Technology, Competition, and Antitrust Enforcement

THE PERCEPTUAL BIAS against market competition and for government control over competition is becoming a greater source of political mischief as technology advances. First, by increasing competition, technological advances are expanding the probability that antitrust activity will be counterproductive. Second, for the very reason that competition is becoming a more potent force for progress, it can strengthen public perception that more antitrust action is needed, thus empowering special-interest groups that see it as a means of capturing private benefits at public expense.

As should be obvious to anyone who cares to think about it, technology is increasing competition by transforming local markets into global ones. Peter Drucker was engaging in only a little hyperbole when he wrote in Atlantic Monthly (October 1999): "Distance has been eliminated ... every business must become globally competitive, even if it manufactures or sells only in a regional or local market. The competition is not local anymore--in fact, it knows no boundaries."

Increasing global competition is unequivocally good for consumers. It reduces any benefit to be derived from antitrust action, even if one assumes that such action is used solely to advance the interests of consumers. However, this is not the sole, or even a very important, objective of government action in general and antitrust action in particular. Indeed, if the Federal government were really concerned with promoting competition, it would give global competition a boost by eliminating all U.S. restrictions on foreign trade. These import restrictions are maintained because the interests of organized groups carry more political weight than do the interests of unorganized consumers. For the same reason, antitrust policy is more concerned with protecting competitors than with protecting and promoting competition.

Political action can never be justified with a blatant admission that it serves narrow private interests at the expense of the general public. Pretense that the action is required by some broad and worthy social objective is essential, and this pretense has to seem plausible to the public. The increasing global competition being driven by improved technology in communication and transportation is motivating responses that, though good for the consumer, are easily presented as growing market power demanding antitrust action.

Escalating modern technology can increase the size of some companies while decreasing the size of others. Computer and communication technologies have lowered the costs of many companies interacting with one another in markets (and gaining the benefits of competitive markets for what they buy and sell), which means the technologies have enabled many people to start small businesses--from magazines to consulting services--in their homes. Other companies have been able to downsize and outsource the production of parts and services (for example, accounting and legal services). As a consequence, where hundreds of workers and large plants were once required to do business, far smaller companies with less labor and plant and equipment can get the same jobs done at lower cost.

These same technologies have allowed other companies to monitor at lower cost the operations of a greater number of remote production and sales facilities from their headquarters, so many businesses have become more cost-effective by growing larger. The larger size might once have allowed workers to shirk their duties, giving rise to production costs that were higher than necessary. Today, because supervisors can monitor their plant workers more effectively, and officers at the firms' headquarters can monitor their supervisors in remote locations via the daily, if not hourly, reports on production data automatically transmitted via company computer networks, the costs of shirking can be reduced, thus increasing efficiency.

Intensified global competition has forced companies everywhere to reexamine their production scales to see how they must be adjusted--upward or downward--to take full advantage of new technologies. Companies have to accommodate new technologies by adjusting their size appropriately to serve the consumer better and meet the competition from global competitors who are also adjusting their size to take advantage of cost savings. Accordingly, with the spread of modern computer and telecommunication technologies, we have witnessed a literal potpourri of scale adjustments in business structures, with many small entrepreneurs emerging while other companies are downsizing and still others are growing larger through internal expansion or mergers.

These technological forces can give rise to firms seeking protection against intense competition from companies making the adjustments successfully. In the downsizing industries, workers and their unions can claim that they are victims of forces beyond their control, which is true, and that they should receive protection by, for instance, regulation through import restrictions. Moreover, public opinion is easily turned against downsizing industries, and hostile public opinion is fertile ground for frivolous antitrust suits that are politically inspired. Clearly, members of Congress work on matters that will get them media attention. Not surprisingly, academic research shows that political pressure affects the number of antitrust cases that are brought and which members' districts will be affected by these cases.