Labor Day is Monday. The authors of a new paper argue that a distorted definition of ‘efficiency’ has allowed for policies that have brought more and more power to concentrated business interests and have damaged workers and society as a whole.

GABRIEL A. LOZADA, lozada@economics.utah.edu
Associate professor of economics at the University of Utah, Lozada is a co-author of a new paper from the Institute for New Economic Thinking: “The Horizontal Merger Efficiency Fallacy.”

He and his co-authors summarized their paper: “Rising concentration is a direct result of the weak antitrust enforcement that resulted from the influence of conservative economists who propagated the Consumer Welfare Standard. … Big business turned to conservative economists to dismantle the New Deal consensus regulatory scheme. Their primary weapon was to argue that policy should advance so-called ‘efficiencies’ rather than rights and values that were the primary justifications for the New Deal Consensus. …

“In stark contrast to the businessman’s definition of efficiency, for economists, ‘efficiency’ only means Pareto efficiency.” Pareto efficiency is commonly defined as when an economy has its resources and goods allocated so well that no change can be made without making someone worse off.

The authors argue: “There is no empirical research to suggest that mergers that increase concentration actually lower costs and pass on the benefits to consumers. As one district court commented, ‘The Court is not aware of any case, and Defendants have cited none, where the merging parties have successfully rebutted the government’s prima facie case on the strength of the efficiencies.’ We have been unable to locate any study of merger efficiencies showing cost savings that are passed on as lower prices to consumers. Indeed, most studies show that mergers result in higher prices, lower economic performance, and less research and development. Yet conservative economists perpetuate the myth of consistently beneficial mergers.”

Other authors of the paper are Mark Glick, professor, University of Utah, Darren Bush, professor, the University of Houston Law Center and Pavitra Govindan, assistant professor of economics, University of Utah.