Dominick T. Armentano's Arguments for the Repeal of All Antitrust Laws: Part V

Objections to Perfect Competition Theory, Free-Market Monopoly Theory, and the Doctrine of Free-Market Barriers to Competition

Note: Read the prior installments of this essay series here: Part I; Part II; Part III; Part IV.

In Chapters 3 and 4 of Antitrust: The Case for Repeal, Dominick T. Armentano argues against the primary reasons frequently given for the existence of antitrust laws. He criticizes the perfect competition model, the Neoclassical free-market monopoly model, and the idea that free-market barriers to entry pose problems for consumers.

Problems with Perfect Competition

According to Armentano, "it is difficult to understand the relevance [of perfect competition theory] in a real world of differentiated preferences, economic uncertainty, and dynamic change" (Armentano 1999, p. 33). The real economic problem - the problem competition must solve - is not how to allocate resources given perfect information, but rather one of "understanding how the competitive market process of discovery and adjustment works to coordinate anticipated demand with supply in a world of imperfect information" (Armentano 1999, p. 33). The perfect competition model assumes away this basic problem and is thus irrelevant to the real world.

Armentano continues by noting that the uncertainty of real markets often necessitates product differentiation, advertising, and interfirm coordination -- none of which are indicators that competition is being stifled; they simply indicate disequilibrium.

Unfortunately, most of antitrust enforcement has been grounded in the perfect competition model - thereby presuming that outputs less than the theoretical "perfectly competitive output" are somehow "restricted." Neither this nor antitrust authorities' suspicion of advertising and interfirm coordination are warranted if the perfect competition model itself is flawed.