The Effects of Deregulation on Competition: The Experience of the United States

Most economists agree that the net effect of the deregulation movement in the United States has been to increase efficiency, with resulting increases in consumer welfare. Because deregulation contemplates the substitution of competition for regulation as the “regulator” of the deregulated markets, deregulation increases the importance of antitrust law as a means of preventing unregulated firms from eliminating competition among themselves by mergers or price-fixing agreements. This is a particularly important point to remind Europeans, in view of the fact that historically antitrust has played a smaller role in European than U.S. law. It is important that ‘competition‘ be understood in its correct economic sense, lest antitrust become another form of regulation. Competition is not a matter of many sellers or low prices or frequent changes in prices or market shares. It is properly regarded as the state in which resources are deployed with maximum efficiency, and it is not so much the existence of actual rivalry, let alone any specific market structure or behavior, as the potential for rivalry, that assures competition. The proper role of antitrust law is to protect that potential by limiting mergers, preventing the formation and operation of cartels and other horizontal price-fixing or market-dividing agreements or modalities, and, to a limited extent, preventing abusive tactics by individually powerful firms. If that role is played effectively, then most and perhaps all programs of public utility and common carrier regulation can be dismantled without economic loss — indeed with considerable economic gains. That at least appears to be the lesson of the U.S. deregulation movement. I. THE ECONOMIC ANALYSIS OF THE LAW APPROACH THE EFFECTS OF DEREGULATION ON COMPETITION: THE EXPERIENCE OF THE UNITED STATES