John Newman: What Democratic contenders are missing in the race to revive antitrust

Today, however, a strange myopia has seized judges and antitrust enforcers. As a result, the law has turned a blind eye to harmful conduct. And now, in a final irony, it is threatening to condemn responsible corporate citizenship.

President Donald Trump’s Justice Department has reportedly launched an antitrust investigation into four automakers—Ford, Honda, BMW, and Volkswagen. Their supposed offense? Agreeing with one another, and with the state of California, to develop vehicles that are more fuel-efficient and have lower emissions than federal standards require. This is a noble goal. As any introductory economics textbook explains, pollution is a classic example of market failure. The problem arises from a negative externality: When cars emit carbon, all of us—not just buyers and sellers of cars—bear the costs.

The automakers’ agreement, which seeks to reduce that externality, is the exact opposite of selfish behavior: It is likely to increase the automakers’ own costs, rather than their profits. In short, this is a very strange choice of target for an antitrust-enforcement agency. But the Trump administration is keen on lowering federal environmental standards—apparently even to the point of targeting companies that are willing to hold themselves to higher ones.

While some companies are at risk of being punished for fighting pollution, others are getting a pass despite creating a negative externality. The conservative wing of the Supreme Court recently did just that in Ohio v. American Express. The genesis of the case was an Obama-administration lawsuit against American Express targeting certain rules in the credit-card giant’s contracts with business owners. Under those rules, businesses cannot tell their customers how big a cut Amex takes from each purchase, nor can they offer a discount to shoppers who use less expensive cards. The rules obviously harm merchants, especially small businesses.

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But one of their most pernicious effects stems from a negative externality. Because businesses cannot signal to their customers which payment options are more expensive, they are forced to raise prices across the board to make up for Amex’s high fees. Those fees partially pad Amex’s bottom line, but they also help fund lavish reward-points programs for its cardholders—a relatively wealthy group. As a result, everyday consumers who buy necessities with cash or food stamps end up subsidizing free first-class flights and four-star hotel stays for Amex cardholders. The Supreme Court’s conservative justices decided this scheme is actually good because it helps Amex attract cardholders—and they simply ignored the harmful spillover effects on the rest of society.