the cost of producing that marginal unit That yields that that quantity is represented on this graph by Q PC the perfectly competitive quantity the the price is given by market conditions the perfectly competitive price And in the long run firms earn zero economic profit When they are in facing conditions of perfect competition, right? Because you've probably heard this story, right? if a firm if the market price happens to be above the Minimum of that average total cost curve or average cost curve then firms will earn revenues in excess of their costs But that will induce other firms to enter the market. It's assumed that entry and exit are costless Right, so a firm will new firms will enter that will drive the market price down by shifting the supply curve to the right The market price will fall until it just touches the bottom of that average cost curve And if the market price happens to be below the minimum of average cost Then firms will be losing money and so firms will exit shifting the supply curve in the industry to the left Until that price rises to where it just touches the bottom of that average total cost curve According to your professor, this is great This is a this is the world we want to live in right we have perfect Perfect productive efficiency because firms are producing at the minimum of their average total cost curve So they're not wasting any inputs. We have perfect allocated efficiency because every price Every good is bought and sold in the market at a price just equal to marginal the marginal cost of producing it So society would not be better off if those resources were shifted to some other use so we have sort of total total bliss Okay, this is this is the world we want the world of the perfectly competitive firm But wait your professor will say sadly tragically The real world is not like this Okay, in reality, it's not the case that every firm sells a perfectly identical product I happen to have this delicious chocolate chip cookie from Chick-fil-A that I saved There are other chocolate chip cookies that you can buy on the market, but they're not all the same Personally, I don't think the Chick-fil-A cookies are all that great But my family members think the Chick-fil-A cookies are way better than the cookies you can get at most other cookie stores Right so we disagree on that Right so in the real world sellers do have the ability to to charge a higher price than some other seller If consumers can be I guess fooled into believing that their product is somehow unique So at the other extreme imagine a world in which a single firm controls the entire market This firm has so-called market power and can charge a monopoly price Right, so there's a downward sloping demand curve facing that For that firm and there's a downward sloping marginal revenue curve associated with that demand curve And if you remember from your micro class the marginal revenue curve is more steeply sloped than the demand curve and lies a little bit to the left So this firm chooses the quantity where marginal revenue is equal to marginal cost or the blue line hits the green line That's QM. That's the quantity that this monopolist will produce What what price will the monopolist charge not the price where marginal revenue equals marginal cost? Rather that devious monopolist will sneak all the way up to the demand curve Right and charge a price PM the highest price the market will bear Just that's the highest price at which you can sell the quantity QM And so look at that blue trapezoid shape that is what they call producer surplus or profit monopoly profit that accrues to the monopolist The consumers get a little bit of so-called consumer surplus that that pink triangle But there's that nefarious yellow area Right what they call dead weight loss that represents You know sort of consumer surplus that the consumers would have gotten if this market was perfectly competitive And is not captured by the monopolist in terms of profit. It's just like wasted It's squandered Right. So they're so even apart from the fact that in this world monopolist can make money and that's bad and Consumers pay a higher price than they otherwise would have that's also bad And the quantity produced is less Than the quantity that would have been produced under perfect a competition. That's that's even more bad Right. You also have this magical Dead weight loss is sort of benefit that sort of disappears into the ether. Okay, so this is terrible According to your professor. We've got to do everything in our power to prevent this from happening Right, we don't want firms to restrict their output below the perfectly competitive level So they can jack up the price and make out like bandits so in the sort of standard approach and the approach that has been embraced by most Economists and by most antitrust courts and by the Department of Justice and the Federal Trade Commission and their equivalents in other countries Right policy should be designed to take markets that look like this and make them into markets that look like this Okay, the goal of competition policy is to make actual markets Work more like the perfectly competitive market of the of the textbook Okay, that's what so-called competition policy is all about raise your hand if you've seen this and If you studied this in school before yeah, lots of you have most of you have okay, so what's wrong with it? I mean lots of things are wrong with it Austrians have made a number of sort of fundamental critiques of the assumptions of this model Right, so first of all this notion that there could ever be such a thing as a perfectly elastic demand curve Is also makes no sense in the in the world of action in the world of human action in the world of purposeful human action by You know by by people on this earth acting in real markets, right action is discreet and non-continuous There are no infinite infinitesimally small units of Output that you can sell or withhold to the market You know every seller contributes some discreet quantity of output to the market Which will have some impact on the market price however small I mean if you I don't know if your professor was really transparent about this But the assumption under perfect competition is not that there are a lot of firms you know like 20 or 100 it's a it's a model of the mathematical limit Right, so the model says price will be equal to marginal cost in the limit when the number of firms is guess how many infinity Yeah, so as the number of firms increases the demand curve becomes more elastic and The price approaches marginal cost and in the limit all of those things hold so in the limit the number of firms is infinity and The quantity that each firm produces Contributes to market output is zero I've never shopped at a company like that I don't know if you have but that's really what this model is sort of talking about So of course that doesn't makes no sense from a praxeological point of view, you know There's also a point sort of a normative point You know this remember the idea is that under under monopoly the market is producing less output than what it somehow should produce Right the monopolist Restricts output to be able to charge a higher price, you know to sort of to travel up that downward sloping demand curve Which you know seems unjust or unfair somehow, but yeah, Murray Rothbard made this point too that You know in in sort of requiring the firm to produce more than what the owner of the firm wants to produce You know this sort of a weird property rights violation You know, it's easy to see this when we use the example of you know the celebrity who has a monopoly on his or her Image and labor and so forth, you know, for example to use my doppelganger George Clooney What can I say? You know if you take the monopoly argument seriously you would say, you know George Clooney should be working 16 hours a day he can sleep for eight, right? But he needs to make a movie every single week I mean, it's unfair that he only makes a certain number of movies per year because he wants to protect his reputation or because he's lazy Right, he might earn less per movie if he continually made movies But he chooses to withhold some of his labor from from us and go off to you know, Monte Carlo or wherever those guys go, right? And So and then he could charge a higher price for services. That's that's we should we should put him in chains and Drag him to the movie studio and compel him to make a movie every single day, right? That would violate his individual sovereignty, right? That would violate his sovereignty as a human being, you know From the point of view of Austrian welfare economics, we would say that's a you know That's introducing a Unjustified harm on George Clooney, right? That's lowering societal well-being somehow by compelling him to do something He doesn't want to do Well, how's it really any different from saying? Well, if if the book market were perfectly competitive This many copies of Peter Klein's books would be sold a really big number, right? But because Amazon holds this near monopoly on books, you know It's only selling this many copies so that it can jack up the price We should compel the firm to produce not the quantity at once Qm but the quantity we want Qc well, isn't that just a violation of the owners of the firm's property rights as the same way that would be with George Clooney, right? Another thing to keep in mind is, you know the elasticity of demand, you know That's a characteristic of the demand curve That itself it reflects consumer preferences So sometimes you hear You hear your professors say well in you know market for tobacco or some highly specialized good, you know The demand curve is really inelastic And that allows the sellers to charge a higher price and rip people off blah blah blah I mean elasticity is is the result of consumer preference Right consumers can choose to have whatever kind of demand curve they want I mean if the demand curve is highly inelastic it means consumers perceive This good to have few close substitutes Right the existence of close substitutes is not something given by God or nature Right that is a reflection of human preference So people could choose to consider something else a substitute or they could you know They could rightly choose that Peter Klein books have no substitute because of their intrinsic intrinsic quality, okay? Now Mises has a very interesting discussion of monopoly in several of his writings including in human action But also in some standalone essays that were that were published within the last 20 years Mises Mises did think that monopoly Mises thought monopoly could arise on the free market but only under special circumstances and That it was very unlikely for these circumstances to obtain So Mises held that okay You do have some cases where you've got a single seller of a unique good, you know De Beers selling diamonds or something like that, right? Or maybe you have a cartel of sellers acting as a single decision-maker and the demand for the good is inelastic Above the price that would have obtained in a competitive market Then the price that will be charged is not consistent with the working out of consumer sovereignty right so In the absence of a single seller or a seller's cartel a lower price would have obtained on the market And so Mises thought consumer sovereignty was sort of violated in this specific case Consumers were not getting the pattern of goods and services Produced consistent with their preferences because of this sort of unusual set of circuit set of circumstances Mises did think that these circumstances were highly unusual and he also said look in practice There's really no way to discern whether monopoly conditions obtain or not. It's just sort of a theoretical Distinction the theorist according to Mises can distinguish the monopoly price From the competitive price and can point out that under these special conditions Consumer sovereignty would not obtain Rothbard's treatment of monopoly starts with Mises analysis, but then adds some further refinements So Rothbard points out look all sellers face a downward sloping demand curve Right, there's no such thing as a perfectly elastic demand curve And so once you recognize that there's really not any way even Theoretically to distinguish a monopoly price from a competitive price in the absence of a state-granted monopoly privilege As Rothbard pointed out, I mean all all entrepreneurs Right all firm owners try to achieve the highest level of profit They think as possible given their estimates of future consumer demands, and we talked about that yesterday Right and all firms will actually charge a price that's in the elastic range of their demand curve Right because if the price were any last if you if where you were pricing was in the inelastic part of the demand curve You would charge a higher price Because then remember it when demand is inelastic in increasing the price means that total revenue goes up Right you're producing fewer units, so your total cost will go down to be a no-brainer Right so all firms whether deemed competitive or monopolistic will all price in the inelastic In the elastic range of their demand curve and as we just pointed out elasticity is voluntary anyway So there's really no way even Theoretically to distinguish a monopoly price from a competitive price according to Rothbard in the absence of legal restrictions Now what about these legal restrictions? Well, I mean right if you have a patent if I have a patent on this little gadget here for clicking to the next slide Then no one else can produce a product that performs the same function as this product And we had a good discussion at lunch about some of the weaknesses in the standard sort of patent arguments Grants licenses charters and so forth would be another example Occupational licensing is a favorite example of monopoly privilege Right the American Medical Association and various other professional lobbying groups in the medical industry fight very hard to make it illegal for you know For you to go to the Walmart pharmacy and have them Write you a prescription for some ailment Okay, so lawyers of course do this Professors do it. I mean it's justified there right because we got to protect the public from bad lectures Right, so you have to be licensed and have PhD and all that Trade trade barriers can also be a source of monopoly power right tariffs and quotas that limit or Or completely restrict Imports of particular competing foreign goods can be interpreted as a kind of monopoly protection for domestic firms so so according to Rothbard, this is the kind of monopoly that we need to analyze and think about and and and About which we have some serious concern So I mean how does this translate into sort of the policy policy sphere so if you look at the history of antitrust law and competition policy when You know when academics and judges and law and law professors started thinking about this seriously 1940s 1950s There emerged a particular approach or paradigm For understanding competition that was called the structure conduct performance paradigm Joseph Bain it was a famous economist in the 1950s who wrote a number of books articulating the structure conduct performance paradigm and what and the argument was market structure the structure of the market by which Bain meant the number of firms in the market the elasticity of the demand curve facing each firm the degree of Monopoly power as we described it a few pictures ago Right that determines the conduct of firms in the market So if a firm has a very large market share Right, it's it will that it will charge a higher price than the competitive price So conduct follows from structure and then the performance of that market in terms of well-being for consumers and producers Follows from that conduct so by charging a price higher than marginal cost Consumers are made worse off than the otherwise would be and the firm able to charge that monopoly price is better off Than it otherwise would be so structure determines conduct conduct determines performance and therefore policy should focus on structure Okay, so policy should focus on eliminating the conditions that give rise to Firms having market power or having monopoly power. So if we see that a firm has a large market share The more astute of you may be wondering how large oh you know 60% okay, why not 59 why not 61? Don't ask that question right so firm has a certain share of the market then the government needs to do well So and I trust court and I trust judge or jury could order that this firm be broken up Okay, we could say Facebook. You must divest Instagram Google your you know your advertising business and your cloud storage business and your And Gmail and so forth all have to be split up into legally independent companies or the bureaucrats might the judge might say well, okay, we'll allow you to stay as one company, but We're gonna regulate the prices that you can charge We're gonna enjoin certain We're gonna restrict certain kinds of behavior Right, so the idea is if we can if we can fix the structure of the market then we can eliminate the conduct That's leading to poor performance for consumers. Okay, that was the old That was sort of the mainstream view and antitrust really until the 60s and 70s So in the 60s and 70s there were there was a wave or several waves of very powerful intellectual critique Not necessarily from Austrians though Austrians had been offering these critiques as well But I mean, let's be honest. It wasn't really the thinking of the Austrians that changed how how antitrust Agencies and how antitrust courts Approached and I put approach these issues. It was some it was some more mainstream challenges So the so-called transaction cost perspective associated with people like Oliver Williamson argued that some of the Some of the anti supposedly anti-competitive vertical supply chain behaviors like vertical integration Right a firm owning its own suppliers and owning its own distributors resale price maintenance a seller a Wholesaler telling a retailer you cannot charge below a certain price if you sell our product or Territorial restrictions like a franchise owner saying you can only have a certain number of Chick-fil-A's in Auburn You can't have to select Chick-fil-A's right next to each other Chick-fil-A the Chick-fil-A Corporate office would would decide where the franchise outlets can be those kind of vertical Restrictions and vertical restraints were considered under the structure conduct performance paradigm, you know per se evidence of anti competitive behavior Right there were seen as means to achieve sort of more control and power By the dominant firm and they were seen as an exercise of monopoly privilege that needs to be eliminated And Williamson and others pointed out that no if you think about it a lot of those vertical restrictions Actually improve the efficiency of the supply chain Okay vertical integration can be a more effective way of procuring inputs It can induce certain, you know certain kinds of investments where there's mutual dependency among different stages, right? the manufacturer is more likely to invest in Specializing, you know tailoring its product to a particular Downstream distributor and vice versa when they're sort of locked into each other when they can't easily break that relationship And go their own separate ways so these kind of restrictive contracts that limit vertical competition can be ways of increasing efficiency And they should not be regarded as anti competitive at least not on their face Let's not let's give due credit to the Chicago school and even what some people call the UCLA school so Robert Bork is the most famous Chicago school economist Really he was a jurist, but who was very influential in the effecting antitrust policy in the 1980s and 1990s People like Harold Demsets and Yale Brosnan who made the point for example would the certain obviously correct point that It's often the case that the reason a firm has a large market share It's because it's better. I mean it produces stuff that consumers like more than the other other firms Right that large market share the ability to charge a so-called monopoly price and earn monopoly profits It's not just you know, it's not the result of some evil conspiracy, right? It could be the case that that firm just out-competed its rivals It's just better You know when I was growing up when I was a kid in the 80s, you know every year the NBA championship was won by the Lakers of the Celtics It's like okay. Well, does that was there some kind of weird cartel? No, I mean they were just better They had Larry Bird and Magic Johnson Celtics and Lakers respectively. They were just the two best teams They were way better than every other team in the NBA and so of course they were in the finals every year Why is Walmart the world's largest retailer? Well because Sam Walton was one of the most influential and innovative entrepreneurs in US history Right with some of my talk to students about this. Why is Walmart? Why does Walmart have such a large market share? Because it charges really low prices. Who can compete with that? Okay, well, why does it why is it able to charge really low prices because it's huge? Okay, no, wait a minute. That's a that's a chicken and egg. That's a circular argument Right, how did Walmart get to be large because Sam Walton was a genius at sort of supply chain and logistics? activities Right, he came up with this model that you know in the old model You had warehouses scattered around in different places, you know for groceries and retail items and they would send stuff on trucks to stores Sam Walton figured out no instead of thinking about each individual store as being sort of its own thing Let's make the unit of analysis be the network where a network is a Distribution center and then a set of retail outlets around that distribution center and we organize our network where we place we organize our system where we place these networks of distribution hub and retail stores in certain places So that each store in that little network will be able to get goods and services at a lower wholesale price Which it can then pass along to consumers then the standalone discount store or Grocer or there were more centralized models used by companies like Kmart and Sears basically Sam Walton out competed his rivals Including mom and pops and that's why Walmart came to be the world's largest retailer I mean do we want to punish Walmart and say because you are more efficient than your rivals? We therefore are going to place some restrictions on you because you're harming consumers. I mean look I Like many of you I feel some I have this sort of nostalgic attachment to the little Little village shops that I remember from my youth Okay, you could walk downtown and there's the little store and you could go hang out with the proprietor and that's great Does that mean that public policy should assure that that particular kind of market still exists Should we punish the Walmart's and the Amazons and the other retailers that sell you more and better stuff at lower prices than the mom and pop Well, I mean you're free to patronize the mom and pop all you want Not many people do Right if you want to set up like a little Disney world You can you can role play, you know gram grandpa shopping at the corner store. Nobody's stopping you from doing that Okay, but the majority of consumers would prefer the ability to get Better quality and quantity at a lower price by patronizing a large national or global retailer So when I was a graduate student in the late 80s and early 90s I was taught that the structure conduct performance paradigm was kind of old-fashioned and displaced Nobody believes that old stuff anymore. Well, guess what the structure conduct performance paradigm has come roaring back in the last decade or so with what some people call Neo Brandeisian and I trust named after Lewis Brandeis or More pejoratively hipster and I trust so so-called hipster antitrust is a return to the old days Where where the main thing you focus on is market share if a firm is big if it has a big market share It's bad big as bad and needs to be eliminated President Biden's new Federal Trade Commission chair Lena Kahn is one of the leading spokespersons for the so-called hipster Antitrust perspective so it's kind of like the old heavy-handed structure conduct performance paradigm with a twist So here's the twist right and in the old antitrust regime the goal was always to protect the well-being of consumers To increase so-called consumer welfare so the thing that at courts would look for as Evidence that there's something wrong. There's some monopoly condition that needs to be dealt with is Prices that are too high as high prices Okay, well the hipsters realized that wait a minute. We can't go after Amazon Walmart Google Facebook for doing consumer harm in the form of pricing Because either with you know Walmart or Amazon the prices are lower than those of the rivals or with most of the tech Platforms you get the stuff for free Okay, so how do you show that consumers are harmed by giving them access to Facebook Twitter Instagram and so forth at a price of zero I mean it's very it's by the traditional consumer welfare standard. There's not any consumer harm You can't demonstrate any consumer harm So how would you make an antitrust case or how do you use regulation to limit these platforms? So they said ah, well, it's not just consumer harm that we should look at it's harm to anybody Okay, so if we can show that Amazon Doesn't pay its workers enough Or makes workers work long hours, you know in pee and Bottles you've seen all those Amazon sort of scandal stories, but Amazon warehouses that that is grounds for an antitrust suit Yeah, I mean they're not hurting consumers. They're selling stuff to consumers at low prices, but they're harming their workers They're harming their small suppliers. They're harming the natural environment They're harming some other Stakeholder we can identify somewhere in the universe Right, then we can come down on them hard using antitrust policy So that's how how hipster antitrust is both a return to the old way of thinking about antitrust Big as bad and a broadening in that it allows it allows for margins of badness sort of everywhere Any potential stakeholder who is harmed by the firm being large Can justify the filing of some kind of competition policy complaint So just a little more than a week ago the Biden administration introduced a sweeping set of proposals on Improving the competitiveness of the US economy and I thought it might be interesting to look at that from the point of view of Austrian competition theory competition monopoly theory so First thing to first thing to note is that The proposal takes for granted That there is a pressing need for new legislative and executive action on On competition because the US economy is less is getting less competitive Right competition is decreasing in the US economy in the global economy to therefore there is need for some kind of bold policy action So what is the argument? What is the evidence for this background assumption of decreasing competition? Well, there are some empirical studies that show that if you look at certain sectors of the US economy and You measure industry in a sort of broad way for those of you geeky types If you look at you know two-digit two-digit s. I see code industries you find that between you know 2010 and 2020 for many of those industries The you know the the market share held by the four largest firms So-called C4 concentration index has gone up in some industries not not necessarily by a lot But but but by little and of course we all have plenty of anecdotal evidence, right big tech Facebook has a monopoly Well actually it's weird Facebook has a monopoly on social media, but so does Twitter and so do a bunch of other platforms, too You know Amazon has a monopoly on retail You know as well as Walmart and I mean it's kind of weird if you think about it But there's certainly a lot of salient examples of firms that seem to dominate their industries About which you know something allegedly should be done But actually if you look at it and you remember I talked about markups before if you try to estimate the gap Between price and marginal cost in some sectors you could show that that that wedge that price cost wedge has gone up a little bit There's two major problems with this. I mean there are lots of problems with with just that background assumption First if you look broadly throughout the entire economy It's much more difficult to show that market power or concentration has gone up as you can as you as I've already hinted You know it sort of depends on what you define the relevant market to be Okay, so You know if you define the market very narrowly Then certain firms have a really big share of that narrowly defined market, right if we define the market as week-long summer Austrian programs in Auburn, Alabama The Mises Institute as far as I know has a 100 percent market share Okay, if we define the market as Education in economics and related topics then we have a very small market share. So what's the right definition of the market? Yeah And actually in many sectors of the economy where we see where we do see increased concentration It's probably more likely due to the fact you can see this in technology that you know Sometimes the sort of technical structure of the industry Requires that firms make very large upfront capital investments, you know in inventing the product in if it's software writing the code Right, so it's really not possible for lots and lots of firms to be competing For this product because it's very hard to make the product in the first place And once you make it you can sell additional units at a pretty low price that market structure naturally lends itself To having a smaller number of competitors, but there's nothing anti competitive about that If we understand competition correctly So if you look at the order itself and you can look at it yourself There are a few things that I think are actually good in terms of promoting competition There is some attempt to roll back some occupational licensing protection. For example, there's a there's a piece about Allowing drug stores to sell hearing aids So that you know CVS Walmart Walgreens could sell hearing aids over the counter I think that would be good That's that's removing a barrier that allows only certain kinds of medical professionals to sort of prescribe hearing aids But as I'm sure you won't be surprised. There are many things that I think are not so good About this new set of proposals. One is that The antitrust authorities would be empowered to re-review and sort of re Re-examine and relitigate previously decided antitrust cases Right, so forget about double jeopardy as we were discussing last night That would go out the window for companies in antitrust cases. There were requirements of net so-called net neutrality Which I think is a terrible idea a lot of attention has gone to prohibiting so-called non-compete agreements Right whereas a condition of employment you have to agree that if you leave the firm You won't go and work for a rival firm and most economists think non-compete agreements are Anti-competitive on their face and should be prohibited and Biden's proposal Would ban non-competes in most sectors actually if you think about it though a non Labor an employment contract with a non-compete agreement is just one particular type of labor contract Right if you agree not to start your own firm that competes with your employer Or you agree not to go work for a rival firm then the employer would treat you one way Right if you refuse to agree to those conditions And you would be treated a different way in terms of other aspects of the compensation package like the wage Like job security how much they're willing to train you or invest in company specific training How much they're willing to give you access to private information and so forth would all depend on that But there's no reason why the market can't sort out All of the conditions and features of the contract including non-compete there's nothing and you heard of this so-called right to repair movement that's been going for a long time that And the Biden proposal embraces this idea that Manufacturers, you know, they can't void the warranty if you try to fix it yourself They can't require you to go to a licensed repair shop that they authorize to fix the thing You have to be able to fix it yourself at home or take it to any repair shop Again, this is just a weird. I mean, why would we think a contractual restriction on? What you can do to it and still be under warranty Why would we think the market can't figure that out? That doesn't make any sense either And there's some stuff about data portability. That's problematic too So to make a long story short from the Austrian point of view competition is a process of rivalry Among entrepreneurs and capitalists and workers, you know, who are free to compete as they see fit within the given legal framework Whether that results in a few firms or many firms large firms or small firms. I Mean ex ante. We've no we have no opinion on that whatsoever Let the market structure be that which emerges under fair under free, you know free and open competition The absence of legal restrictions by the state on competition some firms will earn profits some firms will will earn losses How how easy it is to enter how fast firms can grow how much innovation you get? I mean again, this is all stuff that can be worked out on the free market Government attempts to limit monopoly power or increase competition. In fact, you know only Create barriers to competition properly understood the best Competition policy for the state is not to grant monopoly privilege in the various forms in which we've discussed it. Thank you