Wednesday, January 14, 2004

Antitrust News: Monopolizing Imaginary Markets

Yesterday the FTC, in an odd moment of humility, decided not to challenge the 2001 acquisition of Novazyme Pharmaceuticals by former competitor Genzyme Corporation. Lately the FTC staff has been demanding the Commission undo mergers after the fact when anticompetitive harm is magically “discovered.” This is what happens when you have 300 antitrust lawyers on staff with nothing to do.

Anyway, what makes this investigation noteworthy is that the market allegedly monopolized by this merger does not yet exist. Prior to 2001, both companies engaged in research to develop a treatment for Pompe disease, a rare ailment affecting about 10,000 infants and children worldwide. Because the disease is rare, the federal Orphan Drug Act gives the first company to develop a treatment seven years of market exclusivity. Research has continued on Pompe disease since the merger, but no treatment has actually been tested and marketed.

Three FTC commissioners, led by Chairman Timothy Muris, said, “[t]he facts of this matter do not support any a finding of any anticompetitive harm.” Muris charitably notes the merger may actually hasten the development of a Pompe treatment and save lives. This is a rare moment of lucidity from Muris, whose three years in office have been marked by his various rampages against businesses he doesn’t like (or businesses that didn’t hire him as a consultant when he was in private practice). But in this case, Muris admits there’s no evidence to conclude any consumer will be harmed.

Commissioner Mozelle Thompson disagreed, and he took the conventional antitrust view that the merger created a “monopoly” by eliminating the rivalry between the two companies. Keep in mind, this “monopoly” is for a market that does not yet exist, since there is no actual product on the market to treat Pompe disease. But facts are generally irrelevant in antitrust cases. What matters, Thompson argues, is that we have competition in developing a cure. Without competition, he believes, there is no innovation. And in a truly egomaniacal statement, Thompson asserts, “[P]rotecting innovation competition has been a Commission success story over the past decade. Our actions have directly benefitted [sic] competition and consumers, and these actions have sent a strong signal of support to innovators.” In other words, the FTC is responsible for market successes, because it thwarts the anti-consumer actions of greedy producers. If you believe Thompson’s view, than you are not a capitalist. The FTC has never benefited any consumer. They are not experts in any market, but experts in manipulating process to benefit those who curry political favor.

The fifth commissioner, Pamela Jones Harbour, abstained from the vote but issued a statement largely mirroring Thompson’s “antitrust lawyers know best” view. This is no surprise, since Harbour spent most of her career running the antitrust division of the New York attorney general’s office. Her statement actually cuts to the heart of the matter, especially where she says, “Competition drives innovation, a crucial element in increasingly global markets.” This is the most important concept to understand. The FTC, and antitrust lawyers generally, believe that competition is the foundation of capitalism, and that without constant competition, “monopolist” firms will ground the economy to a halt.

True capitalists, however, see right through this charade. We know that competition is a byproduct of capitalism, not its source. Capitalism is a social system where all property is privately owned and individual rights are enforced by the government. Competition may or may not occur in a particular market, but it is not an essential element. What Harbour and her colleagues fail to understand is that innovation occurs because businesses seek to achieve, not because they seek to compete with one another. Nor does the FTC understand that competition cannot be artificially regulated. Of course, artificial regulation is the FTC’s reason for existing. Why else do they need a staff of hundreds to define “relevant markets” and develop complex, meaningless antitrust theories?

No comments: