I write this letter from Indonesia, where the International Monetary Fund and the World Bank have conditioned their loans on the government's eliminating "all marketing limitations" and on its adopting a competition law by January. Special government privileges have blocked and stalled competition. There is fear that, even if the government withdraws exclusive licenses (e.g., sole import rights), it will hand the rights over to trade associations and marketing boards. Moreover, creation of any new company--including mergers--requires a government license, which can take two years to obtain, and foreign investment is screened by a special board. For competition policy, getting rid of government-granted privileges, licensing obstacles, and other toll gates is the highest priority.
So, at least momentarily, our conversation about whether and when mergers in the United States create market power and the meaning of Section 7 of the Clayton Act seems a bit arcane, as I think you will agree.
Nonetheless, returning to our dialogue:
1) Does political philosophy influence applications of economics?
By suggesting an affirmative answer I was not making a charge. In fact, I was somewhat surprised that you do not agree with this observation, which has been made by Harold Demsetz and many others. See, for example, his essay "Two Systems of Belief." See also essays of Frank Easterbrook and Jim Miller. Perceptions that influence economic analysis include assumptions about a) how well markets work and therefore how likely is firm behavior to be efficient and responsive to the market; and b) how trustworthy or clumsy is government intervention. As Demsetz points out, one who believes that business activity is almost always efficient and government intervention is almost always inefficient might opt for no antitrust or only an anti-cartel law. Others, such as Judge Richard Posner, are suspicious that where there are only a few firms in certain environments the firms will tend to behave like conspirators, and so they support a policy against mergers that entrench oligopoly behavior. See Posner's book Antitrust: AnEconomicPerspective. How do you explain the difference between your approach and Posner's approach? Is economics really just science?
2) Regarding U.S. merger law, Section 7 of the Clayton Act: It may be that Congress was not entirely clear about its standard for proscribing mergers (although it certainly gave us a lot of clues in its legislative history). But isn't it true that anyone who would limit only mergers to monopoly would have voted against Section 7?
If this is so, what should a judge do in applying this law? May a judge "think the statute away," on the grounds that mergers to monopoly are illegal under the Sherman Act, and there is nothing more that an economically sound merger law would do? Does it matter whether Congress got its economics wrong or whether it was concerned about more than efficiency?
I look forward to hearing from you.
With best wishes,