The word “antitrust” used to have soporific properties. All you had to do was mention it at a dinner table and people’s eyes would glaze over. Anyone who knew what the word actually meant would probably associate it with economic calculus and Hard Math. While you might find the occasional person that was convinced Microsoft or MySpace was the biggest threat to freedom since the Stamp Act, generally people weren’t worried about antitrust. Prices were falling and choice expanding. Antitrust was the subject of rational ignorance.
No longer. Antitrust is back with a bang. Both the liberal left and the conservative right are now making noises about Big Tech companies – notably the “FANGs” (Facebook, Amazon, Netflix, Google) – controlling too much of our lives and suggesting that the Sherman Act needs to be brought to bear.
This view of antitrust is often referred to as “neo-Brandeisian,” after the progressive era champion of antitrust action, Supreme Court Justice Louis Brandeis. Brandeis often used the term, “the curse of bigness,” and viewed company size as an indicator of a problem that needed to be addressed.
As Robert Atkinson and Michael Lind noted in the article linked in the paragraph above, “Brandeisianism began as a movement to protect the owners of small firms, such as banks and retailers, from rising competition from bigger, more efficient corporations.” They went on:
After World War II, when it became clear that large firms weren’t going anywhere, antitrust advocates shifted their focus to keeping firms from getting big in the first place; they developed an antitrust doctrine known as the “Harvard school,” which espoused a belief that industry structure (above all, companies’ market share) mechanistically determined firms’ conduct and performance. In other words, the greater a firm’s market share, the more it hurts competition.
This philosophy dominated American thinking on antitrust for over half a century. But by the seventies and eighties, economic analysis had advanced to such a state that judges realized that large companies could actually benefit society. This school was championed by Judge Robert Bork, author of The Antitrust Paradox, and can therefore be called Borkian.
Borkian thought supplanted Brandeisianism by focusing on consumer welfare as the standard for judging whether antitrust action should succeed. A company’s size alone no longer mattered. If consumers were benefiting, mergers could go ahead and firms would not be broken up. Neo-Brandeisianism is challenging this standard by alleging that though prices may have fallen (to zero in some cases) and consumers are seeing visible benefits, there are invisible costs that need to be taken into account, such as data collection and the stifling of competition through buying up potential competitors. The tech giants are therefore harmful monopolies.
Yet, as David Evans of University College London notes, the empirical evidence of this is thin on the ground. There is, by contrast, significant recent evidence that tech giants are vulnerable to competition:
The last two decades of online platform competition demonstrate that category leaders are often toppled, unexpectedly, through some combination of technological change, business model innovations, and cross-platform rivalry. The palpable threat of displacement prevents online platforms from taking their customers for granted. The history of online platform competition also provides empirical refutation of the proposition that data on users protects platform leaders from competition or puts an insurmountable obstacle before entrants. All this points to online platforms facing sleepless nights since any online platform that tries the quiet life of monopoly risks catastrophe.
What this suggests is that the proper challenge to Borkian thought should not come from the neo-Brandeisian wing, but from a third school of thought on antitrust. That school of thought was advanced forcefully in the 1980s and 90s by CEI founder Fred L. Smith, Jr., among others, so I propose that we call it Smithian.
The Smithian view is that there are 5 significant problems with antitrust as a concept, even in the relatively mild form of the Borkian school, that suggest antritrust laws should be repealed entirely. They are that:
(1) antitrust restricts the rights of individuals to determine with whom and under what conditions they wish to deal,
(2) antitrust theory is inadequate to determine which acts are or are not competitive,
(3) evidence is lacking that antitrust achieves any substantive consumer gains,
(4) antitrust blocks efficiency gains, and
(5) antitrust laws tend to encourage businessmen to look to government rather than the market for success.
In calling for a full repeal of antitrust, the Smithian view therefore aligns well with the views of that other great Smith, Adam Smith, who famously noted that, “People of the same trade seldom meet together. even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices” but immediately thereafter went on to say, “It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice…[T]hough the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.”
Under the Smithian view, laws about competition should be restricted to laws preventing government from playing favorites. Government-erected barriers against competition or innovation need to be torn down. As current antitrust law is itself a barrier to innovation, it should be one of the first targets.
In the modern discussions on antitrust, it is the neo-Brandeisians who so far are getting people to wake up and take notice. It is time for the Smithians to make some noise.