The Justice Department is once again demonstrating its miraculous ability to see into the future. Here’s an excerpt from Deputy Attorney General James M. Cole’s statement at the AT&T/T-Mobile press conference on August 31:
The Department filed its lawsuit because we believe the combination of AT&T and T-Mobile would result in tens of millions of consumers all across the United States facing higher prices, fewer choices and lower quality products for their mobile wireless services.
Consumers across the country, including those in rural areas and those with lower incomes, have benefitted from competition among the nation’s wireless carriers, particularly the four remaining national carriers. This lawsuit seeks to ensure that everyone can continue to reap the benefits of that competition.
This was placed in an all-too-typical context by the cast of This Week in Google yesterday afternoon. Host Leo Laporte read this excerpt and declared, “Two thumbs up, that’s great.”
Then Laporte concluded the conversation with this assetion: “I’ve heard libertarians say this: the one area of government involvement that does make sense in the economy is prevention of monopolies. That’s one thing we clearly need, and it’s one place that only the government can intervene. The market in fact promotes monopoly.”
I’m sure there are some who identify somehow with libertarian ideology who may demonstrate their ignorance of (or disdain for) legitimate libertarian laissez-faire market theory by making a statement like the one above. Indeed, people across the spectrum of libertarianism continually debate the proper role and scope of government in society. Nonetheless, I doubt there are many libertarians who would argue that of all the ways government can influence the market, preventing monopolies is the most legitimate or most effective. It is in fact neither legitimate nor effective.
The overwhelming opinion of Americans seems to be that a free market without any regulation or oversight will inevitably result in enormous monolithic companies that jack up prices and reduce quality and otherwise take advantage of consumers. The truth is that monopolies rarely last very long in a true free market scenario. From a free market perspective, as a monopoly becomes larger it becomes top heavy and inefficient, it loses focus and stops responding to consumer demand. Then it fails and something leaner, more focused, and more intent on providing what consumers want takes its place
You see, the market is not a “thing.” The market is not a group of investors or a gang of crooks. The market is a force, like gravity. It exists whether we want it to or not, whether we acknowledge it or not. If there is demand for blue jeans (or narcotics, or Bibles, or whatever), and an outside force attempts to quash this demand, it will be met in some other way. A black market will develop, styles will change, loopholes will be found. When the regulators look into their crystal ball, as Deputy Attorney General Cole has, and speculate about what may happen in order to inform their actions, they distort the market process just like the mass of a black hole distorts the fabric of space-time. All the rules of the market still apply, but the outcome is not optimal.
The market will dictate the outcome no matter what regulators decide. Once we realize that the market is not fertile soil for monopolies, we see that what has really been lost are the benefits that may have come from mergers and acquisitions. Suppose the regulators speculate that a merger will adversely affect the poor when in reality it would have positioned a company to better serve the poor in some way that the regulators hadn’t anticipated. And we’d never know.