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Thoughts on antitrust

“Education of judges, government officials, law professors, and journalists could dissolve antitrust. Understanding the nature of antitrust and its lack of factual foundation undermines its appeal. Education about antitrust history not generally known but not difficult to understand might make a difference. History shows that the breakup of Standard Oil accomplished nothing. It was `part of a moral conflict’. It was like preaching against sin without defining it. Corporate consolidation need not be feared. No amount of magic `market power’ can force buyers to buy. For anyone interested in developing intelligent public policy, these ideas are not difficult to absorb.

Should Microsoft be allowed to add a media player? Should GE be allowed to acquire Honeywell? Should IBM be broken up? Antitrust supplies a vocabulary to discuss these questions but does not provide answers, no matter how much help is obtained by economic theory. Antitrust judgements are subjective choices of the judge about public policy. Law students should be taught that antitrust is not law enforcement. Journalists and opinion makers should be encouraged to ask themselves, `Do we really need to fear that some greedy capitalist will monopolize sardine snacks or mashed fruits and vegetables?’ The public should be told what is going on, that antitrust decisions are political decisions misleadingly portrayed as law and economics. Those in a position to do so should force more discussion of such questions as, `Can salaried government officials in Washington make better decisions about how many distributors of office supplies there should be in, say, Wheeling, West Virginia, than people whose capital is at stake?’ Although today’s antitrust community is alive and well, antitrust is atrophying. It is becoming a relic, an anachronism, the irrelevant debris of past political demagoguery. Education in the antitrust facts of life could accelerate the process.”

The Antitrust Religion, Edwin S. Rockefeller, page 103.

Well, as we can see in the case of Google, the antitrust movement still has legs today.

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14 comments to Thoughts on antitrust

  • Jaded Libertarian

    Antitrust is a symptom of a broken system – but not one than can be eliminated without addressing some more fundamental concerns.

    In principle the markets should be completely free – allowing competitors to spring up and die off at will. They are not free however. High business rates, regulation and unionism all serve to increase the burden to the level that only established corporations can bear it, and new competitors become rarer and rarer.

    This climate leads to mega-monopolies. Antitrust is meant to be a sticking plaster over that gaping wound. It acts as some small safeguard (however imperfect) against the monsters our bizarre un-free market creates.

    Abolish anti-trust and I almost guarantee you that by the end of the year the only software platforms would be Microsoft, Apple and Linux.

    Everything that isn’t open source would be bought and consumed.

  • Johnathan Pearce

    Jaded, I really don’t buy your argument for anti-trust, I am afraid. People like JK Galbraith were attacking Western capitalism back in the 60s on much the same grounds, arguing it was cartelised, lots of barriers to entry, etc, hence the need for big firms to be busted up simply for being big. Then suddenly, in the space of a few years, the Fords, GMs and IBMs got rolled over on the floor by Japanese firms, startups in Silicon Valley, etc.

    And anti-trust is an incredibly blunt, unfair instrument. A business that gets to be big by serving clients well, by providing good products, is often targeted by politicians and officials for no better or more coherent reason than that firm is big. Not anti-competitive, mind, but simply for being large. So unless a firm kisses a politician’s arse, or plays along with all the usual corporate social responsibility BS, it might find itself in the cold (examples such as Microsoft come to mind).

    Far better to focus on pushing back the regulations and taxes that throttle entrepreneurship in the first place. Antitrust is an atrocious system. It says something that the guy whose quote I gave is a former antitrust lawyer who has despaired of the system.

  • Abolish anti-trust and I almost guarantee you that by the end of the year the only software platforms would be Microsoft, Apple and Linux.

    Are there any others currently? I really am asking.

  • JadedLibertarian

    Alisa –
    Not OSs that I can think of – but anti-trust laws have been used to stop Microsoft from buying other software producers before.

    I dunno – I think antitrust laws are awful. But they are a symptom rather than the disease.

    The disease is authoritarian regulation – and if you leave all of that in place but remove antitrust I’m not sure you’d like what you get.

  • JL: antitrust laws are a very significant and important part of that same authoritarian regulation which you rightly identify as the disease – virtually all of which is the result of the best of intentions in most minds that supported it. Don’t fall into the same trap a lot of people keep falling over and over again.

  • Laird

    I understand JadedLibertarian’s point, but don’t completely agree with it. The US antitrust laws (I can’t speak to other jurisdictions’ laws) largely predate the rise of “authoritarian government” (in the sense we know it today, with pervasive regulation and a large helping of crony capitalism on the side). The Sherman Antitrust Act was passed in 1890; the Clayton Act followed in 1914. They were a response to the large business “trusts” of that era (railroads, sugar, oil, tobacco, etc.). But those cartels were themselves largely the result of government interference in the market (the magnates running them also controlled the politicians, and were able to extract lucrative government contracts, rights-of-way, protectionist laws, etc.).

    Absent government putting its thumb on the scales no monopoly can long survive. Market forces will soon attract competitors and eliminate any outsized profits. The same is true for cartels: internal divisions inevitably break them up, as members “cheat” on each other. So I don’t fear the repeal of antitrust laws.

  • Laird

    Sh*t. Smited again. Over an antitrust post! WTF?

    “Gathering her brows like gathering storm,
    Nursing her wrath, to keep it warm . . . .“

  • Anti-trust is the usual story of legislation being used in an attempt to resolve a problem which was created by legislation.

    The possibility of a market being dominated by one supplier would be minimal if it wasn’t for regulation acting as a barrier to entry, market interferences like limited liability and mercantilist privileges such as copyright and patents.

  • Johnathan Pearce

    Paul, as referenced in my previous posting a few days ago, remember we are talking about statutory limited liability as a problem. (Details dear fellow, details!) On the other points, I broadly agree. For a start, removal of statutory IP would see the demise of that parasite, the “patent troll”.

    By the way, Paul, you might want to note what anti-statutory IP guy, Stefan Kinsella,(Link) has to say about limited liability.

  • Paul Marks

    There will be dominate companies – if there is someone of genius (who really is better at both thinking up new ideas AND running a business).

    John D. Rockefeller (not his useless offspring) was such a man – Standard Oil was not vast because of government help (the only time he tried playing that game it did not work) it was vast because Rockefeller was a genius – he really was (although a very quiet one).

    But that does not mean that government attacks upon his business were a good thing, or that he the large scale of his company was a bad thing for customers.

    See “The Myth of the Robber Barons” by Burton W. Folsom.

    Although you may have already done so.

  • JP:

    Paul, as referenced in my previous posting a few days ago, remember we are talking about statutory limited liability as a problem. (Details dear fellow, details!)

    Agreed. This was what I was aiming at by talking about market interferences.

    By the way, Paul, you might want to note what anti-statutory IP guy, Stefan Kinsella,(Link) has to say about limited liability.

    I think he makes some reasonable points, but I find his overarching argument unconvincing. He says:

    As for limited liability (of shareholders) for torts (committed by employees of the corporation), there is simply no reason for the shareholder to be vicariously liable for acts committed by the employees merely by virtue of owning stock in the company.

    That would be a sound argument if stock holding merely involved investing capital and then taking a return. It doesn’t quite hold when you allow for the fact that a stock holder also has the voting power through which the business is ultimately controlled.

  • Bill Johnson

    Yeah, I don’t trust Google either…..

  • Schrodinger's Dog

    Johnathan,

    An interesting piece – but I’m not sure I agree with you.

    GM was eclipsed by the Japanese car companies, not an American rival. Indeed, had it not been for the Japanese, GM would probably still be the lord of all it surveyed, as it was in the 50s & 60s.

    Meanwhile, IBM brought out its first PC in 1981, when it was still being investigated as a de facto monopoly by the Justice Department. (Many in the IT industry at that time expected expected it to be broken-up, but the case was dropped the following year.) But there can be little doubt the investigation restrained IBM’s behaviour, otherwise it’s quite possible it would simply have bought Microsoft and marketed MS-DOS as its own product.

    Most areas of business are naturally competitive and antitrust regulation is not necessary; if I think my local supermarket is overcharging me, I simply go and find another one. But other areas – such as anything requiring a distributed infrastructure, for instance – tend to be natural monopolies. For example, it’s not really practical to have multiple power companies all laying cables to all businesses and residences. It’s a natural monopoly and, absent government regulation, can charge its customers whatever it likes. Thus, should my power company decide to charge me $5/kwh, my choices are either to pay up or sit in the dark, Which isn’t really any choice at all, as there isn’t a substitute for electricity.

    There can be no doubt that some cartels are the result of government regulation. For example, British supermarkets are regularly accused of overcharging their customers, although, despite several investigations, nothing has been formally proven. However, if they are overcharging, it is almost certainly the result of the British planning system, which makes building anything extremely difficult, giving the advantage to incumbents and keeping out new competitors.

    Ultimately, despite my libertarian tendencies, I accept there is a need for antitrust regulation, although the standard of proof should be set very high. The current case against Google, incidentally, does not remotely meet that requirement; after all, there are several other search engines available at the click of a mouse. (Personally, I use Yahoo!; that way I feel I’m doing my bit to stop Google from becoming too big.) Rather, this whole case smacks of nothing more than sour grapes by Microsoft.

  • Johnathan Pearce

    GM was eclipsed by the Japanese car companies, not an American rival. Indeed, had it not been for the Japanese, GM would probably still be the lord of all it surveyed, as it was in the 50s & 60s

    I already noted in the comment thread that GM and others were hit by Japanese imports. My point is that given free markets around the world, even the biggest domestic manufacturer can be vulnerable.

    Meanwhile, IBM brought out its first PC in 1981, when it was still being investigated as a de facto monopoly by the Justice Department. (Many in the IT industry at that time expected expected it to be broken-up, but the case was dropped the following year.) But there can be little doubt the investigation restrained IBM’s behaviour, otherwise it’s quite possible it would simply have bought Microsoft and marketed MS-DOS as its own product.

    I am not that proves the point you think you are making. Sure, IBM had the idiots of the DoJ on its back, but then again, the Silicon Valley entrepreneurs of their time were bringing out a variety of machines and services that challenged its business model, with or without help from regulators.

    Ah, the “natural monopoly argument”:

    For example, it’s not really practical to have multiple power companies all laying cables to all businesses and residences. It’s a natural monopoly and, absent government regulation, can charge its customers whatever it likes. Thus, should my power company decide to charge me $5/kwh, my choices are either to pay up or sit in the dark, Which isn’t really any choice at all, as there isn’t a substitute for electricity.

    That is not very credible; even a local monopoly provider of electricity is hardly going to raise prices so high that a large portion of potential customers migrate to another place in a country where a provider is cheaper. Even if a power firm were – by some means (usually involving government help) to dominate an entire market, if it charges extortionate rates, then it would be killing its own market, long term. Not very clever strategy.

    Yes, laying down lots of different power cables might seem silly, but if a power generator/distributor was screwing the customers in the way you say, then it would be in the commercial self interest for people to start setting up local generation facilities, mini-power stations, etc.

    I agree with your other points. In general, I think the case for ending antitrust laws are overwhelming. Time to wield the axe.