Rand Paul wants to legalize cooperation

There’s an old economics joke about three guys sitting in a jail cell together, asking what the others are in for. The first one says, “I’m in for price gouging. My prices were too high.” The second guy says, “I’m in for predatory pricing. My prices were too low.” The third guy says, “I’m in for price fixing. I charged the same as everyone else.”

{mosads}This sounds absurd, because it is. Antitrust laws make all sorts of pricing behavior illegal, usually based on arbitrary criteria. Sen. Rand Paul (R-Ky.) thinks this is silly, and has introduced legislation that would essentially roll back more than a century of antitrust laws. His point is that voluntary economic transactions, where free people get together and choose to cooperate, shouldn’t be prohibited by the U.S. government. That just doesn’t make any sense from either a liberty, or an economic, point of view.

In reality, while antitrust laws seem well-intentioned, they actually cause a lot of problems that make it harder for people to compete or to innovate. Let’s take a look at a few of these.

Monopolies

When most people think about antitrust, they picture big monopolies abusing consumers with extortionate prices. But we really don’t see any historical examples of these kind of businesses, at least not ones that lasted for any length of time. In fact, most monopolies are created by the government through exclusive contracts. Think of things like utilities, roads, air traffic control or even the printing of money. If we tolerate these monopolies, that can only exist with government support, why should we reflexively break up ones that got where they are by selling a superior product?

Market definition

The Justice Department also intervenes to prevent mergers that would create companies that are too big. But what does “too big” mean? The government makes these calculations based on what share of a market a particular company controls. The problem is, there is no one way to define a market. Is the producer of a certain brand of whiskey only competing with other whiskeys, or does the market include vodka, or beer and wine, or even non-alcohol beverages? Whatever answer you come up with is arbitrary. The truth is that the Justice Department has no way of knowing whether a merger will be good for consumers or not. Only the market can decide that.

Predatory pricing

It seems crazy, but a business can get in trouble with the law for lowering its prices too much. The idea behind predatory pricing is that a large company sets its prices so low that it is actually losing money, doing so to drive smaller competitors out of the market. Once the competition is gone, the prices come back up, and consumers are allegedly harmed. But here, again, it’s impossible for the government to distinguish between predatory pricing and legitimate price competition that benefits consumers.

All of these antitrust policies presume that a central authority can know ahead of time what is going to be good and what is going to be bad for competition. They can’t, and as a result, antitrust laws frequently accomplish the opposite of their aim, hindering competition and innovation rather than promoting it.

What Rand Paul wants to do is simply to legalize voluntary economic arrangements between individuals, arrangements which are by definition beneficial to both parties, getting the government’s big nose out of the way. What’s so radical about that?

Albright is the director of research for Free the People, an organization that promotes personal freedom and economic liberty.