Dom Armentano contributes this great letter to today’s Wall Street Journal:
Your editorial is correct to condemn the Federal Trade Commission’s attack on Intel (“The 100 Years Chip War,” Dec. 18), but it is dead wrong to conclude that the government’s antitrust intervention is “unprecedented” or that antitrust laws really “exist to promote business and price competition.”
Have we forgotten the FTC’s eight-year (1958-1966) campaign against the Borden Co. to stamp out lower prices for evaporated milk? Or its 10-year (1957-1967) legal assault to end the Procter & Gample-Clorox merger in which the FTC’s primary argument against the consolidation was that the probable “economies and efficiencies” of the merger could be passed along to consumers?
Or how about the Justice Department’s 15-year (1953-1968) war against United Shoe Machinery in which United was ultimately ordered to create a competitor with divested shoe machinery assets, license out all of its own patents to the competitor, and then refrain from active competition with the new-born company for five years?
And have we already forgotten that the Microsoft antitrust debacle started with a two-year investigation by the FTC back in 1990 or that the Justice Department pursued the company for another 10 years because Microsoft bundled its Web browser, Explorer, with its Windows operating system, much to the delight of willing buyers. Recall that in the 1999 trial verdict, lower court Judge Thomas Penfield Jackson even ordered the company divested until the D.C. Circuit Court of Appeals unceremoniously discarded that absurdity in 2001. In short, the FTC’s assault on Intel is hardly unprecedented.
What these cases (and hundreds of others) establish beyond any reasonable doubt is that antitrust does not exist to promote business and price competition. Never has, never will. The theoretical and case evidence, some of which I’ve cited, is all the other way.
The real mystery surrounding antitrust is why knowledgeable observers of the free-market process persist in believing this fairy tale.
Dominick T. Armentano
Vero Beach, Fla.
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Great video from the 80s with Dom and Ron Paul discussing antitrust: http://www.youtube.com/watch?v=8C4gRRk2i-M
I thought that the original intention of anti-trust was to keep companies from conglomerating across a bunch of different markets. Wasn't the point to keep a railroad co. from owning steel, telephone, farming, etc. companies? Am I mistaken about this?
I'm really starting to believe that a lot, or maybe even most, Americans simply don't understand the basic ideas behind free markets. I mean, why would the average working American think it's a good idea for the government to stop companies from providing them the best service or products?
Even when the Sherman Act was first passed into legislation, it was pressured through by corporate lobbies, hoping to use the legislation to cap the success of their corporate opponents and therefore give them (as competitors) a better chance to compete (not by offering a better product, but by disallowing another company from offering a better product).
The antitrust laws should not have been taken seriously from the very start. The Sherman Act prohibits the following (among others)- 1. “Contracts in restraint of trade.” Hello, all contracts restrain trade. All contracts are illegal. 2. “Monopolizing or attempting to monopolize.” Repeat…HELLO. Every business man or woman who has ever been worth their salt has attempted to monopolize. They try to provide the best product that the most people will want to buy, ideally everyone will want to buy it.
From the day the Sherman Act was passed, antitrust has been an exercise in fighting against the indomitable will of self interested human beings to participate in markets. Antitrust is anticommerce.
Interestingly, I just covered antitrust legislation in mercantilist England and France in Murray Rothbard's Economic Thought Before Adam Smith. The parallels between these 17th and 18th century absolutist States and the United States since the passing of the Sherman Act are astonishing!
I’m a law student, and I just finished a class on antitrust law and have read many of the cases this commentator cites. While I agree that antitrust law has in many cases been too aggressive—like in United Shoe—Mr. Armentano’s assertion that antitrust law “does not exist to promote business and price competition,” and that “[t]he theoretical and case evidence . . . is all the other way” is vastly overstated. While the cases may sound extreme when briefly summarized, the devil is really in the details with these things.
Microsoft, for instance, had a great deal of market power because of all the programs that were written exclusively for Windows. And Microsoft entered into licensing agreements forcing computer manufacturers who wanted Microsoft’s highly popular operating system to also install Microsoft’s internet browser. That may not sound that bad at first, but in practice it made it impossible for competitors like Netscape to get their internet browser preinstalled on Windows, because of the unnecessary increased costs and redundancies that manufacturers would have to face if they installed more than one internet browser on each computer. There were also inter-office memos from Microsoft tending to show that they imposed these license agreements for the purpose of crushing competitors like Netscape—which they eventually did. Limiting Netscape’s ability to get its browser preinstalled on computers made it very difficult to compete, because every computer would already have an internet browser on it when the consumer purchased it. Notice that Microsoft’s bundling did not constitute competition on the merits (i.e., Internet Explorer did not triumph over Netscape because it was an inherently better product, but because of Microsoft’s use of its market leverage).
Even if consumers didn’t mind the bundling of Microsoft’s internet browser and operating system when it first began, as Mr. Armentano says, if entities like Microsoft were allowed to squeeze out their competitors, and become a total monopoly in the field in which they operate, economic self-interest would lead them to charge very high, monopolistic prices, which would eventually hurt consumers. They way antitrust law attempts to preserve price competition is by making sure no entity can ever charge monopolistic prices without being subject to undercutting by competitors.
Antitrust law does not prohibit monopolies—it prohibits “monopolization,” which is something else entirely in antitrust law from merely having a monopoly. Monopolization requires some sort of unfair, anticompetitive practice (something other than competition on the merits) that squeezes out competitors in addition to having a monopoly. It is true that every competitor wants to become a monopoly, and antitrust law does not prohibit that—it prohibits doing that in ways other than competition on the merits of the product or service the company is selling (like entering into unnecessarily restrictive licensing agreements designed to squeeze out competitors, like in Microsoft).
Kevin,
Consumers still had a choice. They liked Explorer better than Netscape. I have Explorer and Safari installed at the factory on both my PCs, yet I choose to use Firefox on both. Consumers still got a choice (multiple choices in this case). I believe bureaucrats confuse good products for monopolization, especially when a local competitor (aka political contributor) is threatened.
I am also a firm believer that only government can create monopolies. They do not exist naturally, if for no other reason than creative destruction. Even the US Post office will die eventually.
Kevin,
Microsoft also had competition from Apple, and then Lynux and the open source movement. It never had a monopoly of anything. Netscape was an inferior product.
It's also worth noting that Microsoft's market cap peaked Dec. 27, 1999, and has declined by quite a lot since then.
Kevin,
Microsoft also had competition from Apple, and then Lynux and the open source movement. It never had a monopoly of anything. Netscape was an inferior product.
It's also worth noting that Microsoft's market cap peaked Dec. 27, 1999, and has declined by quite a lot since then.
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