The problem with Obama's antitrust plan
History shows a 'tough' stance on monopolies doesn't help consumers.
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In Alcoa's case, the trial judge dismissed 150 separate government charges concerning alleged monopolization. He also determined that Alcoa had expanded aluminum ingot production and lowered prices for 50 years. Yet an appellate court in 1945 reversed the ruling and decided that expanding ingot outputs and lowering prices was itself "exclusionary" of rivals and potential rivals that just could not compete with Alcoa's efficiency. (Translation: If Alcoa had been less efficient, there would have been more competition and no violation of the law. Totally absurd.)Skip to next paragraph
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United Shoe Machinery's case contained the same tortured antitrust logic. United had earned and held its dominant market position by offering long-term, low-price leases to its customers and by innovating new shoe-machine technology.
Yet the trial court judge spied the illegality inherent in superior economic performance provided over many decades: Smaller competitors were at a disadvantage, competition allegedly diminished, and the antitrust laws violated. The Supreme Court in 1968 – engaging in cutting-edge Soviet-style planning – regulated, divested, and eventually wrecked the premier US shoe-machine company – all in the name of consumer welfare.
The recent decade-long antitrust assault on the Microsoft Corporation demonstrates that not much has changed over the years in dominant firm antitrust cases. The government's argument was that Microsoft's decision to integrate its Web browser, Explorer, into its Windows 98 operating system, illegally excluded competitive browsers (such as Netscape's Navigator) and thereby evidenced an intent to monopolize in violation of the Sherman Act.
But Netscape, not Microsoft, held the dominant position in browsers when the rivalry began; nor was Netscape ever "foreclosed" from the market since PC users were able to download millions of copies of the Netscape browser. The entire case – the bulk of which was dismissed by an appellate court in 2001 – was an attempt to regulate innovation and consumer choice at the behest of ambitious state and federal attorneys and disgruntled Microsoft rivals.
Based on this history, why should we think the Obama antitrust regulators will get it right this time? In her recent speech, Ms. Varney, the antitrust chief, said that "there is no adequate substitute for a competitive market." Absolutely correct.
But competitive markets are legally open markets where all firms, including dominant firms, are rivalrous on their merits and where consumers – and not government or judges – decide winners and losers. Free markets may need protection from fraud (think Bernard Madoff), but they don't need antitrust intervention.
Dominick T. Armentano is professor emeritus in Economics at the University of Hartford, Conn., a research fellow of the Independent Institute in Oakland, Calif., and the author of "Antitrust and Monopoly: Anatomy of a Policy Failure."