Tuesday, November 5, 2013

Euvoluntary Monopoly?

John McManus wrote a memorable (if too-infrequently cited) article in the 1975 Canadian Journal of Economics titled "The Costs of Alternative Economic Organizations." In it, he describes a team of laborers hauling boats along a stretch of the Yangtze overseen by a whip-lashing taskmaster. The wrinkle? The coolies themselves had hired the supervisor. The fellow with the whip was the employee of the team. Mind-blowing stuff, eh?

It's a curious puzzle, perhaps governed partly by timing, partly by the behavior of competitors and customers, partly by luck that determines the optimal organizational form of firms. Questions like, "should I buy out the competition", "should I divest this part of my supply chain", "should I be listening to more Curtis Mayfield" are all necessarily contextual. It depends on the relative scarcity of all the production factors and what's right for GM in 1968 might be very wrong for Ford in 2014. It's a tough business to scry from afar, harder still to second-guess.

And far harder yet when faced with the intransigent laws of public choice. Consider the curious position of the FTC. Nominally tasked (in part) with:
Under this Act, the Commission is empowered, among other things, to (a) prevent unfair methods of competition, and unfair or deceptive acts or practices in or affecting commerce; (b) seek monetary redress and other relief for conduct injurious to consumers; (c) prescribe trade regulation rules defining with specificity acts or practices that are unfair or deceptive, and establishing requirements designed to prevent such acts or practices; (d) conduct investigations relating to the organization, business, practices, and management of entities engaged in commerce; and (e) make reports and legislative recommendations to Congress.
Note that the Commission reports to Congress. Which means by the transitive property of politics, that the Commission reports to a melange of special interests, irrational voters, elite technocrats, and the press. It's pretty easy to imagine a case where the meet and proper organization of a firm within an industry is entirely euvoluntary draws the attention of FTC pettifoggers buoyed by legislators out to tend the interests of their constituents.

Anti-trust is a cudgel. Sometimes you want to give a cudgel to officers of the peace because you want delinquents trammeled. But when it comes to firm organization, as opposed to deceptive practices, the prima facie case for anti-trust legislation may be considerably weaker than folks might imagine. It could very well be that one or two large, dominant firms is precisely the best way to deliver the lowest-cost bundle of goods to the consumer. And it could be that anti-trust browbeatings contribute more to the re-election prospects of a Senator or two rather than the greater public interest.

Edi(o)t: in my haste, I misattributed the source of the riverboat worker claim. The original source was Steven Cheung. I apologize for the sloppy scholarship.

Steven N.S. Cheung, The Contractual Nature of the Firm,@ Journal of Law and Economics 26
(Apr. 1983),1-21 at 8

No comments:

Post a Comment

Do you have suggestions on where we could find more examples of this phenomenon?