Rebuilding American Economic Soft Power Through Antitrust Law

Abstract

This thesis explores the impact of firm entry on real income, which is the main building block of American economic soft power. While the antitrust literature looks at potential price effects of antitrust policies and is concerned with generating low product prices, my research is different because I analyze antitrust policy effects on firm entry and subsequent impact on real incomes. In my models I am concerned with stable prices, as opposed to low prices, to incentivize new firms to enter markets, increase competition for labor, thus increasing real incomes. Two antitrust enforcement periods are analyzed in this paper: first period (1948 - 1978) encompasses the Harvard School antitrust philosophy of large number of small firms in competitive markets, and second period (1978 - 2008) is based on the Chicago School antitrust philosophy of small number of large firms in concentrated markets. In my theoretical section I analyze collusive behaviors, markups, and court decisions in antitrust cases and their impact on firm entry. In my empirical analysis I utilize datasets on real incomes and firm entry (annual firm births minus annual firm deaths). My findings show that increasing firm entry by 200,000 firms increases real incomes by 34%. In the end, I provide a policy suggestion for antitrust authorities to include an income variable along with a price variable in antirust decisions in order to maximize working and middle-class families’ real income, thereby rebuilding American economic soft power.