With major political figures proposing the forced breakup of some of the nation’s most successful companies, the once-arcane field of antitrust law is now at the top of the national conversation. A new video from the Competitive Enterprise Institute walks viewers through the history of economic monopolies and trustbusting and exposes the flawed logic underlying most calls for antitrust enforcement.
Traditionally, a monopoly on the supply of a particular good or service was understood to be a government-granted privilege. Only by making competition illegal could a certain merchant or company expect to have exclusive control. A king, for example, might grant a monopoly over the trade in a certain item to a group of investors, who would then share the profits with the government. Only the sovereign authority of the monarch would have been able to fence off competitors from entering and serving an otherwise profitable market.
In modern times, of course, our understanding of a monopoly is a large corporation that, through some combination of strategic investing and underhanded deal-making, has become the only producer in a certain industry. Standard Oil, founded by John D. Rockefeller and Henry Flagler, was, for example, accused of having a monopoly on refined oil products in the United States. Monopoly provision is to be feared, antitrust theory teaches us, because once a producer has the entire market to themselves, they will be free to maximize their profits by increasing prices and reducing quality, leaving consumers with no choice but to continue buying expensive, substandard merchandise.
Standard Oil’s notoriety as an alleged monopoly, though, is very much the exception rather than the rule in U.S. business history. Long experience has shown, as Nobel laureate Milton Friedman famously observed, that whenever we find a monopoly (a single company controlling an industry) or an oligopoly (a very few companies controlling an industry) it is usually because there is an anticompetitive government policy supporting them. And even in the infamous case of Standard Oil, long the ace-in-the-hole example for antitrust enthusiasts, modern scholars have pointed to the fact that Rockefeller’s corporate creation consistently led innovation in the energy market by developing new products, enhancing efficiency, and consistently lowering prices for consumers—in other words, providing significant benefit to consumers.
In any case, contemporary antitrust concerns have turned away from the grimy industrial behemoths of the early 20th century and to the gleaming tech companies of today. Early in the Internet age, the Department of Justice went after Microsoft because they were selling their operating system and web browser together (i.e., “bundling” them) in a way that officials considered inappropriate. Microsoft founder and then-chairman Bill Gates responded at the time that the government’s ruling “turns on its head the reality that consumers know, that our software has helped make PCs more accessible and affordable to millions.”
Gates was right about Microsoft delivering consumer value—but it didn’t matter. The success of Microsoft in selling its operating system meant that their large share of the market made them a bad guy. Ironically, antitrust advocates now hold up the federal prosecution of Microsoft for bundling Internet Explorer as a smart policy that paved the way for the emergence of successful companies like Google. This despite the fact that Google was not initially competing in the browser space—the Department of Justice initially sued Microsoft in 1998 (the year Google was founded), but Google didn’t launch Chrome for another decade. Microsoft, on the other hand, wasn’t a major player in the search market (it used AltaVista and other services until the launch of Live Search in 2006).
Now, of course, we’re not worried that a single company is going to control web browsing, but many Americans are worried about data privacy, news media integrity, “screen time” overload, and a number of other big picture issues. It is, perhaps, not surprising that those social anxieties have been projected on to a small handful of big tech companies. For well over a century, new communications technologies have made the public uneasy and been singled out as representing a novel threat that requires new laws and regulations in order to protect Americans. The Pessimists Archive Podcast, for example, reminds us that “In 1872 telegrams were criticized for allowing instant publication of criticisms without context often with malicious additions. [One writer at the time] said [that the] mischief caused couldn't be overstated. Remind you of anything?”
This all is not to say that Facebook can do no wrong or that we shouldn’t be concerned about where our personal data is being traded online, if that’s something we care about. But we do see a pattern in which antitrust law—which was created to make sure that one company didn’t control every loaf of bread or steam valve in the country—has been honed over the decades as a tool, used by ambitious politicians and activists, for going after any company that seems to make Americans uneasy. When Americans were worried about big steam-and-steel conglomerates taking over America, companies like Standard Oil were the target. Now that we’re worried about cloud-based algorithms filling our social feeds with fiendishly targeted clickbait, members of Congress are wagging their fingers at the CEOs of Facebook and Google on C-SPAN. But very little of it has to do with protecting consumers from any kind of actual “monopoly” market position.
We’ve seen dominant firms come and go, and yesterday’s titan is today’s footnote. The confident predictions that MySpace, AOL, and Nokia were going to have a stranglehold on the Internet world are quaint-sounding today, but hardly so far in the past that we should forget how vociferously futurists and pundits warned us of their danger. The threats that antitrust theory warns us of are extraordinarily unlikely—and even if they were real, they would be better remedied by less market regulation, not more.
Are we really to believe that tech companies that are actively hurting their customers are going to dominate a market in which a giant pool of venture capital is constantly chasing a blizzard of ideas for new online products and services? Even if the geographical and resource constraints of 1900 made it difficult to compete with Standard Oil, web and app development in the 21st century is one of the most fluid and unconstrained markets the world has ever seen—its players trade in 1s and 0s, not commodities. Whatever value the assumptions and ostensible remedies of antitrust theory had in the past, they’ve never been more superfluous.