A common mistake when discussing inflation and antitrust is assuming a simple relationship between the two. The main goal of antitrust policy is to promote consumer welfare. Lower prices are one important component of the consumer-welfare framework, but so are innovation, choice, quality, and efficiency. The latter increase consumer welfare considerably but are notably absent from recent remarks by the current Federal Trade Commission Chair, Lina Khan, who asserted that the “consumer-welfare framework . . . should be abandoned” in favor of a focus on concentration. She is now pushing to block nearly all mergers, target successful platform companies, and make it harder for companies to prove their innocence.
While concentration within industries can lead to reductions in consumer welfare, that’s only true when those industries experience reduced competition. That this relationship is automatic is far from proven. A recent NERA study finds that competition actually increases when concentration increases in markets for specialized consumer goods such as hardware and furniture, stemming primarily from more efficient business practices and innovation from online marketplaces. The authors note that increasing concentration is associated with output growth, job creation, and higher compensation.
For the most part, post-war U.S. recessions have fallen into one of three types: Fed-induced recessions (the Fed raising rates to quell inflation, such as during the recessions of the 1950s, 1960s and 1980s, and early 1990s), bursting asset bubbles (like the tech bubble in 2001 or the housing bubble of 2008), or an exogenous shock, whether the twin oil shocks of the 1970s or the recent pandemic. This new 2022 recession looks as if it will mainly represent a return to the first type of recession, a Fed-induced recession.