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Circle of Competence Issue #67

QUOTE OF THE WEEK

"We have two lives, and the second begins when we realize we only have one." - Confucius

FOOD FOR THOUGHT

Attorney General Delrahim's speech on antitrust enforcement and digital gatekeepers (Justice Department)

To take down tech, regulators need to reinvent anti-trust law around 'consumer welfare' (New York Times)

How 'stealth' consolidation undermines competition - small mergers increase industry consolidation (WSJ)

Lately, the buzz has been around how antitrust regulation should apply to the monopolies du jour - big tech. But I wrote about how smaller companies escape scrutiny from regulators last week and this has the potential to be a hairy process, sorting out where to draw lines in terms of regulations around size, acquisitions, market dominance, and consumer welfare. You can look at this issue from two perspectives: the economist's perspective (in which perfect competition is best for the consumer - or is it?) or the investor's perspective (dominate the market, generate outsize returns). The question on whether or not this increasing concentration in smaller industries is good for consumers hinges on the outcomes for consumers when they use the product or service. Obviously, companies are acquiring competitors for strategic reasons - could be revenue/cost synergies, increased buying power, increased pricing power, etc. They are rational economic actors that are seeking to dominate in the economic jungle and generate excess returns. But what happens if these returns are generated because they can provide superior products or services relative to competitors? Should they be automatically broken up and treated as 'bad actors' due to their 'monopoly status'? Of course, I'm not defending all mergers on the ground that they improve products and services for consumers because the primary reason they occur is financial in nature, but it is worth asking the question.

Ultimately, taking a hard look at antitrust law requires regulators to review the original basis of antitrust enforcement that was based primarily around 'consumer welfare'. Changing antitrust law would require 1) redefining what the ultimate objective of antitrust regulation would be (is it just protecting consumer welfare or something more?) and 2) deciding whether expanded regulatory authority would be good or