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This past week, Senator Amy Klobuchar, now the head of the Senate Judiciary subcommittee on antitrust, proposed the most comprehensive legislative reform of antitrust law since the passage of the Clayton Act in 1914. That statute extended the reach of antitrust law so that it covered not just Sherman Act cases of monopolies and cartels in restraint of trade, but also any merger or consideration that, to quote the language of Section 7 of the Clayton Act, might “substantially lessen competition” or “tend to create a monopoly.”
To Senator Klobuchar, that 107-year-old statutory standard is not sufficient for dealing with antitrust law in the digital economy. She has insisted that breaking up companies like Facebook “has to be on the table.” In a blunt statement, she projects her optimistic vision: “When we talk about structural remedies and breaking things up, those companies would then be unleashed to do even more”—but she doesn’t say how that welcome outcome would be achieved. Indeed, if a breakup would have that positive effect, then shareholders of those companies should be demanding that management adopt that course of action to maximize the value of their holdings. But underlying her analysis is the tacit assumption that there are no efficiency gains from the integrated operation of a single firm, let alone from any future merger or acquisition.
Unfortunately, she offers no systematic explanation as to why that negative judgment is correct. Nor does she explain exactly why the current system of merger evaluation is deficient. In his classic 1968 article, “Economies as an Antitrust Defense: The Welfare Tradeoffs,” the late Nobel laureate Oliver Williamson explained why it was not possible to have a presumptive condemnation of mergers. On the one side, mergers can increase industry concentration, exerting the usual negative effects on consumer welfare, including higher prices and perhaps lower quality. But on the positive side are the cost savings from the merger brought through efficiency gains in operations. The challenge is to measure and weigh their relative magnitudes.