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Year in Review 2018: Antitrust

American antitrust policy has been settled for many years. In the 1970s and 80s, antitrust lawyers and regulators began to realize that antitrust for antitrust’s sake—in which governments punished businesses for providing what the market wanted more affordably and/or at better quality than anyone else—was harming consumer welfare. The end result of competition could indeed look like “monopoly,” but antitrust officials would be wise to take no action unless certain very specific anticompetitive actions were involved. In 2018, that received wisdom came under renewed threat, from some very unlikely sources.

To be sure, the original impetus came from the usual suspects—the “neo-Brandeisian” school that had always resented the sidelining of the “curse of bigness” thinking of their hero, Justice Louis Brandeis. That thinking held that business size itself was an indicator of anticompetitive behavior. The neo-Brandeisian school uses size to seek out practices that it believes should be the subject of antitrust action (such as breaking up Amazon). It is a strangely inchoate philosophy, often approaching “I’ll know it when I see it” territory. Needless to say, if this school took over antitrust action in the U.S., we would see a chilling effect on business development from large firms (remember what happened to Microsoft’s innovation in the 90s) That means that economies of scale and the like would be exploited less for the benefit of consumer welfare.

Yet this school has been joined by a large and vocal group of conservative activists, who in the past could be relied upon to support free markets. The impetus for their anger has been supposed anti-conservative bias by Big Tech firms. Some of this anger may be deserved—the temporary “deplatforming” of vocal but arguably mainstream conservatives does seem to have gone too far in some cases, and there is a strong case that it is unwise for platforms to deplatform anyone. However, in a free market world, private companies are free to set their own terms and conditions for use of their platforms. Their doing so should not be cause for antitrust action.

Much of the conservative anger is misplaced. There have been complaints about the effects of features that are there because conservatives (among others) demanded them, and there are even complaints that features aren’t in place that are (Netflix has a wide range of parental controls easily available).

But some of the conservative anger seems to be because Big Tech firms are predominantly staffed by people of left-liberal political inclinations, and they are perceived as using their companies’ power to promote these views. The January firing of a Google engineer who ventured into culture war territory may have been the trigger that set off rising conservative animus against Big Tech firms.

This is a well-known problem in institutional economics. All companies face the danger of employees opportunistically acting against the companies’ mission. It is known as the principal-agent problem. It is up to the companies’ principals to act to limit the damage to them done by opportunistic employees. If they fail, the market will punish them. However, it would, be a very novel form of antitrust philosophy that regarded an out-of-control principal-agent problem as the basis for antitrust action.

Nevertheless, the combination of a resurgent “hipster antitrust” school on one side and an “angrycon antitrust” school on the other means that the consumer welfare school is under more pressure—and scrutiny—than it has been since at least the 1980s, and Big Tech is the focus of that pressure.

While it is unlikely to happen any time soon, the way to square this circle is for policy makers to recognize that antitrust itself is a breach of business owners’ property rights. Moreover, the implied threat of antitrust action prevents business owners from entering into all sorts of potentially beneficial (to all) business arrangements. As R.W. Grant put it in Tom Smith and his Incredible Bread Machine:

The lawyer then went on,
“These very simpIe guidelines
You can rely upon:
You’re gouging on your prices if
You charge more than the rest.
But it’s unfair competition
If you think you can charge less."

“A second point that we would make
To help avoid confusion:
Don’t try to charge the same amount:
That would be collusion!
You must compete. But not too much,
For if you do, you see,
Then the market would be yours
And that’s monopoly!”

Yet if 2018 was a bad year for antitrust skeptics, 2019 promises to be worse. We must hope that the Federal Trade Commission and Department of Justice hold the line against the pressure, and refrain from unleashing the antitrust kraken.

For more resources on antitrust skepticism, see our antitrust landing page.

Previous posts in the Year in Review 2018 series: