One of the biggest news stories of the year has focused on antitrust cases and bills targeting tech giants Amazon, Apple, Facebook and Google. Outside the academy, liberal progressives increasingly point to monopoly power held by BigTech as a source of growing income and wealth inequality (see here, here, and here). Newly appointed chair of the Federal Trade Commission and Columbia Law Professor Lina Khan made a splash in 2016 with her Yale student note, which made a legal case for breaking up Amazon, inspiring a “‘hipster antitrust’ movement among young scholars who want to expand existing antitrust law to better target issues like corporate concentration and income inequality” (Vox).
But is antitrust law really a promising tool for redistributing income and wealth? Professor Ramsi A.Woodcock doesn’t think so.
In a new working paper, Woodcock traces the intellectual histories of antitrust and tax law debates about redistribution. He argues that the academy generally favors taxation over antimonopoly tools for redistributive purposes—but American politics and culture have made redistributive taxation untenable, while the press has elevated antitrust law as a politically viable alternative.
Woodcock begins by arguing that scarcity, not monopoly, is the primary cause of market-driven inequality. The thrust of the argument is this: In every market, there are marginal sellers and inframarginal sellers. Where marginal sellers would be unwilling to pay more to produce goods, the inframarginal sellers probably would be willing to pay more—but they don’t have to. For whatever reason, some sellers just have lower costs than others. But because of scarcity in the marketplace, whereby consumer demand outpaces supply, the inframarginal sellers are often able to charge the same prices as the marginal sellers. In doing so, these inframarginal sellers capture an outsized share of value from each sale.
As Woodcock explains, monopolies work the same way—except in the case of a monopoly, the monopolist creates the scarcity after driving higher-cost producers out of the market. As the higher-cost producers exit the market, the producer with monopoly-power can decide how much to expand production, but “it will never be profitable for our low-cost seller to increase output to levels that would satisfy all of the excess demand, because that would drive price down to the seller’s production costs, eliminating all of the seller’s profits.” So, the producer will choose not to. Instead it will “create artificial scarcity, transforming itself into a practicing monopolist.”
Antitrust law can break up the monopoly, restoring competition and eliminating the artificial scarcity. But there will always be natural scarcity and inframarginal sellers. As a result of natural scarcity, income and wealth is shifted to inframarginal sellers (and away from buyers), with potentially harmful distributive outcomes—and nothing in antitrust law can prevent this from happening. For this reason, Woodcock argues that antitrust law, while not irrelevant, is at best limited in its capacity to combat market-driven inequality. A better approach, says Woodcock, would be to target scarcity-power directly through taxation.
Woodcock points to a long history of scholarship concluding that redistributive taxation is better suited than antitrust law to target scarcity-driven inequality. The original progressives favored taxes that would be “narrowly tailored to those inframarginal sellers in every market that had lower production costs than the marginal sellers and so could appropriate a share of the surplus for themselves.” In other words, the tax would be personalized to tax sellers earning scarcity-rents more than those who are not. Such a tax would be practically impossible to implement, of course. But that’s not the point. Even imperfect redistributive taxation would be more effective than antitrust law for addressing income and wealth inequality.
So why, then, has antitrust law become a darling among contemporary progressives concerned about income and wealth inequality? According to Woodcock, politics are to blame. And the press. And American anti-tax culture in general. And our cultural obsession with private markets and anti-statism. Basically, aggressive redistributive taxation just doesn’t fly here. But, suggests Woodcock, maybe it could work elsewhere. Woodcock concludes that “[a]ny jursidiction in which tax reform remains politically feasible ought to pursue tax reform first.” Hear, hear!
I enjoyed reading this paper for a rich intellectual history of redistributive tools that spanned multiple subfields. I might have liked to hear more from the author about non-economic inequality, such as the relative capacities of antitrust vs. taxation to address power imbalances or health inequality, for example. It strikes me that the BigTech problem that lurks in the background of this project implicates inequities well beyond income and wealth—so the focus on antitrust law as a redistributive tool may be more justified than this paper suggests. Still, I enjoyed reading this paper and recommend it to anyone interested in inequality, redistributive taxation, antitrust, or media law.