Antitrust Enforcement and the Stock Market

Lawrence Lindsey wants the next assistant attorney general for antitrust to be an economist. Like Mark Thoma, I have a mixed reaction to this op-ed. Let’s start with this rightwing Post Hoc Ergo Propter Hoc canard:

Two of the precipitating events for the NASDAQ bubble collapse in the spring of 2000 were the antitrust division’s suit against Microsoft and the declaration by political leaders that human genome research was the common heritage of mankind.

While Mark does a nice job of addressing the innovation issues in regards the antitrust litigation pertaining to Microsoft, let’s not forget that the deputy assistant attorney general at the time was an economist with impressive credentials who co-authored this paper with Franklin Fisher.

If Dr. Lindsey wants to attribute stock market valuations exclusively to actions of the government such as how human genome research is funded, then let’s consider how the shareholders of two biotechnology giants have fared.

Dr. Lindsey is on much stronger footing with this:

First, we live in a global economy in which a record share of our consumption is produced abroad, and the ease of entry of foreign producers into the United States has never been greater … Second, a much larger share of our economy is idea-based, which makes innovation and new entry easier, and also makes the obsolescence of existing market power happen faster.

I find this reasoning far superior to how Donald Luskin defended the proposed merger of Nestlé Holdings and Dreyer’s Grand Ice Cream:

But, even granting that the government ought to be concerned with such matters at all, none of it means a thing in this case unless you accept the idea of “the market for superpremium ice cream” as a meaningful reality. Who’s to say that’s a market of any importance? Who’s to say that market needs the government to interfere with private business decisions to be sure that there’s a certain amount of competition in it — or any competition at all? Let’s say that there were so little competition in “the market for superpremium ice cream” that choice was narrowed to a single brand and prices became astronomical. What if “the market for superpremium ice cream” vanished from the face of the earth altogether? So what?

Perhaps, Mr. Luskin does not care whether the market quality ice cream is competitive, but my waistline is testimony that I care.