Antitrust Law Daily Wrap Up, ANTITRUST NEWS: AAI Special Counsel comments that monopoly harms society, (Oct 17, 2014)

By Linda O’Brien, J.D., LL.M.

Responding to a recent Wall Street Journal essay by PayPal co-founder Peter Thiel (“Competition is for Losers”), American Antitrust Institute Special Counsel Sandeep Vaheesan published a commentary, entitled “Popular Intuition is Right, Peter Thiel is Wrong—Monopoly Is Bad for Society.”

In his commentary, Vaheesan notes that Thiel presented monopolies as benevolent giants that innovate at a higher rate and have the freedom from competition to treat their workers fairly. Reality contradicts Thiel’s “rosy picture,” according to Vaheesen.

Research has shown that non-monopolies are more likely to be innovative than their monopolistic counterparts and their innovations are more likely to be significant, the special counsel wrote. Monopolists often wield enduring and unaccountable power over consumers, suppliers, competitors, and society. Thiel’s essay was based on a “false choice” of perfect competition or monopoly and ignored the vast and representative middle ground, in Vaheesen’s view. Oligopoly—a market dominated by a handful of large firms—is the norm in American industry.

Businesses in oligopolistic markets are very different from atomistic firms in the world of perfect competition, since oligopolists often have the power to set prices paid to suppliers and charged to consumers and often enjoy large profits. Contrary to Thiel’s assertions about the technologically fruitful monopoly, research suggests that competitive oligopolies are more conducive to innovation than monopolies because markets with a half-dozen to a dozen competitors can devote significant resources to long-term planning, Vaheesan commented.

This finding should not come as a surprise, Vaheesan continued. A monopolist in a market with barriers to entry faces no direct rivalry and can afford to be slothful. Lacking a competitive check from rivals, monopolists have more power to raise prices for consumers and depress payments to suppliers and workers. Rather than lower prices or improve service, monopolists can use anticompetitive methods to foreclose rivals from the market.

The private power of monopolies calls for public power to check these giants through enforcement of the antitrust laws and other competition policy, Vaheesan said. Businesses should be allowed to thrive through competition on the merits—not through exclusionary or predatory tactics. Thiel’s vision embraces values contrary to the American tradition. It should be remembered that anti-monopoly law, designed to curb the excesses of monopolies, is the equivalent in this economic sphere of the guarantees of free and unhampered elections in the political sphere, Vaheesan concluded.

News: Antitrust