An economic evaluation of federal antitrust activity in the manufacturing industries: 1980-1985
Abstract
The general objective of this research is to evaluate the theoretical basis for and explain the observed allocation of recent federal government antitrust activity among U.S. manufacturing industries. Published game-theoretic models are modified to develop an improved theoretical model of the efficient allocation of limited antitrust enforcement resources. Comparative statics analysis of the model indicates that greater antitrust activity should be directed toward industries exhibiting larger welfare losses due to the exercise of market power. Previously unutilized data regarding antitrust activity in the early 1980s by the Federal Trade Commission (FTC) and the Antitrust Division of the Justice Department were obtained under Freedom of Information Act requests. During the study period, these agencies employed fewer professional resources in pursuing antitrust activities directed toward fewer industries. Between 1981 and 1985, time expended by lawyers and economists on antitrust enforcement by these agencies declined by 40% overall and 60% among the manufacturing industries. Tobit analysis is employed to obtain estimates of the market-structure and performance determinants of the allocation of antitrust activity across industries. For both antitrust agencies, positive and significant coefficients are consistently obtained for the following explanatory variables: estimates of industry deadweight losses and income transfers from consumers to monopolists, four-firm industry concentration ratios, value of industry shipments, and shipments held by the top four firms in an industry. Firm numbers and average shipments per firm do not have significant impacts in explaining the behavior of either agency. Therefore, the empirical analysis indicates that the allocation of federal antitrust effort is efficient according to a conventional welfare analysis criterion. The total effect of changes in the independent variables on FTC or Antitrust Division professional time expended on an industry is decomposed into probability and conditional effects. Two-thirds of the total response is due to changes in the probability of expending any professional resources at all. The remainder of the total response arises from marginal expenditure changes on industries in which some antitrust effort is already present. In other words, measures of industry structure and performance exert more influence over decisions to initiate or discontinue antitrust activity than decisions regarding marginal expenditure changes once antitrust effort is underway.
Degree
Ph.D.
Advisors
Connor, Purdue University.
Subject Area
Economics
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