How Do Antitrust and Competition Policies Promote Economic Growth?

 

Americans want to be the best.

This may strike some as a universal trait, but I would argue that both American history and its present show Americans hold this specific motivation intensely. Both for good and for bad, there is an American ideology that drives action to claim superiority over its nearest competitors, working relentlessly to be the undisputed best. It is when competition is open and fair that these qualities of confidence and ambition can be channeled effectively into economic growth and better standards of living.

So, how can we shape U.S. policy to allow entrepreneurs to shine?

While the very nature of entrepreneurship is based in the desire to be the best, a level playing field that allows the best to prove their worth is a necessary assumption.

When individuals take the leap to start a new business — especially a business based on new technology, valuable intellectual property, or an unconventional business model — the creators believe they can serve the market better than the existing firms.

When entrepreneurs aren’t overwhelmed with barriers to entry (some of which I have discussed before and relate to nurturing competitive business environments), the innovative firms they found have a better chance of succeeding. There remains an assumption that America provides a fair, competitive environment where talented entrepreneurs can get ahead and achieve great things.

During a recent symposium on entrepreneurship and antitrust hosted by the American Antitrust Institute (AAI), academics, lawyers, entrepreneurs, startup organizations, and government officials came together to examine how antitrust and competition policy affect entrepreneurship. These are the two major takeaways:

Entrepreneurs Feel the Pendulum Has Swung Too Far

Antitrust policies that maintain fair levels of competition, while providing consumers with reasonable prices and alternatives, are admirable. However, creating these policies proves more difficult.

Speakers at the event, representing entrepreneurs in a number of different industries, spoke to the challenges new entrepreneurs face in entering goods markets. Their arguments ranged from the challenges of farmers and food producers to the protections that the law affords different actors in the beer industry that allow entrepreneurship to flourish.

A particular theme resounded from all of these representatives. Whether through outright political lobbying, friendly relationships with regulators, or just rules that favor incumbent firms, the rent-seeking behavior of typically large firms has produced a noticeable chilling effect on smaller, younger, and perhaps more innovative companies. Sometimes, these incumbent-favoring policies prevent entrepreneurs from even attempting to compete.

Identifying the Right Outcomes

Though the lens of competition policy and entrepreneurship, what outcomes truly matter? While entry barriers are a common symptom that competition advocates often point to as a sign that there isn’t enough competition, it isn’t the only sign.

Dan Isenberg of Babson University argued that even beyond entry, entrepreneurial survival may only show that some level of competition exists — but perhaps not the kind that allows newcomers to thrive. Because it is when those companies hire employees and develop new products that we see measurable economic growth, Isenberg advocated that the argument shift to include thought about how to ensure that promising newcomers can reach their potential.

While the AAI event provided a good overview of how entrepreneurship needs effective competition policy to thrive, there are still a number of questions about how antitrust and competition policy best promote economic growth.

  • Can antitrust policy be used as an instrument to promote innovation and entrepreneurship? Does the same policy instrument work to facilitate both?
  • How can merger and acquisition policy promote a level of competition that cultivates entrepreneurship?
  • Are there international models of antitrust protections that better incentivize economic growth through young, growing companies?
  • How much competition is “enough”, and how does the globalization of many markets that were once local or regional affect the “right” level of competition?

These are the complex questions that build off the realization that entrepreneurship can be hindered by suboptimal competition policy. I look forward to further research that explores these questions and provides evidence for the best course for competition policy to take.  

While the connection between antitrust and entrepreneurship seems important, the solutions to the questions that research raises about the role antitrust policy plays in promoting entrepreneurship are not clear. Promoting fair competition is a worthy goal that aligns with the ethos of American business and psychology.  Finding the right tools to accomplish that goal remains an unanswered question. Without a setting of fair competition, the attitude of American exceptionalism begins to ring hollow.

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chris jackson

Chris Jackson

Chris Jackson is a research assistant in Research and Policy for the Ewing Marion Kauffman Foundation, assisting in the understanding of what policies and environments best promote entrepreneurship and education in the pursuit of economic growth.