Sunday, September 04, 2011

Justice Department a flop on business competition

Published in The Tennessean, Sunday, September 4, 2011

by Richard J. Grant

It is often said that “a little bit of knowledge is dangerous.” An excellent illustrator of that statement is the U.S. Department of Justice, particularly its Antitrust Division.

Last week, the Department of Justice filed a civil antitrust lawsuit to block the acquisition of T-Mobile USA by the much larger AT&T. According to its own press release, the department said that “the proposed $39 billion transaction would substantially lessen competition for mobile wireless telecommunications services across the United States, resulting in higher prices, poorer quality services, fewer choices and fewer innovative products for the millions of American consumers who rely on mobile wireless services in their everyday lives.”

In this, the Department of Justice (DOJ) claims for itself not only the knowledge of good and evil but also the knowledge to manage entire industries, if not the entire economy. Were we so rude as to ask where it gets that knowledge, we would be disappointed to learn that it gets it from textbooks that suggest that competition can be measured by the number of “competitors” currently active in a market.

Thus we get the judicial equivalent of painting by numbers. The Antitrust Division has a long history of counting heads within an industry, and if it deems that number to be insufficient, it either breaks up one of the largest companies or, in this case, prevents a merger.

T-Mobile is losing customers and might not survive unless it can add such capabilities as those that AT&T could bring to it. It has been operating for little more than 10 years, which makes it quite old for an industry that is supposedly rather dynamic.

To the Antitrust Division, one less company means less competition. Despite reminders that true competition comes not from total numbers but from the freedom of entry and exit by potential new competitors, the DOJ actively ensures that government remains the biggest entry barrier, and the biggest wet blanket, to innovators in business.

The Antitrust Division is a throwback from the Progressive Era, a period that turned Washington, DC into a sort of Jurassic Park that clones and protects the institutional dinosaurs that continue to stalk us. Central planners are supposed to be extinct, but these wannabe gatekeepers have decided that “AT&T had not demonstrated that the proposed transaction promised any efficiencies that would be sufficient to outweigh the transaction's substantial adverse impact on competition and consumers.”

What the DOJ demonstrates is the assumption that somehow government can have market knowledge that no one else has. This is the assumption that presaged all the interventionist failures in history. Witness our current economic stagnation.

Even if it doesn't stop the merger, the DOJ lawsuit has hurt both companies. They have expended resources to anticipate DOJ objections and weakened their business plans accordingly. Resources needed to innovate and to serve customers in the market have been dissipated once again by government interference.

If we are unhappy with our wireless service, perhaps we should ask ourselves who has monopoly control over the spectrum. Who are the gatekeepers that stand between us and our service providers?

If the DOJ were sincerely interested in promoting competition, then it would disband its Antitrust Division and request that Congress repeal the Sherman Act and reduce its budget accordingly so the funds could be relinquished to the private sector, where the real competitors live.


Richard J. Grant is a professor of finance and economics at Lipscomb University and a senior fellow at the Tennessee Center for Policy Research. His column appears on Sundays. E-mail: rjg@richardjgrant.com

Copyright © Richard J Grant 2011