The Competitive Enterprise Institute (CEI) today launched a new video, “Antitrust Explained,” disputing recent calls by politicians and academics to use antitrust laws and regulations to break up large companies. Just last week, Senator Elizabeth Warren (D-Mass.) released a plan to break up technology companies like Amazon, Facebook, and Google.
The video provides a brief history of antitrust policy in the United States and explains the negative impact these laws and regulations can have on the market, consumers, and our economy.
CEI Vice President for Strategy Iain Murray said:
“Recent years have seen the growth of a revival of demands for strict antitrust enforcement based around the size of companies, not on whether their actions harm American consumers. These demands have reached a new height with the publication by Senator Elizabeth Warren of a plan to break up big platform companies. Activists on both the left and right are pushing politicians to use antitrust laws to penalize large and innovative American companies.
“As our new video, ‘Antitrust Explained,’ points out, history is rife with examples of once-dominant large companies, like CompuServe and Nokia, which fell from their positions of power because they were unable to innovate enough to compete in the free market. The truth is that government intervention does more to create barriers to entry that entrench powerful incumbent corporations than the free market, which forces companies to innovate in order to grow their business and prosper. We hope this video will introduce these concepts to a new generation of thinkers.”
You can watch the video and read more on antitrust at cei.org/antitrust.
Script for “Antitrust Explained”
NARRATOR: As companies like Facebook, Amazon, and Google dominate the tech market, we’re hearing familiar words like “antitrust” and “monopoly” being thrown around. What do they mean?
People usually associate monopoly with the game, but it is when a person or enterprise gains complete control of a commodity or service in a particular market.
“Antitrust” doesn’t have the same pop culture notoriety. The 2001 film “Antitrust;” A thinly veiled attack on Bill Gates, bombed at the box office.
So, what’s the connection between antitrust and monopoly?
Historically, monopoly status was granted by a monarch to a chartered company or trade union, giving them exclusive rights to a particular market. Let’s say you were a merchant who wanted to control the tea trade. Make the king a financial partner in your company, get exclusive licenses, and like that, you have a monopoly on tea.
It turns out, government and monopoly go hand-in-hand.
(Milton Friedman) “Well, I believe if you examine, if you examine the sources of monopoly and oligopoly, you will find that almost all those sources are government intervention.”
NARRATOR: The term “antitrust” hit the American lexicon at the turn of the 20th century. Politicians, riding a wave of populism (does that sound familiar?) went after “trusts” – or large umbrella companies that held the assets of many different businesses—claiming that they were “monopolies.”
This is where “trustbusting” came from. In 1890, Congress passed the Sherman Antitrust Act, and by 1911, President Teddy Roosevelt was hellbent on busting trusts, or large successful enterprises created by industrialists like J.P. Morgan.
(Iain Murray) “Well, the big worry of the trust-busters of the early 20th century, was that large innovative companies were just becoming too successful, that they were cornering the market. And, because they had significant market power, they would be able to abuse that market power.”
NARRATOR: Take Standard Oil. By the early 20th century, Rockefeller’s oil giant was making energy more affordable and accessible than it had ever been to millions of Americans, but because his company had a large share of the market, the government moved in to break it up.
(Iain Murray) “Standard Oil was punished for its success, and that, unfortunately became the standard model for antitrust for most of the first half of the 20th century.”
NARRATOR: When bureaucrats couldn’t prove companies had an actual “monopoly” over markets, they instead relied on what Supreme Court Justice Louis Brandeis called “the curse of bigness.” Brandeis believed that if a company was too large and too profitable, it was an inherent threat to the market.
Of course, it’s hard to pinpoint what is too large and too profitable, so by the 1980’s, most regulators adopted the Consumer Welfare Standard, which says that a company’s size or success doesn’t matter, as long as consumers aren’t hurt.
Fast forward to the tech boom in the 90’s, and companies like Microsoft, Compuserve, and Nokia seemed like all-but-untouchable monopolies. Of course, we know how the free market handled most of those companies. But the neo-Brandeisian folks—the ones who agreed with Justice Brandeis that big is automatically bad—did manage to get one, well, partial scalp, delivering A landmark antitrust ruling again Microsoft in 2000.
(Bill Gates) “This ruling turns on its head the reality that consumers know, that our software has helped make PCs more accessible and affordable to millions.”
NARRATOR: So here we are today. Reading President Trump’s tweets and enjoying baby pictures on Instagram, while a new breed of antitrust advocates are repackaging old Brandeisian ideas into what some call “hipster antitrust.”
The theory is companies like Amazon, Google, Facebook, and Apple have become so big, have so much of our data, and are able to buy up start-ups so fast, that they have become an existential threat to the marketplace.
(Iain) “If what you’re saying to a startup is, if you become big, we will dismember you, then those startups have no real incentive to become big.”
NARRATOR: The problem is, there are no limits to the internet. There is nothing concrete to control—it can forever be added to, changed, innovated, and built. Tech giants can rise and fall virtually overnight, if there are no barriers to entry created by government.
If antitrust teaches us anything, it’s that history repeats itself. In a market free of government protections and controls, it is next to impossible to achieve “monopoly,” and old solutions to new so-called problems rarely change outcomes.