Serial Obstructionism

by Don Boudreaux on April 2, 2011

in Antitrust, Competition, Complexity & Emergence, Creative destruction, Crony Capitalism

Here’s a letter to the Wall Street Journal:

You rightly call out Microsoft and Google for their hypocrisy in prodding antitrust authorities to investigate each other for alleged anticompetitive activities (“Microsoft’s Antitrust Turnabout,” April 2).  As detestable as these actions are, antitrust can be understood only if it is recognized for what it really is: a tool for bludgeoning innovative firms that make markets more competitive and consumer-friendly.

It has always been so. A revealing instance of how ridiculous antitrust investigations can be is the F.T.C.’s successful persecution, in the 1970s, of Borden for that firm’s audacity at reducing the price of its reconstituted-lemon-juice product, ReaLemon, when other firms introduced competing products.  Or recall the F.T.C.’s ready-to-eat breakfast-cereals investigation that forced Kellogg’s, General Foods, General Mills, and Quaker for years to defend themselves against the charge of – wait for it! – “brand proliferation.”  These firms were accused of offering such a full range of types of breakfast cereals that each and every consumer demand for cereal was met – from demands by the health-conscious for unsweetened Corn Flakes to demands by children for sugary Cocoa Puffs.  These firms’ success at satisfying consumer demands, noted the F.T.C., made entry by upstart cereal producers more difficult.  So the F.T.C. naturally accused Kellogg’s and other established firms of monopolizing the market.

Cuckoo.

Sincerely,
Donald J. Boudreaux

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{ 27 comments }

Jack of Spades April 2, 2011 at 11:31 am

My love of irony compels me to point something out. It was not many years ago when a large segment of highly educated (overly educated?) people were declaring that antitrust action against Microsoft was necessary because Microsoft was so powerful, so entrenched, that nobody and nothing could ever take their place as king of the hill. Oh, how the mighty have fallen. No doubt, those who claimed that Microsoft was an unstoppable, monopolistic juggernaut will now issue a retraction, and admit that old fashioned competition was the answer all along.

Excuse me while I hold my breath…

Ike April 2, 2011 at 11:42 am

Sadly, they will give all the credit to the European courts for the heroic antitrust action that broke apart Microsoft’s dominance — as though all that was propping up the corpulent colossus in Redmond was the integration of Internet Explorer with an operating system.

vikingvista April 2, 2011 at 12:03 pm

It was a shakedown. Microsoft didn’t pay tribute to the Party before the persecution. They paid plenty ever since.

Marcus April 2, 2011 at 2:24 pm

Exactly. My understanding is the real effect of the anti-monopoly suit was that prior to the suit Microsoft had almost no presence in DC and after the lawsuit they have a veritable army of lobbyists fawning over the politicians in DC.

I sometimes wonder if this wasn’t the underlying reason Bill Gates stepped down from running the company. After the lawsuit, running the company became more about politics than developing technology and he didn’t find it interesting.

Just speculation.

Krishnan April 2, 2011 at 2:55 pm

Microsoft was always (and will always be) a marketing company … they did better than anyone at taking someone else’s technology – repackaging it – playing hardball in the market place and watching their stock rise. Examine what Microsoft sells and you will find in every case, someone else innovated and came up with the idea … yea, Microsoft was simply better than anyone else in that regard –

Brin and Page did come up with the idea for page rank and so improved search – facebook did indeed come out of ideas that Zuckerberg (and others) worked on …

It is indeed the BIG BUSINESSES that run to GOVERNMENT for protection – of their businesses and their ability to make money by restricting entries of new comers through political gamesmanship …

If left to itself and if forced to compete fairly in the marketplace, Microsoft will be unable to survive on the merits of their technological innovations. Yea, I know – it may be hard to believe by many – but Microsoft will shrink and wither, if not for their protectors.

vikingvista April 2, 2011 at 3:28 pm

“If left to itself and if forced to compete fairly in the marketplace, Microsoft will be unable to survive on the merits of their technological innovations.”

Microsoft wasn’t looking for protectors, until after their competitors teamed up with the government against them. Different now? Yes. But it started as a defensive measure on Microsoft’s part.

And of course, offensive or defensive, the politicians win either way.

Emil April 2, 2011 at 3:43 pm

Krishnan,

” Examine what Microsoft sells and you will find in every case, someone else innovated and came up with the idea ”

Seems to me that microsoft did the innovating and someone else the inventing then…. Anyway, marketing and sales is as much a part of being a successful company as inventing new stuff

Marcus April 2, 2011 at 4:20 pm

@Krishnan,

A lot of very nice cliches but they are all bullshit. I’ve been programming PCs professionally since the PC was first introduced, so I have seen the evolution of this industry since the very early days.

There is no invention for which a predecessor cannot be found because invention does not happen in a vacuum. All inventions are built upon previous inventions. For example, despite popular belief, Apple did not invent the GUI, or the tablet, or the mp3 player. But they are very good at marketing those inventions.

Fact is, back then, Microsoft adapted technology to solve problems for people and people voted their approval with their wallets.

Krishnan April 2, 2011 at 7:14 pm

Re: Marcus – right. Brin and Page did nothing new … neither did Noyce and Kilby (integrated chips) – neither did Shockley and others (transistors) – neither did Berg (genetic engg) … all was known or advanced

Jack of Spades April 2, 2011 at 12:11 pm

Ike,

They very well may give credit to the European courts now, but unless they made statements to that effect in advance, I’m inclined to take their attribution with mountainous piles of salt. I don’t recall anyone declaring that the European courts provided a Goldilocks just right solution at the time. It’s entirely possible, however, that I missed it. Perhaps I was distracted by a Dilbert comic. I’ll leave it to those who make the attribution to point out the evidence of their own prophetic powers. If they are unable to do so, I will gently caution them about false pattern recognition, as well as the post hoc ergo propter hoc fallacy. Then I will resume holding my breath.

Best,

Jack of Spades

Emil April 2, 2011 at 2:17 pm

I don’t think that Google and Microsoft are being hypocritical. They are in the business of maxising their profits and it is therefore only normal that they use all legal means to do so. The problem lies in the precedents set by competition authorities and in the anti-trust legislation. IMHO it should only apply in those situations where a dominant position has been built through government intervention (e.g. the establishment of incumbent telco’s or national electricity grid operators that enjoyed formal and legally protected monopolies and even used government funding to build their position). If I were Microsoft I would also advance anti-trust issues, I mean they had to suffer for it so why shouldn’t their competitors? Also, let’s remember that this only goes to highlight the problems with antitrust interventions.

KD April 2, 2011 at 2:20 pm

Don,

As you mentioned in one of Russ’ podcasts (market failure was the topic I think) wasn’t it big business that lobbied for passage of the Sherman act?

jjoxman April 2, 2011 at 2:54 pm

That sounds about right. Since when does big business want to actually, you know, compete with anyone? If they can get ahead through political means, they will.

Don Boudreaux April 2, 2011 at 3:47 pm

Nope. It was local butchers and independent cattlemen – supported ideologically by farmers.

Al Barton April 2, 2011 at 2:44 pm

Acknowledging that many enterprises use anti-trust laws as a means of reducing competition, I want to know whether Don objects to horizontal arrangements such as price fixing and division of territories.

Krishnan April 2, 2011 at 2:48 pm

My recollection of the abuse of anti trust was that long war waged against IBM … the other examples Don mentioned as egregious as well …

What is it about success that drives people to becoming crazy and anti success? Envy is the worst of all human weaknesses – Today, Microsoft is envious of the success of Google – even as Google plays crony capitalists with their games in the net neutrality game … I imagine Google complaining about Facebook since they are so “dominant” in social networking and Google will demand that “facebook be stopped from becoming all powerful” (Oh yes, I see that day coming … it may not be Google directly – but one of their cronies …)

nailheadtom April 2, 2011 at 3:02 pm

Unfortunately, the government protects its own monopolies, such as legal tender and first class mail, from competition.

vikingvista April 2, 2011 at 3:33 pm

Indeed. Government–the one kind of monopoly that doesn’t suffer the problems and commit the abuses of monopoly. Sure.

Andrew_M_Garland April 2, 2011 at 5:07 pm

Three prisoners in a U.S. jail.
One:  I charged higher prices than my competitors. I’m in for exploiting consumers, profiteering, and monopoly.
Two:  I charged lower prices. I’m in for predatory pricing and cutthroat competition.
Three:  I charged the same prices. I’m in for collusion, price fixing, and cartelization.

Krishnan April 3, 2011 at 10:57 am

So when gas prices keep rising, the Feds will go after BIG OIL because they were unable to produce more (even though BIG OIl was prevented from producing more).

Heads I win, tails you lose.

JohnK April 2, 2011 at 5:58 pm

Microsoft Internet Explorer is the only browser approved for use on DoD computers.

I wonder if prohibition of competing products on government workstations came about as a result of political considerations as opposed to the stability and reliability of the product.

Naaaah. Only a paranoid person would think that.

Krishnan April 3, 2011 at 10:59 am

Perhaps that is why we may have leaky agencies – ONE browser, so the ones that want to cause damage do not have to worry about coding to steal from many different browsers …

Yes, forcing ONE browser DOES open us to possible security breaches … It is insane to NOT ALLOW anything else – …

Michael E. Marotta April 2, 2011 at 9:03 pm

I can give you a more modern set of cases.

TAIWAN LCD PRODUCER AGREES TO PLEAD GUILTY AND PAY
$30 MILLION FINE FOR PARTICIPATING IN LCD PRICE-FIXING CONSPIRACY
Fines Obtained in LCD Investigation Total More Than $890 Million
WASHINGTON — A Taiwan thin-film transistor-liquid crystal display (TFT-LCD) panel producer and seller has agreed to plead guilty and to pay a $30 million criminal fine for its role in a global conspiracy to fix the prices of TFT-LCD panels, the Department of Justice announced today.

Follow this link:http://www.justice.gov/atr/public/press_releases/2010/260175.htm
Then back up to the Press Releases and/or Search for the Defendants.

Thin film LCD displays came out of a curiousity with cholesterol in carrot juice 100 years ago. Now it is illegal for the providers to decide on the prices.

Here is another:
The United States brought this lawsuit against Defendant Lucasfilm Ltd. (“Lucasfilm”) on December 21, 2010, to remedy a violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. The Complaint alleges that Lucasfilm entered an agreement with Pixar, pursuant to which each agreed to restrict certain employee recruiting practices. The effect of this agreement was to reduce competition for highly-skilled digital animators and other employees, diminish potential employment opportunities for those same employees, and interfere in the proper functioning of the price-setting mechanism that would otherwise have prevailed. The agreement is a naked restraint of trade and violates Section 1 of the Sherman Act, 15 U.S.C. § 1.
http://www.justice.gov/atr/cases/lucasfilm.html

Harold Cockerill April 3, 2011 at 7:36 am

If government meddling improved the world we would all be a lot richer.

kyle8 April 3, 2011 at 8:55 am

While I agree that anti-trust is often abused, I cannot agree with being always anti-anti-trust. Letting firms gobble up all of the competition in their industry is something that has proven to be not so beneficial to society.

I refer to the recent financial meltdown and the “too big to fail” phenomenon.
In my view many of these firms should not have been allowed to grow as large as they did by buying out regional competitors. Especially when debt was used to make these acquisitions, thus ensuring a few large financial firms with shaky foundations. I cannot see how that is in the public interest.

nailheadtom April 3, 2011 at 10:46 am

There’s no such thing as “too big to fail”. And what’s “the public interest”? Maybe my “public” is not quite the same as your “public”.

vikingvista April 3, 2011 at 4:28 pm

Purchasing all of one’s competitors, like cornering a market, is a fatally costly and futile exercise that can only succeed with government protection.

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