It has been a busy year for the Federal Trade Commission. Corporate mergers reached a new record of over $4.5 trillion dollars in 2015, and antitrust regulators have filed or threatened to file lawsuits to stop many of these, including the $6.3 billion Staples-Office Depot deal, the $107 billion Inbev-SABCoors deal, and the $120 billion Dupont-Dow deal. The regulators claim they want to block these mergers to protect customers from monopolies, but the real beneficiaries of the FTC’s actions are competitors of the merging firms, not customers.
Who is most interested in preventing Inbev and SABCoors from merging? Not drinkers of Budweiser and Blue Moon. It is other beer competitors who know the combined firm will be able to cut costs and lower prices while still offering a wide selection of products. Smaller companies are always afraid of their competitors getting bigger, whether through organic growth or through mergers, because size means scale and translates into lower prices for customers.
Blocking the merger of Inbev and SABCoors would make life easier for other beverage companies, but it would prevent consumers from enjoying the benefits of more efficient production.
Antitrust regulators tend to focus on the size of a company or a merger, not on its direct effect on consumers. But big is not necessarily bad for shoppers. In fact, it is often quite the opposite. Companies such as Apple, Amazon, Google, or Walmart are big precisely because they offer better products at lower prices. Companies grow by attracting customers through low costs, better variety, and higher quality—in short, because they provide goods and services that people value. It is hard to see how consumers end up better off when regulators penalize companies that successfully provide better and cheaper products.
Bigger firms also tend to have far less power in the market than most people fear. The combination of Staples and Office Depot would create a huge office products company, but that does not mean the combined company would, or even could, use its size to raise prices. Scores of web retailers, including Amazon.com, offer every office product imaginable, available at a click of a button and delivered right to your door. Is anybody really concerned they could not get paperclips or printer ink at a decent price if Staples and Office Depot combined?
As technology changes, the boundary lines of what defines a market begin to blur. How many more file cabinets and printers will we really need in a world that has already moved to mobile devices and cloud storage? Staples and Office Depot are not merging to dominate a market. They arre merging to play catch-up, because new competitors are redefining the industry and running away with their customers.
We tend to think of monopoly as a big problem, but, as Peter Thiel points out in Zero to One, monopolies are all around us, and they are typically evidence of someone creating a valuable product that no one else can match in quality or price. True, Google dominates the Internet search business, but so what? The products work well and the price is unbeatable. And if Google slips up, or even fails to get better at a fast enough rate, there are thousands of entrepreneurs dreaming to be the next Google who are ready step in. The real threat to consumers is not big companies. It is economic policies that get in the way of entrepreneurship and new business formation.
Antitrust policy focuses on the wrong things and we would be better off without it. Instead of imposing obstacles or penalties on mergers, antitrust regulators should be policing government rules that make it difficult for new competitors to enter the industry, or that give special tax breaks or subsidies to large incumbent firms. Open competition and the possibility of market-changing innovations are the best means to prevent dominant companies from charging high prices to consumers, and they work far better than we give them credit for.
There is little reason to be worried about a big office products or beverage company, but we should be very concerned about government bureaucrats and regulations that prevent entrepreneurs from keeping our biggest and most successful companies honest.
Paul Mueller is an assistant professor of economics and Brian Brenberg is an associate professor of business and economics at The King’s College in New York City.
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