That sound you heard, just now, was my jaw falling from my skull and drop-drop-dropping onto the floor after finishing Stephen Moore’s recent NRO article on Bush’s anti-trust policy. “Extraordinarily underwhelming” doesn’t begin to do justice as a desciption. (And, so we’re clear, I disfavor most forms of antitrust regulation; i.e., I’m putatively on Moore’s “side.”) The key passage, from which the rest of Moore’s analysis flows, is the following:
Antitrust actions may have made sense during the era of Theodore Roosevelt, when firms like Standard Oil could truly monopolize local markets. But in the 21st century, where markets are global, the idea that firms can gouge consumers on prices is as antiquated as the stage coach. Consumers are more fickle and cost-conscious than ever before. If prices get out of line in any market where there are no barriers to entry, competitors swoop in and lower costs so that monopoly rents disappear.
(Emphasis added.) The problem with this paragraph (and the highlighted sentence in particular) is not merely that it betrays a profound misunderstanding of the practicalities of “entry barriers” — though it does — but that it also demonstrates no appreciable concern for the realities of the present-day marketplace. This is the kind of passage a sociology major might write, between bong hits, and having learned all of his economic theory from Krugman’s New York Times columns. (‘Tis true that Krugman is an economic genius, but the evidence for it is of a super-Times-ular nature.)
As a threshold matter, there is no such thing as a market “where there are no barriers to entry.” Every market has entry barriers. Even with the most ephemeral or fungible products, you have to hire someone to create it, build some sort of office (or telecommuting) environment, pay for start up marketing, etc. Indeed, even if these entry costs did not exist (and they always do), entry into a new market at a minimum costs the sum of your next best opportunity. (Tom, in comments, notes that the economic (as opposed to actual) costs of entry may still be zero if the next best opportunity is not as good as the proposed market-entry; he’s right, of course, and my phrasing of this sentence is confusing. For the moment, consider it withdrawn.)
So Moore is simply silly on this first point. But Moore’s also wrong on a second, admittedly more sophisticated point. The very markets that Moore highlights as having small or nonexistent entry barriers — software companies — in fact usually have fairly high entry barriers. (Here, Yglesias’s analysis of Moore’s article also stumbles.) Meet the modern patent regime: wherein even “clearly” invalid patents have value.