Yesterday’s Senate antitrust hearing was broad in its discussion of reforms, but one point deserves clarification. A witness from Open Markets centered much of his testimony around the notion that the original intent of antitrust law has been lost during the last 40 years and that U.S. would be wise to return to the early days of competition law with increased vigor.
Nothing could be farther from the truth. As CEI frequently notes, the first century of U.S. antitrust law saw a jumbled mess of shifting priorities and contradictory court decisions. That created substantial confusion for industry and often harmed consumers in the pursuit of protecting lesser competitors from healthy competition itself.
Antitrust regulations were born out of dissatisfaction with the railroads of the late 19th century, themselves operated under government-granted monopolies. When the problematic results of this government-created uneven playing field began to surface, so did political alliances demanding corrective government action. To that end, rate discrimination was outlawed with the passage of the Interstate Commerce Act in 1887. By 1888, antitrust planks appeared in both of the major political party’s platforms.
But the most contentious point of antitrust law debate was still to come. Congress passed the Sherman Act in 1890. Whether the intent of the lawmakers was consumer welfare, outlawing certain business practices, preventing cartels, or blocking mergers has been the subject of debate ever since.
Section I of the Sherman Act prohibits contracts, combinations, and conspiracies in restraint of trade or commerce. Section II outlaws monopolization, conspiracies, and attempts to monopolize. There are also criminal consequences for violations and obligations for federal officers to institute equity proceedings on behalf of the public good.
A series of court cases that were contradictory in their reasoning followed: United States v. Trans-Missouri Freight Association, Standard Oil Company of New Jersey v. United States, and, much later, United States v. Alcoa.
The Democratic Congress of 1914 attempted to strengthen antitrust policy with the House’s creation of the Federal Trade Commission, while the Senate took the lead in creating the Clayton Act the same year. The Act attempted to provide clarity to the courts by enumerating prohibited practices and forbade tying and exclusive dealing in situations where the practice could significantly reduce competition.
The next century saw continued ambiguity and action in antitrust law. Cases included numerous suits against IBM, the National Bell telephone system being broken into so-called Baby Bells by consent decree, and the case against Microsoft in the late 1990s. The flawed logic and harmful unintended of these cases are detailed here.
Only with Robert Bork’s application of economics to competition law, chronicled in his 1978 book, The Antitrust Paradox, did antitrust law start to move in the direction of clarity and consumer benefit. The resulting consumer harm standard has been the single biggest improvement in U.S. antitrust policy. It should not be abandoned.
There’s no reason to subject today’s consumers to the same mistaken policy of the past.