Thinking Economically: Antitrust and the States

Musings on Economic Freedom from the Texas Public Policy Foundation’s

Center for Economic Freedom

 

In his seminal work, The Antitrust Paradox (1978), Robert Bork wrote that many of the doctrines driving antitrust enforcement are “ultimately incompatible with the preservation of a liberal capitalist social order.”

 

This has essentially been the case since the states and the U.S. Congress began adopting antitrust laws in the last few years of the 19^th century. Standard Oil, for instance, was found to have violated antitrust laws even as it used technology and innovations in distribution to drive steep declines in energy prices that made the benefits of increased energy use available to all Americans, rather than only the wealthy and elite.

 

In recent years, the dramatic rise in antitrust enforcement by state attorneys general has raised questions about how the involvement of states might exacerbate the harm often caused to competition and innovation through antitrust enforcement.

 

To answer these questions, the Texas Public Policy Foundation today released a new study, Protecting Innovation: The Role of State Attorneys General in Antitrust Enforcement by  Josiah Neeley and me.

 

We viewed the involvement of the states through three lenses: federalism, competition, and efficient enforcement. We found 1) the participation of states in antitrust enforcement in national and international markets is generally not a good fit for our system of federalism, 2) modern insight into how free markets work has not found  its way completely into law through revisions of antitrust laws and judicial doctrines—particularly at the state level, thus serving as a hindrance to competition and innovation, and 3) the duplicative nature of interstate antitrust investigations by state attorneys general and the multiple jeopardy of companies defending against so many different enforcers are not efficient means of addressing antitrust concerns.

 

The challenges of increased state involvement are particularly acute in high-technology markets, where antitrust enforcement is already problematic in several ways. Consumers benefit from increased efficiency, but efficiency can increase market share, which in turn can trigger ill-advised antitrust enforcement. The complexity and rapid innovation of high-tech markets increase the danger of erroneous and damaging antitrust enforcement. These challenges are exacerbated by state involvement in antitrust.

 

While we see a clear role for the states in enforcing antitrust law in local commerce, it is much more difficult to discern a role for the states in transactions that are in many cases not only national, but international. Instead, the involvement of the states in these markets is more likely to lead to an expansive regulatory regime that inhibits—rather than enhances—competition and innovation. This is particularly true in the case of e-commerce.

 

We argue that the scope of state antitrust enforcement should be reduced, particularly with respect to interstate and high technology markets. Specifically, we recommend that states’ ability to bring parens patriae suits under the federal antitrust laws should be repealed, and that state involvement in premerger review should be curtailed. We also find that where the federal government has settled an antitrust matter under investigation, continued state involvement makes little sense, and in fact may stifle product development, investment and innovation.

                                                                                                                                

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Bill Peacock

Vice President of Research

Director, Center for Economic Freedom

Texas Public Policy Foundation

o: (512) 472-2700

c: (512) 965-6476

bpeacock@texaspolicy.com

Thinking Economically: Texas Sunset Commission Recomendations on PUC Will Grow Government and Harm Consumers

Musings on Economic Freedom from the Texas Public Policy Foundation’s

Center for Economic Freedom

 

In a few days, Texans will find out if the state agency tasked with streamlining government instead decides to heap more regulations on Texas businesses and higher costs on Texas consumers.

 

The Sunset Advisory Commission is scheduled to vote next Wednesday on recommendations contained in its Staff Report on the Public Utility Commission of Texas (PUC). Two of the recommendations will harm Texas’ world-class electricity market as well as Texas consumers:

 

Sunset Recommendation 1.1 Increase PUC’s administrative penalty authority to $100,000 per violation per day for electric industry participants’ violations of ERCOT’s reliability protocols or PUC’s wholesale reliability rules

 

Sunset Recommendation1.2 In limited circumstances, authorize PUC to issue emergency cease-and-desist orders to electric industry participants

 

As I explain in the latest Center for Economic Freedom paper released today, Increased Regulation Will Harm Texas’ Electricity Market, these recommendations are big government solutions looking for a problem—a problem that doesn’t exist.

 

In making the recommendations, the Staff Report claims that the “PUC lacks regulatory tools needed to provide effective oversight” of the Texas electricity market “and prevent harm to the public.”

 

Given these claims, one might expect to find in the report examples of the PUC exhibiting ineffective oversight. Or perhaps a table filled with listings of market conduct that had harmed the public.

 

But this isn’t the case; the report fails to offer any evidence of market misconduct at all.

 

The inability to justify the Staff Report’s recommendations isn’t surprising, though, because the evidence today as Texas struggles with the issue of maintaining an adequate supply of electricity overwhelmingly supports less intervention by government – not more.

 

More “effective oversight” of Texas’ electricity market – or any market, for that matter – through higher penalties and restricting due process will not help the public. Instead, it will make electricity more expensive, reduce competition, and harm current efforts to increase reliability.

 

Unfortunately, unwarranted attempts to grow government are nothing new to the sunset review process. In recent years, the sunset process has turned away from the Commission’s task of “identifying and eliminating waste, duplication, and inefficiency in government” despite an increasingly conservative Legislature.

 

Additional examples of sunset recommendations that would increase government include: increasing the maintenance tax on insurance companies; increasing regulation of private real estate schools; and requiring the registration of all third-party manufactured-housing installation inspectors.

 

In 2010, the Commission staff recommended that the PUC charge a new fee for its licensing-related activities, then claimed that the fee would result in “[n]o revenue gain to the State” as long as the additional money from the fee was spent by the PUC.

 

What went wrong with the sunset process?

 

It starts with the fact that just about every state agency has a date when it automatically ceases to exist unless it is kept alive by the Texas Legislature after a sunset review.

 

While “sunsetting” state agencies sounds like a great idea and when begun in the 1970s actually yielded some positive results, today no one is going to abolish agencies such as the PUC, the Texas Department of Transportation, or the Texas Railroad Commission. The bills containing sunset recommendations, then, must pass to keep these agencies alive and become vehicles for policies that big government advocates have failed to pass on their own.

 

We can solve this problem simply by eliminating the “must-pass” nature of sunset bills. Agencies would not be “sunsetted” but would still undergo review, and if the sunset recommendations are worthwhile and can garner broad support, the bill will pass. If not, it  won’t.

 

We’ll wait to see if the Texas Legislature can eliminate the systemic bias toward big government in the sunset process.

 

But we don’t have to wait to fix the problems in the Staff Report’s recommendations on the PUC. The 12 members of the Sunset Commission can act now to protect taxpayers and consumers from bigger government and higher electricity prices.

 

We will be adding automatic subscribe and unsubscribe functionality to this email. In the meantime, if you’d like to do either, please send an email to bpeacock@texaspolicy.com.

 

Bill Peacock

Vice President of Research

Director, Center for Economic Freedom

Texas Public Policy Foundation

o: (512) 472-2700

c: (512) 965-6476

bpeacock@texaspolicy.com