In July 2019, the U.S.
government targeted America's biggest tech companies.
The Department of Justice and the FTC appear to be looking at whether the
leading tech platforms have used improper means to acquire monopoly positions
or to exclude promising rivals from contesting their position.
Translation - Are these companies too big?
And did they get that way illegally?
These questions fall under a set of laws that until recently had faded from the
public spotlight.
Antitrust has gone from being this completely sleepy backwater discipline that
was just a few people talked about to being very much in the public news.
We've really started to see a lot of discussion about does there need to be more
enforcement of antitrust?
Are we really enforcing these laws and using these tools in the way that they
were intended to be?
And it's not just tech.
Antitrust concerns have arisen around other industries that are also dominated
by a few huge companies like domestic airlines, pharmaceuticals,
telecommunications and beer.
There's always this kind of balance between the desire for an efficient economy
and this fear of what happens to to society, to democracy, to the interests of
consumers, the interest of labor.
So we asked these experts to explain what is antitrust anyway.
The first federal antitrust law was passed in 1890 and two more followed in
1914.
The antitrust laws started out as being against power and making it easier for
little firms to get into the market and survive, as well as to cater to
consumers.
They sought to prevent companies from getting too big or engaging in unfair
practices like colluding to fix prices.
They also created an agency to enforce those standards.
So the antitrust laws were a reaction to the industrialization of the late 19th
century because of the perception that there was too much economic power over
specific industries being concentrated in a few hands.
People like John D Rockefeller and J.P.
Morgan.
Rockefeller and Morgan were part of a movement that thought bigger businesses
were better businesses and monopolies were the best.
Its followers believed in consolidating whole industries into single firms or
grouping firms into trusts. From
just 1895 to 1984, thousands of manufacturing firms merged into just
157 corporations.
Morgan consolidated the steel, railroad, shipping and electricity industries and
inspired copycats in tobacco, rubber, film production and more.
But it was Rockefeller's Standard Oil Company that became the first blockbuster
antitrust case.
Rockefeller combined dozens of state-based companies like Standard Oil Company
of Ohio, of Nebraska, etc.
into one.
By 1984, Standard Oil controlled 91 percent of oil production and 85 percent of
sales. Following a searing exposé of Standard Oil's business practices by
journalist Ida Tarbell, President Teddy Roosevelt's administration filed an
antitrust suit against the company in 1986.
After a five year court battle, the Supreme Court ordered the breakup of
Standard Oil.
Standard Oil was divested back into the local companies that had formed Standard
Oil in the first place.
Over time, of course, we get these companies beginning to compete with each
other. We have new companies entering the market and we get a much more
competitive oil industry.
But that took a long time to happen.
Innovation boomed and the overall value of the industry actually increased, as
did Rockefeller stock in the new companies.
A flurry of antitrust activity followed.
By the end of the 1910s.
Most of the major trusts had been broken up or regulated in some other way
under antitrust law.
But this aggressive approach ended when World War One began
And after the U.S.
entered into the war, the view was, boy, we just cannot afford to have
antagonism between the federal government and big business.
This shift highlights a key theme of U.S.
antitrust law: How it's enforced or whether it's enforced at all depends
heavily on the political will of the agencies, courts and president.
The guidance in the laws is more than any other area of federal law, exceedingly
broad and in many instances vague.
There is a difference between having a law on the books and having a law
actually be enforced.
The regulatory agencies can do with the law what they want.
President Franklin D.
Roosevelt briefly revived aggressive antitrust enforcement to energize the
struggling Depression era economy.
But he, too, put it aside when World War 2 began.
This time, though, the end of the war sparked the most aggressive period of
antitrust enforcement to date.
The stage had been set in Hitler's Germany.
By 1933, when Hitler comes to power, the German economy is extremely
concentrated. We have these big monopolies and chemicals and steel and
electricity and coal and other important industries.
Then Secretary of War Kenneth Royall put it bluntly in a report
That "these monopolies soon got control of Germany, brought Hitler to power and
forced virtually the whole world into war."
The United States was very concerned that our country could tip towards
fascism or communism if we didn't have and nurture a competitive,
diverse society.
Congress passed another act in 1950 to strengthen the mandate against mergers.
This, combined with an extremely liberal Supreme Court, kicked off the era of
peak antitrust, one where the FTC and the courts became extremely skeptical of
any mergers that resulted in a larger market share for one company.
Really, in the 50s and 60s, many, many cases were brought to stop mergers, even
mergers that today we think of would not be problematic at all.
The blockbuster case of this era was AT&T.
AT&T had been the sole supplier of phone service in the US for decades.
The Department of Justice filed an antitrust suit in 1974.
And ultimately in 1982, that case was settled in the Reagan administration with
a decree that broke up AT&T.
And the idea was to create a more competitive telecommunications market by
infusing competition into those markets.
That sounds like a success for supporters of aggressive antitrust, right?
Strictly speaking, it was.
AT&T's decades long monopoly over phone service ended.
But it also marked the end of the aggressive antitrust era and the beginning of
the standard we have today.
Let's back up a bit.
A conservative backlash against extremely aggressive antitrust enforcement had
been brewing as early as the 1950s, driven by scholars at the University of
Chicago.
They argued that big mergers could provide better efficiency and innovation.
So there was a big movement to cut back the antitrust laws that would
say firms need a lot of room to do what they want to do.
Instead, these scholars proposed that antitrust suits only be brought against
businesses if their actions had caused consumer harm.
For example, if two businesses merged and caused products to get more expensive
or worse, or if the new company somehow stifled innovation in the industry, the
Supreme Court adopted this consumer welfare standard.
In the 1979 case, Reiter vs.
Sonotone.
It fairly abruptly sort of announces that it's shifting its direction and
accepting that this so-called consumer welfare standard is the goal of
antitrust law.
And when Americans voted conservative Ronald Reagan into office the following
year, the fate of aggressive antitrust enforcement was sealed.
Reagan campaign was based on the fact that government had become too intrusive
into business.
So this sentiment built up and Reagan ran on the ticket
to get government off the back of business.
And that won the day.
That sentiment won the day.
And the next few decades of antitrust enforcement.
The Department of Justice did bring a size-based antitrust case against
Microsoft in the late 1990s, which we'll explore in another video along with
its effects on the current antitrust investigations of Big Tech.
But for the most part, antitrust enforcement based on the size of companies has
been essentially dormant for the last 40 years.
And I think you saw antitrust be consumed with or be captured by a very
fundamental free market ideology that caused regulators to put a heavy thumb on
the scales, in favor of business, in favor of letting mergers go through, in
favor of letting monopolies do whatever they wanted.
This is obvious if we zoom out and look at some key data on the U.S.
economy. Between 1982 and 2012, market concentration across all of these
industries increased sometimes by triple digit percentages between 1996 and
2016. The number of companies on the stock market fell by half also since
1996. The FTC has challenged fewer and fewer proposed mergers that would leave
only five or six major firms in an industry.
Which is why there are now only four major domestic airlines, four major
telecommunications carriers, three major drugstores and two major beer
retailers.
What we had at the turn of the 19th century and we have again now is companies
that have a significant influence over the entire economy.
This has experts wondering, is this another inflection point for antitrust law?
Should these laws once again be skeptical of business size or should they leave
these businesses alone?
It feels like this is the first time in 40 years that antitrust has a real
moment to decide what it's going to be for the next 40 years.
At times, I think that antitrust is portrayed as this place and magic bullet, so
to speak, of that if we just break up the companies, all these other problems
that we're concerned about would go away.
But there's no guarantee of that.
Antitrust has intervened at different times to create possibilities for much
greater innovation, much more robust competition.
I think there is a broad sense, even in the US, that something has gone wrong in
these markets that something needs to change.
One way to think about it is between the ends. On
one side that we have aggressive antitrust from the other side that don't have
antitrust. There's a big spectrum and we probably want to find some point on
the spectrum.
You will never be the perfect point.
But to be on the spectrum is better than being when one of the ends.