The Case against Antitrust Law · BY RYAN YOUNG AND CLYDE WAYNE CREWS, JR. ISSUE ANALYSIS APRIL...

The Case against Antitrust Law

Ten Areas Where Antitrust Policy Can Move on from the Smokestack Era

B Y R Y A N Y O U N G A N D C L Y D E W A Y N E C R E W S , J R .

I S S U E A N A L Y S I SA P R I L 20 19 | N O . 1

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Young and Crews: The Case against Antitrust Law 1

The Case against Antitrust LawTen Areas Where Antitrust Policy Can Move on from the Smokestack Era

By Ryan Young and Clyde Wayne Crews, Jr.

Executive SummaryPoliticians and pundits across the ideological spectrumoften call for greater competition in the marketplace.While their favored means vary widely, the view thatcurrent antitrust law is necessary to ensure competition,and should be applied more vigorously than it has inrecent history, is common across the American politicallandscape. As this paper demonstrates, a rethink of theexisting antitrust paradigm is long overdue.

Antitrust regulation harms both consumers, competition,and innovation and therefore should be repealed. Froma legislative standpoint, this would involve repealingthe ShermanAct of 1890, the Clayton Act of 1914, andthe Federal Trade Commission Act of 1914, asamended, including the Celler-Kafauver Act of 1950and the Hart-Scott-Rodino Act of 1976. In addition, theexecutive branch should decline to prosecute weak orspurious antitrust cases, and courts should reverse badprecedents. Amarket-based approach to competitionwould reduce the regulatory uncertainty and chillingof innovation that results from government antitrustregulation. It would also reduce opportunities forrent-seeking.

The issue has taken on greater urgency, as populistpoliticians from both left and right push for moreaggressive antitrust enforcement. Regulators in theUnited States and the European Union have expressedan interest in pursuing antitrust actions against techgiants known as the FAANG companies— Facebook,Apple, Amazon, Netflix, and Google. President Trumphas specifically singled out Facebook, Google, andAmazon as antitrust targets. Entire business models,such as franchising, are at risk from potential antitrustregulation.

The mere threat of legal penalties—and the environmentof over-caution it engenders—also has a chilling effecton entrepreneurs who want to try new business practicesand innovate. Such opportunity costs are impossibleto measure.

Few large antitrust cases have been brought in theUnited States recently, and overall enforcement activityhas been slower than in previous eras, but there is alarge pool of potential cases that populist politiciansare interested in pursuing.

U.S. antitrust regulators are not the only threat toAmerican innovation. Many U.S. companies that dobusiness in Europe often face scrutiny from theEuropean Union, under what it calls “competitionpolicy.” For example, the European Union finedGoogle $5 billion in 2018, a significant amount of lostcapital that could have created consumer value instead.Google’s parent company, Alphabet, spent $16.6 billionon research and development in 2017. If Google didnot fear losing revenue to competitors, it would feel noneed to spend such resources to improve its offerings.

This paper shows that the approach to antitrust law nowprevalent in both the United States and the EuropeanUnion is misguided and can lead to considerableeconomic harm. It starts with the big picture, describingthe different sides of the antitrust debate, from theearly interventionist approach that arose during theProgressive Era to the Chicago school-influencedconsumer welfare standard that gained popularity inthe late 20th century, up to the current populist revival.It then points out the shortcomings of both theinterventionist and Chicago approaches and arguesfor a market-based approach. With the analyticalframework and political context established, the paper

2 Young and Crews: The Case against Antitrust Law

goes through a “Terrible Ten” list of specific antitrustpolicies in need of repeal, while explaining thecommon themes and arguments that appear in caseafter case.

1: Restraint of Trade and Monopolization. TheShermanAct of 1890 makes illegal “every contract,combination, or conspiracy in restraint of trade,” anddeclares that, “every person who shall monopolize, orattempt to monopolize, or conspire to monopolize shallbe deemed guilty of a felony.” Nearly 130 years later,the phrases “restraint of trade” and “monopolize”remain key terms in antitrust regulation. Yet,monopolies cannot last without government assistance(barring some very narrow limited circumstances, suchas near-total control of a natural resource). If a dominantcompany is making extra-normal monopoly profits, theonly way for it to keep out competitors is to usegovernment on its behalf. The solution to this problemis not antitrust enforcement, but taking away thegovernment’s power to grant favors to rent-seekers.

2: Horizontal Mergers. Horizontal mergers arebetween companies competing in the same market.Vertical mergers are between companies up and downthe supply chain. Horizontal mergers reduce the numberof competitors in a market and increase their averagesize. Both of these raise red flags for regulatorssearching for possible restraints of trade or attemptsat monopolization. Antitrust law treats a companydifferently based on whether it reaches a certain sizethrough growth or through merger. If size or marketconcentration is the offense, that is what the law shouldbe concerned with, not how a company got itsdominant position.

3: Collusion: Cartels, Price Fixing, and MarketDivision. There are two problems with cartels, pricefixing, market division, and other forms of collusion.The first is where to draw the line. Every corporation inexistence engages in some form of collusion. A classicexample is a law firm. When two or more lawyers jointogether in a law firm, they agree in advance to chargecertain rates and not to compete with each other forclients, yet no antitrust regulator would file a caseagainst such a firm. The second problem is that cartels

do not last, at least without government help. Itsmembers have strong incentives to defect and chargelower prices or increase output. The instability ofinefficient cartel arrangements serves as a built-ininsurance policy for consumers.

4: Predatory Pricing. Antitrust regulators can penalizea company for predatory pricing if it charges lowerprices than its competitors. The thinking goes that acompany can sell goods at a loss to gain market share,causing competitors to exit the market or even gobankrupt. Then the predator can raise its prices andenjoy monopoly profits. The problem here is one ofsimple arithmetic. Predators nearly always have alarger market share than the prey. This means thelarger company must sell more product at a loss thanthe smaller prey companies, and thus incur a largerloss. The only way for the predator to keep a permanentmonopoly is to permanently sell at a loss.

5: Price Discrimination. Price discrimination involvesselling the same good to different people at differentprices. The Robinson-Patman Act is the primary statuteregulating the practice. Examples of price discrimina-tion include quantity discounts for buying in bulk,putting products temporarily on sale, membershipprograms, or store-specific credit cards offeringdiscounts or benefits such as points programs orfrequent flier miles. As with other items on this list,there is considerable uncertainty as to which forms ofprice discrimination are punishable and which are not.Regulators may draw the line wherever they chooseat any time. Fortunately, policy makers have mostlyrealized that Robinson-Patman is unworkable, and it ismostly unenforced. Consumers and businesses wouldgain peace of mind from its repeal.

6. Manufacturer Price Restraints on Retailers.Resale price maintenance agreements require retailersto sell a product at or above some minimum price setby the manufacturer. They have proven to be a valuablepro-consumer tool. Retailers who are unable to competeon money prices compete instead on other factors.Manufacturers who require retailers to sell at aminimum markup may have a reason for requiring acertain minimum price. Some of that extra margin


might be spent on marketing, certification programs forrepair technicians, or to cover warranty costs.

7: Exclusive Dealing. Exclusive dealing involves aseller agreeing to sell products exclusively from acertain supplier. Examples include car dealerships andrestaurants that serve Coca-Cola but not Pepsi. Anexclusive arrangement can provide important benefitsto manufacturers, retailers, and consumers. Amanufacturer gains some ability to make long-termdecisions regarding how much product to supply.Retailers gain specialized knowledge of the product.Consumers benefit from this added sales expertisewhen making purchasing decisions. Exclusive dealinghas been prosecuted under Section 3 of the ClaytonAct, Section 1 of the ShermanAct, and Section 5 ofthe Federal Trade Commission Act. Exclusive dealingstill exists because regulators wisely decline to enforcethe letter of the law. Repealing those provisionswould remove uncertainty surrounding potentiallypro-consumer business practices.

8: Tying or Bundling. Tying or bundling is sellingtwo or more products together, but not separately.Determining which products are fit to be tied andwhich are not is more a matter of metaphysics thansound policy analysis. Left and right shoes are alwayssold as a pair. A car’s tires and sound system arealmost always included in the sale. Transactions likethese are allowed by regulators without controversy,though technically prosecutable—another instance ofdiscretion by regulators creating uncertainty.

9: Strategic Predatory Behavior. This is often used asa catchall term for competitive behavior that antitrustregulators dislike. Trying to undercut rivals’ profitabilityis the very essence of business competition, butrecently, the ordinary competitive market behavior ofcausing one’s rivals to face higher costs has spawneda veritable academic industry devoted to identifyingcompetitive strategies as means of monopolization.

10: Exploiting Technological Lock-In. Companiescan use technological lock-in to keep customers fromfleeing to better alternatives. The famous example oftechnological lock-in is the QWERTY keyboard. As itturns out, QWERTY keyboards are just as efficient asDvorak and other alternatives. Nowadays Internetbrowsers are often cited as an example of technologicallock-in. Life is much easier when all of your websitepasswords and other information are stored in yourbrowser and entered automatically when needed. Intheory, this convenience also makes consumersreluctant to switch to a competing browser, even if itoffers a better user experience. This reticence canlock consumers into an inferior technology, reducingcompetition and the incentive to innovate, but thatis a problem grounded in consumer behavior thatgovernment is ill equipped to address. Even so, thetitle of most popular browser has shifted at least threetimes over the past 20 years. Netscape gave way toInternet Explorer, then Firefox, and now Chrome,which could be eclipsed at any time.

Consumers and competition would both best be servedby repealing antitrust regulations regarding restraint oftrade and monopolization, horizontal and verticalmergers, collusion such as price fixing and marketdivision, predatory pricing, price discrimination,minimum resale prices, exclusive dealing, tyingand bundling, strategic predatory behavior, andtechnological lock-in. As the economy becomes morehigh-tech, specialized, and global, antitrust policiesformed in the smokestack era are becomingprogressively less relevant. Aggressive antitrustenforcement can create considerable economicuncertainty, which can have a chilling effect onlong-term investment and innovation in both productsand in business practices that benefit consumers.


IntroductionPoliticians and pundits across theideological spectrum often call forgreater competition in the market-place. While their favored means varywidely, the view that current antitrustlaw is necessary to ensure competition,and should be applied more vigorouslythan it has been in recent history, iscommon across the American politicallandscape. As this paper demonstrates,a rethink of the existing antitrustparadigm is long overdue.

Antitrust regulation harms consumers,competition, and innovation, andtherefore should be repealed. From alegislative standpoint, this wouldinvolve repealing the Sherman Act of1890, the Clayton Act of 1914, and theFederal Trade Commission Act of1914, as amended, including theCeller-Kafauver Act of 1950 and theHart-Scott-Rodino Act of 1976. Inaddition, the executive branch shoulddecline to prosecute weak or spuriousantitrust cases, and courts shouldreverse bad precedents. A market-based approach to competition wouldreduce the regulatory uncertainty andchilling of innovation that results fromgovernment antitrust regulation. Itwould also reduce opportunities forrent-seeking.

The issue has taken on greater urgency,as populist politicians from both leftand right push for more aggressiveantitrust enforcement. Regulators inthe United States and the European

Union have expressed an interest inpursuing antitrust actions againsttech giants known as the FAANGcompanies— Facebook, Apple,Amazon, Netflix, and Google.1

President Trump has specificallysingled out Facebook, Google, andAmazon as antitrust targets.2 TheTrump administration tried to block amerger between AT&T and TimeWarner, only dropping the suit afterlosing in court.3 Telecoms, large foodand drug companies, Ticketmaster,airlines, and hospitals are on someanalysts’ prosecution wish lists.4Uber,Airbnb, and other sharing economycompanies are also under threat.5

Entire business models, such asfranchising, are at risk from potentialantitrust regulation.6

The mere threat of legal penalties—and the environment of over-caution itengenders—also has a chilling effecton entrepreneurs who want to try newbusiness practices and innovate. Suchopportunity costs are impossible tomeasure.

Few large antitrust cases have beenbrought in the United States recently,and overall enforcement activity hasbeen slower than in previous eras, butthere is a large pool of potential casesthat populist politicians are interestedin pursuing.

U.S. antitrust regulators are not theonly threat to American innovation.Many U.S. companies that do business

A market-basedapproach tocompetitionwould reducethe regulatoryuncertaintyand chilling ofinnovation thatresults fromgovernmentantitrustregulation.


in Europe often face scrutiny from theEuropean Union (EU), under whatit calls “competition policy.” Forexample, EU antitrust authorities finedGoogle $5 billion in 2018, a significantamount of lost capital that could havecreated consumer value instead.7

Google’s parent company, Alphabet,spent $16.6 billion on research anddevelopment in 2017.8 If Google didnot fear losing revenue to competitors,it would feel no need to spend suchresources to improve its offerings.

This paper shows that the approach toantitrust law now prevalent in boththe United States and the EuropeanUnion is misguided and can lead toconsiderable economic harm. It startswith the big picture, describing thedifferent sides of the antitrust debate,from the early interventionistapproach that arose in the ProgressiveEra to the Chicago school-influencedconsumer welfare standard that gainedpopularity in the late 20th century, upto the current populist revival.9 It goeson to point out the shortcomings ofboth the interventionist and Chicagoapproaches and argue for a market-based approach.10 With the analyticalframework and political contextestablished, the paper goes through a“Terrible Ten” list of specific antitrustpolicies in need of repeal, whileexplaining the common themesand arguments that appear in caseafter case.

The Current State of Debate andthe Brandeis RevivalEarly populism. Antitrust regulationas we know it began in the late 19thcentury as part of a larger populistmovement against big business andconcentrated power. It resulted first inthe Sherman Act of 1890, which madeillegal restraints of trade or attempts tomonopolize an industry. It wasrefined and strengthened by theClayton Act of 1914 and the FederalTrade Commission (FTC) Act of 1914,both signed into law by PresidentWoodrow Wilson. The Clayton Actprovided guidelines for merger policy,among other things, while the FTCAct created a new agency to shareantitrust jurisdiction with the JusticeDepartment. Section 5 of the FTCActalso amended the ShermanAct’s vague“restraint of trade” standard by addinglanguage on “unfair or deceptive actsor practices,” though it still left itlargely up to agencies and courts todefine those terms.

Justice Louis Brandeis, one of theearly antitrust movement’s mostprominent champions, viewed largebusiness size as inherently bad. In1911, during testimony before theSenate Committee on InterstateCommerce, Brandeis said, “I haveconsidered and do consider, that theproposition that mere bigness can notbe an offense against society is false,

The approachto antitrust lawnow prevalentin both the

United Statesand the

European Unionis misguidedand can lead

to considerableeconomic harm.


because I believe that our society,which rests upon democracy, cannotendure under such conditions.”11 Thisled Brandeis to favor using governmentto give artificial competitive advantagesto smaller firms, regardless of whetherthey created more consumer valuethan larger firms.

Brandeis’s theme of size as a punishableoffense persisted as antitrust case lawbuilt up over the next several decades.Many economists were skeptical ofantitrust enforcement as an effectivemeans toward those ends. Thetraditional view, held by most classicaleconomists fromAdam Smith onward,was that monopolies were unsustainablewithout state assistance.12 Real-lifeexamples of monopolies were limitedto state-supported enterprises such asthe Dutch East India Company.13 Allwere legally granted privileges bytheir governments, and were backed attimes by courts and even armed force.Even after private businesses grewlarge and antitrust legislation waspassed to combat them, manyeconomists remained skeptical thatsuch regulation was necessary tocombat monopolies. The list of suchskeptics active at this time includesnotable figures such as JosephSchumpeter, Ronald Coase, Ludwigvon Mises, and Aaron Director.14 Eventoday, many economists viewprotection from competition as a factorin the European Union’s competitionpolicy, according to a University of

Chicago Booth School poll ofeconomic experts.15 Perhaps in partbecause of this skepticism, mosteconomists did not pursue careers inthe new antitrust enforcement agencies.Instead, the agencies were staffedmostly by lawyers who often did notwelcome economic analysis or itsconclusions.

During the Great Depression, PresidentFranklin D. Roosevelt rolled backantitrust enforcement. But he did nottake a market-based approach tocompetition policy. Instead of usinggovernment to oppose cartels, hisNational Recovery Act used govern-ment to create and maintain cartels.The Agricultural Adjustment Act evendeliberately raised food prices andrestricted output—precisely theindicators of monopoly power thatantitrust policy was supposed toprevent. The 1936 Robinson-PatmanAct, which is now mostly unenforced,also banned numerous competitivepricing practices.

While New Deal-style managed cartelsdid not rejuvenate the economy,postwar antitrust policy ramped up torecord levels. It was given additionalstrength by the 1950 Celler-KefauverAct, which instituted stricter mergerpolicies, and the 1976 Hart-Scott-Rodino Act, which requires companiesabove a certain size to gain regulatoryapproval before merging. Thisstronger legislation was accompaniedby record numbers of court cases,

The newantitrustenforcementagencies werestaffed mostlyby lawyerswho often didnot welcomeeconomicanalysis or itsconclusions.


fines, and even jail sentences, includingsome questionable decisions thattoday’s antitrust revivalists disavow.16

The Consumer Welfare Standard.From the late 1960s to the 1980s,judges and regulators slowly shifted toa consumer welfare standard. By thistime, an entire movement had takenoff, especially at the University ofChicago. Under the consumer welfarestandard, companies are free to growbig, so long as they act in ways thatmaximize consumer welfare. Thisremains the mainstream practice today.Figures such as Coase, Director, andFrank Knight influenced a newgeneration of competition scholars,including Richard Posner, GeorgeStigler, Yale Brozen, Robert Bork,Harold Demsetz, Sam Peltzman,and others.17

The most famous defense of theconsumer welfare standard remainsRobert Bork’s 1978 book The AntitrustParadox, which was one of the firstmajor law books to heavily incorporateeconomic analysis. This coincidedwith the rise of a hybrid academicdiscipline of law and economics—which is now a recognized disciplineat many major universities.18 Theinfluence of law and economics hasextended beyond the academy, as theDepartment of Justice and the FederalTrade Commission began to employeconomists around this time, and stilldo today. This has led to a morerestrained overall approach to antitrust

enforcement, with progressivelyfewer big cases, and none since thelate-1990s Microsoft case. The JusticeDepartment attempted to block aproposed merger between AT&T andTime Warner, but dropped the caseafter a loss in the D.C. Circuit Court inFebruary 2019.19

The Brandeis revival. Unfortunately,a new era of antitrust might now be inits infancy—basically a return toBrandeis’s anti-bigness ethos with afew nods to modernity. Some analystscall this movement “hipster antitrust,”usually derisively.20 This paper willinstead use terms the movement’smembers use, such as “Neo-Brandeisian.”21 Some populists onthe right, such as President Trump andsome of his political allies, includingpolitical commentators such as SteveHilton, Tucker Carlson, and NedRyun, also favor an antitrust revival.22

Neo-Brandeisians and many populistsreject the consumer welfare standard,proclaiming to use antitrust regulationto promote broader values such asdecreasing income inequality, opposingconcentrated power, favoringdemocracy, the public good (howeverdefined), and bringing elites downa notch.

Under a Neo-Brandeisian standard,a company’s size could once againbecome a per se offense, even if abreakup would make consumers worseoff (in legalese, this means somethingis automatically illegal, even if it

Unfortunately, a new eraof antitrust might now be in its infancy.


has good intentions or beneficialconsequences).23 Columbia Universitylaw professor Tim Wu, in his 2018book The Curse of Bigness (titled for afamous Brandeis expression), advocatesreturning to an anti-bigness standard.His arguments are a good summationof the general Neo-Brandeisian world-view, and are worth examining further.The first antitrust legislation, Wuwrites, “was clearly understood as areaction to the rising power of themonopoly trusts, such as the StandardOil Company.”24 Seeing large businesssize as a persistent problem, Wupoints to Louis Brandeis, “whosevoice is needed for what we confronttoday.”25

In his concluding chapter, “A Neo-Brandeisian Agenda,” Wu argues that,“Some effort to revive the antitrustlaws may be an inevitability in anation founded on principles ofanti-monopoly, equality, anddecentralized power.”26 However, afederal government that can break upany company for a wide variety ofreasons is far from decentralized.

Wu favors rejecting a consumer welfarestandard in favor of a protection ofcompetition standard, a new term forthe rule of reason standard that wasused in Brandeis’s era. Thisstandard relies heavily on a judge’sdiscretion in deciding a company’sguilt in an antitrust case, and thereforeis less well defined than both thepreponderance of evidence standard

used in most civil cases and thereasonable doubt standard used incriminal cases. Wu argues that it ispractically impossible to measureconsumer welfare or allocativeefficiency. This is a problem for theconsumer welfare standard, underwhich “courts and enforcers rely tooheavily on price effects, since theyare the easiest to measure—yieldingunderenforcement of law.”27

Underenforced by what criteria,Wu does not say.

However, the protection of competition/rule of reason standard has even largermeasurement problems, and, as Wuacknowledges, “inevitably demandssome exercise in social planning, andascertaining values that can be difficult,if not impossible, to measure.”28 Inpractice, returning to the old wayswould give judges and regulators vastpower they do not have today.

It would also violate a cardinal ruleof sound policy—do not give alliespowers you would not want yourenemies to have. Remember PresidentTrump’s threats against Amazon in theearly days of his administration. Givenhow heated judicial confirmationshave become in recent years, Neo-Brandeisians should be especiallysensitive to this argument.

Wu also commits what economistHarold Demsetz popularized as theNirvana fallacy.29 In the perfectcompetition model, consumers are

A federalgovernmentthat can breakup any companyfor a wide varietyof reasons isfar fromdecentralized.

Antitrustregulationcreates

opportunitiesfor rent-seekingby politicallyconnectedinterests.


assumed to have perfect information,prices instantly move so that supplyand demand never depart from theexact equilibrium point where allgoods sell and markets clear, and allthis happens with zero transactioncosts. This model is useful for isolatingvariables and for classroom teaching,but not so much for judging real-worldmarket performance. Wu is correct inthat markets nearly always fall shortof the perfect competition model. Yethis advocacy of government actioncomes very close to assuming that real-world governments can create theirown version of a perfect competitionmodel. Wu compares real-word marketoutcomes to an idealized vision ofgovernment regulation, not the real-world kind.

Neo-Brandeisians and other progres-sives rightfully oppose rent-seeking,but their proposed antitrust policieswould make the problem worse.Antitrust regulation creates opportunitiesfor rent-seeking by politically connectedinterests. Wu consistently ignores thisthroughout his book. He correctlypoints out how numerous companiesgame government policies to reducecompetition, but then goes on toadvocate for more government power,which can also be gamed, as thesolution. Even now, in a relativelyrestrained antitrust environment,roughly 95 percent of antitrust lawsuitsare brought privately by competitors,not by the Justice Department or

Federal Trade Commission.30Repealingantitrust regulation would not eliminaterent-seeking—there are many otheravenues rent-seekers can take—but it would reduce it.

Such is the current state of the debate.The consumer welfare and Neo-Brandeisian populism standards aremore similar than advocates of eitherside would like to admit, but there aremore than two possible approaches toantitrust policy. The next sectionshows how a market-based approachto competition policy would yieldbetter results than what pro-antitrustpoliticians on both the left and rightare currently offering.

Major Antitrust Themesand ArgumentsAntitrust enforcement policies haveebbed and flowed over the last 130years, and will no doubt continue to doso, but the major themes and argumentspersist. This section lists some of thosemajor themes, and shows why marketcompetition outperforms bothNeo-Brandeisian activism andChicago-style moderation.

Competition is a spectrum, not anon/off switch. How much marketconcentration is too much? At whatpoint does it become anti-competitive?Is it even possible to measure? If so,should it be measured by marketshare, how many firms are in themarket, or how high are the barriers to


entry? This is a significant knowledgeproblem scholars and regulators arestill trying to overcome. The Herfindahl-Hirschman Index (HHI) attempts toprovide an objective numerical scorefor market concentration.31 But eventhis device has its limitations—thepeople plugging the numbers into theHHI formula can define the relevantmarket any way they choose, and thuscan come up with almost any HHIscore they wish. They can evenchange the parameters if their firstattempt’s results do not help the casethey are trying to make.

The Justice Department and FederalTrade Commission’s HorizontalMerger Guidelines state that mergersraising an HHI score by more than200 points are “presumed to be likelyto enhance market power.”32 Scorechanges under 100 are generally nota concern. While the scores do notdecide a case by themselves, they dofactor into agency decisions aboutwhether to pursue a case and howstrongly to place the burden of proofon the accused. That is an enormousamount of power for regulators to have.

Moreover, a given level of marketconcentration is not on its own evidenceof consumer harm, but businesses faceenormous uncertainty in this area. TheSherman Act is very short, and makesmonopoly or attempted monopoly thecrime. Moreover, courts have neversettled on a consistent definition ofpermissible concentration. Different

decisions have used different bench-marks for what levels of concentrationthreaten competition, for no clearreason. The Supreme Court, in its1962 Brown Shoe decision, ruledagainst a merged company with acombined market share of 2.3 percentof the nation’s shoe retail marketand about 4.5 percent of its shoeproduction.33 Then in the 1966 Von’sGrocery case, the Supreme Courtruled against a merged companywith a combined 7.5 percent marketshare in the city of Los Angeles.34

Meanwhile, the federal governmentgave AT&T a legally protectedmonopoly for decades until reversingcourse and breaking it up in the1980s.35

Many regulators have a binary viewof competition—a market is eithercompetitive or it is not. Most marketsare somewhere in between andconstantly move around along thatspectrum as circumstances change.This makes regulators’ task nearlyimpossible, given how difficult it canbe for them to determine if a problemeven exists, or how long it will last.

The relevant market fallacy. This isone of the easiest mistakes to make inall of antitrust analysis. It is also oneof the easiest to avoid. Thinkingalong the different parts of a spectrumillustrates why. At one end of thespectrum, every individual productcan be seen as its own relevant market.A sandwich at one restaurant is

Courts havenever settledon a consistentdefinition ofpermissibleconcentration.


different than an identical sandwichsold at another restaurant next door,even if they are the same price. Onerestaurant might offer better service,better ambience, or some other non-price characteristic that differentiatesit from its competitor. In that sense,there are two different productsoperating in different markets appeal-ing to different sets of consumerpreferences.

At the other end of the spectrum, theonly relevant market is as big as theentire global economy. That sandwichalso competes against other types offood in a global supply chain.Whichever point on the spectrum ananalyst decides is right for a givencase is an arbitrary decision. It islargely a matter of semantics, and oftenanalytically useless in determiningconsumer welfare.

Uncertainty. Antitrust regulationcreates an enormous amount ofeconomic uncertainty. Nobody knowshow it will be used at a given time.If antitrust statutes are interpretedliterally, potentially any firm, no matterhow small, can be charged with anantitrust violation—or for dominatingits relevant market, however defined.If a business sells goods at a lowerprice than its competitors, it can becharged with predatory pricing. If itsells goods at the same price as itscompetitors, it can be charged withcollusion. And if it sells goods at ahigher price than its competitors, it

can be charged with abusing marketpower.

A century of case law has evolved someguidelines, but judicial precedents canbe overturned any time a new case isbrought. There are few bright-linelegislative or judicial standards forantitrust enforcement. It is mostlyguided by a mix of inconsistentlyenforced judicial precedents, regulators’personal discretion, and political factorsunrelated to market competition. Eventhe mere threat of antitrust enforcementcan have a preemptive chilling effecton innovation, business strategies,and potential efficiency-enhancingarrangements.

Rent-seeking. Neo-Brandeisiansrightly want to reduce rent-seeking,but they routinely propose policiesthat will backfire because of a commonmisunderstanding of how governmentswork in practice. Governmentemployees do not operate with onlythe public interest in mind. They arehuman beings, with the same incentivesand flaws as other human beings.They want to increase their budgetsand power and enjoy the publicity thataccompanies big cases. It also makesregulators especially vulnerable towhat is known as a Baptist-and-boot-legger dynamic. In Clemson Universityeconomist Bruce Yandle’s classicexample, a moralizing Baptist and aprofit-seeking bootlegger will bothfavor a law requiring liquor stores toclose on Sundays, though for different

There are fewbright-linelegislativeor judicialstandards forantitrustenforcement.


reasons. A true-believing “Baptist” inCongress or at the Justice Departmentor the FTC would be inclined to listenseriously to the entreaties of corporate“bootleggers” who can come up withvirtuous-sounding reasons for whyregulators should give their businessesspecial favorable treatment.36

Oracle, one of Microsoft’s rivals,ran its own independent Microsoftinvestigation during that company’santitrust case, for what it alleged wereBaptist-style reasons. “All we did istry to take information that was hiddenand bring it to light,” said Oracle CEOLarry Ellison. “I don’t think that wasarrogance. I think it was a publicservice.”37 Former Sen. Orrin Hatch(R-UT), who counted Oracle amonghis constituents, was one of the loudestanti-Microsoft voices in Congress.Around that time, he also received$17,500 donations from executives atNetscape, AOL, and Sun Microsystems.Perhaps heeding Hatch’s admonitionthat, “If you want to get involved inbusiness, you should get involved inpolitics,” Microsoft expanded itspresence in Washington from a smalloutpost at a Bethesda, Maryland, salesoffice to a large downtownWashingtonoffice with a full-time staff plusmultiple outside lobbyists.38 Microsoftquickly went from a virtual non-entityin Washington to the 10th-largestcorporate soft money campaign donorby the 1997-1998 election cycle.

Sen. Hatch’s campaign was among thebeneficiaries.39

The lines between Baptist and boot-legger can be blurry, and some actorsplay both parts. But such ethicaldynamics are an integral part ofantitrust regulation in practice.

Government usually stiflescompetition. If antitrust regulationis to be retained, it should not be afirst-resort policy. If a company has anoverwhelming competitive advantage,it is important to first ask what iscausing it. If the advantage is due tosuperior performance, then consumersare not being harmed.

In most cases, dominance does not lastlong, as evidenced by how quickly anylist of America’s largest companieschanges from year to year. If acompany does remain dominantfor a long period of time, one of twopossibilities must be true. The firstoption is that it continues to beconsumers’ preferred option. Thesecond is that it is engaging in rent-seeking behavior. In the first case,there is no need for an antitrustintervention. In the second case, thesolution is not antitrust regulation, butto take away the government’s powerto tilt the scales in rent-seekers’ favor.

Think long term. Robert Bork, thoughfamous for his antitrust skepticism,still favors some antitrust regulation.He merely favors a more restrained

If antitrustregulationis to beretained, itshouldnot be a first-resort policy.


usage than the Brandeis school. As hewrites in The Antitrust Paradox,“Antitrust is valuable because in somecases it can achieve results morerapidly than can market forces. Weneed not suffer losses while waitingfor the market to erode cartels andmonopolistic mergers.”40

Bork’s statement is problematic forseveral reasons. How do regulatorsand judges know which cases arecausing consumer harm and which arenot? How do they decide which casesto pursue? Cases also often take yearsto resolve. Assuming regulators identifya valid case, how would they, and thejudges who hear the case, know ifmarket activity could address theproblem by the time the case isdecided? Do the benefits of regulatoryaction exceed the court and enforcementcosts? Are the affected companies in aposition to capture the regulators?

More to the point, does the short-termbenefit come at a greater long-termcost? An enforcement action nowcould have a deterrent effect on futuremergers, contracts, and innovations,including in unrelated industries. Theconsumer harm from these could wellexceed the short-term benefits of ashort-term improvement on marketoutcomes—assuming that regulatorsare consistently capable of such a feat.

For example, the IBM v. United Statesantitrust case filed in 1969 lasted for13 years until the Justice Department

decided to drop the case in 1982. Bythen, the computer market hadchanged so completely that IBM’scompetitors had long since surpassedit. In this case, regulators eventuallygave up, however belatedly, but this isnot guaranteed to happen in everycase. And who knows what consumer-benefiting innovations IBM couldhave developed with the time andresources it ended up devoting todefending itself in this case?Neo-Brandeisians could argue thatit was the antitrust process itself thatempowered IBM’s competitors toovertake it, but there is no wayof knowing that.

With these themes in mind, here is a“Terrible Ten” list of antitrust policiesthat should be repealed.

1: Restraint of Trade andMonopolizationThe ShermanAct of 1890 is two pageslong.41 Section 1 makes illegal “everycontract, combination, or conspiracy inrestraint of trade.”42 Section 2 declaresthat “every person who shall monopolize,or attempt to monopolize, or conspireto monopolize shall be deemed guiltyof a felony.”43 Nearly 130 years later,the phrases “restraint of trade” and“monopolize” remain key terms inantitrust regulation.

From the earliest cases to the present,antitrust enforcers have chosen oddtargets. In fact, there is substantial

How doregulators andjudges knowwhich casesare causingconsumer harmand whichare not?


evidence that prosecutors select casesbased on political considerations ratherthan on the merits.44

The working economic definition of amonopoly is a firm dominant enough tosimultaneously raise prices and reducesupply.45 By this standard the first majorantitrust target, Standard Oil, did not actas a monopoly. It had overwhelmingmarket share, but its behavior did notfit the pattern of a monopolist, as itcontinually increased supply and cutprices.46 Over the period 1879-1895,Standard Oil’s market share went from88 percent to 82 percent. Over a similarperiod, 1880-1897, the price of refinedoil per gallon in barrels declined from9.33 cents to 5.91 cents.47 Despitefalling prices, over the period 1890-1897 Standard increased its keroseneproduction by 74 percent, lubricatingoil by 82 percent, and wax by 84percent. Falling prices and rising outputare the opposite of monopoly behavior.

More importantly, it was not immunefrom competition. In the followingyears, the market changed. Electricityand natural gas displaced kerosene,which Standard Oil dominated. Thecompany had to adapt to customers’preferences instead of the other wayaround. It did so successfully, as thegrowth of automobiles and increasingindustrialization opened a large marketfor gasoline and other oil products suchas lubricants. Rather than restrictingsupply, its crude oil production went

from 39 million barrels in 1892 to 99million barrels in 1911, the year of theSupreme Court’s momentous StandardOil decision (there were severalantitrust cases against Standard; the1911 Standard Oil Co. of New Jersey v.United States decision is the one mostcommonly cited).48 Despite increasingsupply, Standard’s market share of allpetroleum products had declined from88 percent in 1890 to 64 percent in1911.49 In addition to falling prices andrising output, Standard also had tocontend with declining market share.

Based on the data, it is difficult toargue that Standard was engaging inmonopoly behavior or harmingconsumers. This may be why the 1911Standard Oil decision relied on a “ruleof reason” standard, which has no setcriteria or thresholds for determiningwhat is and is not a monopoly. Judgesand regulators simply decide what theythink is reasonable, which varies overtime and from case to case.50 FromStandard until now, there has neverbeen a bright-line rule for determiningmonopoly status.

The most recent major case was theJustice Department’s case againstMicrosoft. It involved a personalcomputer market that Microsoft playeda large part in popularizing in the firstplace.51The Justice Department beganthe first of multiple investigationsMicrosoft in 1992 and extracteda settlement in 1994. Under that

A “rule ofreason”standard hasno set criteriaor thresholdsfor determiningwhat is andis not amonopoly.


settlement, Microsoft agreed not to tieoutside programs into Windows, butremained free to add features.

This semantic distinction became thecrux of a lawsuit that began in 1998and continued into 2002. Microsoftrequired computer manufacturers toinclude Internet Explorer in theirWindows 95-based machines. TheJustice Department argued that thisviolated the 1994 settlement’s tyingban, while Microsoft argued thatInternet Explorer was a feature ofWindows, not a separate program.

An initial 2000 decision would havebroken up Microsoft into two separatecompanies. One would have been incharge of operating systems such asWindows, and the other firm wouldtake up Microsoft’s other softwareprograms. This decision was overturnedon appeal, leading to a settlementagreement in 2001 that was finalizedin 2002.

Microsoft was allowed to continue tyingInternet Explorer and other productsinto Windows. But by that time, a rivalbrowser called Firefox was gainingpopularity, and Microsoft’s browsermonopoly was dying of natural causes.Despite being tied into every Windowsmachine, Internet Explorer would losemarket share every year and eventuallybe discontinued. As of 2019, it survivesas a little-used program re-named Edge.Firefox would in turn be unseated byGoogle’s Chrome browser, and even

Apple’s stock Safari browser for Macand iOS has long had a larger marketshare than Internet Explorer.

Today, antitrust regulators in both theU.S. and Europe are focused on theFAANG companies—Facebook,Amazon, Apple, Netflix, and Google—for their dominance of their respectivesectors. Some of them invented thevery markets they dominate, such asApple with the iPhone, the first widelyadopted touchscreen smartphone. Otherssuperseded prior incarnations byoffering consumers a better product, asFacebook did over MySpace or Netflixover Blockbuster. Amazon competeswith brick-and-mortar retailers suchas Walmart and Target, which areimproving their online shopping as adirect competitive response.

None of these developments havereduced supply so far. Many onlineofferings, from Google searches toFacebook accounts to many apps inApple’s App Store, are zero-price. Thisprice point, common in the tech sector,encourages trade rather than restrainsit. Netflix raises its prices every sooften, but for families who collectivelywatch at least a movie a week,membership is still cheaper thancompeting options such as purchasingDVDs, on-demand cable TV, or goingout to a movie theater. This should betheir decision to make, not the JusticeDepartment’s or the FTC’s. (Hulu,Amazon Prime Video, and various

Many onlineofferings are

zero-price. Thisprice point,

common in thetech sector,encouragestrade rather

than restrains it.


niche services also offer competingexclusive original content.)

Monopolies cannot last withoutgovernment assistance (barring somevery narrow limited circumstances,such as near-total control of a naturalresource). Facebook is currently over-whelmingly dominant, but is worriedabout its aging user base. Younger usersgenerally prefer to interact with eachother out of sight of parents, teachers, orbossess, and are increasingly choosingother social networks, such asSnapChat. As Georgetown Universitycomputer scientist Cal Newportremarked in a January 2019Wall StreetJournal interview, Facebook, in hisview, seems to have “a very weakconnection to their user base. It’s amuch more fickle user base than theyprobably want to admit.”52 And onMarch 6, 2019, in response to growingprivacy concerns among the public,Facebook CEOMark Zuckerbergannounced plans to shift the company’sfocus toward encrypted and ephemeralcommunications, acknowledging that,“frankly we don’t currently have astrong reputation for building privacyprotective services.”53

Privacy concerns are also providingopportunities for competitors to providea different balance of privacy protectionand data collection for targetedadvertising that consumers andadvertisers might prefer overFacebook’s. The only way for

Facebook to keep its dominance is tooffer a better product that appeals to itscustomers—which is why the companyis continuously changing its design,features, and privacy practices. It alsospent $7.8 billion on research anddevelopment in 2017, which is not abusiness decision a company wouldmake if it felt safe and secure.54

The quality of the user experience isanother issue. Remember the relevantmarket fallacy. Social media competeswith other forms of leisure time andsome people are souring on socialmedia and doing other things with theirtime instead. Facebook and Twitterpolitical discussions are often ratherless than edifying, to put it politely.They are difficult to keep out of one’snewsfeed. And time spent scrollingthrough feeds is time not spent withfamily, friends, hobbies, books,movies, and more.

Antitrust regulators are in no betterposition than anyone else to foreseethe future of social media. Marketdominance is not automatically a badthing. Size in itself is neither good norbad. What matters is maximizingconsumer benefit. Given the ease ofexit, which in this case is as simple asnot visiting certain websites, it is easyfor consumers to do what they want,rather than what Facebook wants.

Neither Microsoft nor Facebook norStandard Oil ever held 100 percentmarket share. But if having a single

Antitrustregulators arein no betterposition thananyone else toforesee thefuture ofsocial media.


firm in a given sector does turn out tomaximize consumer welfare, antitrustregulators would hurt people bybreaking it up. If a dominant companyis making extra-normal monopolyprofits, the only way for it to keepcompetitors out is to use governmenton its behalf. The solution to thisproblem is not antitrust enforcement,but taking away the government’spower to grant favors to rent-seekers.

2: Horizontal MergersHorizontal mergers are betweencompanies competing in the samemarket. Vertical mergers are betweencompanies up and down the supplychain. General Motors and Fordmerging with each other would be ahorizontal merger, while one of themmerging with one of its supplierswould be a vertical deal. Horizontalmergers reduce the number ofcompetitors in a market, and increasetheir average size. Both of these arered flags for regulators searching forpossible restraints of trade or attemptsat monopolization.

Antitrust law treats a companydifferently based on whether it reachesa certain size through growth or throughmerger. If size or market concentrationis the offense, that is what the lawshould be concerned with, not how acompany got its dominant position.

As University of California, Berkeleyeconomist Oliver Williamson has

demonstrated, the real proof of amerger leading to market power hastwo components: 1) reduced output,which leads to societal deadweightlosses; and 2) the cost savings fromefficiencies that may outweigh thosedeadweight losses—in other words,increased profits55

Horizontal merger arguments areprone to the relevant market fallacy.The mergers between Coca-Cola andDr. Pepper and between PepsiCo andSeven Up were attacked during the1980s under the arbitrary premisethat one need distinguish between“carbonated soft drinks” and “softdrinks” for the purpose of determiningwhether monopoly power exists.56

Many beverage companies ownmultiple brands, not all of themcarbonated, hence the distinction.Coca-Cola also owns Dasani bottledwater, for example, and Dr. Pepper andSnapple have had the same parentcompany through several rounds ofmergers and acquisitions. The troubleis that these are not necessarilyseparate markets. Many of thesebrands compete against each other, forexample, with bottled water and icedtea marketing campaigns aimed atpersuading consumers to drink thoseproducts instead of soda that in somecases might be bottled at the sameplant. This is competitive behavior,regardless of who owns which brands.

In 1997 the Federal Trade Commissionblocked the merger of Staples and

Antitrust lawtreats a companydifferently basedon whether it

reaches a certainsize throughgrowth or

through merger.


Office Depot on the basis of a staticperception that prices would rise orcompetitive entry might not happenovernight.57 In 2016, U.S. District JudgeEmmet G. Sullivan ruled against asecond merger attempt.58 Theunintended result has been to depriveunderserved localities of superstoresthat the merger’s potential profitabilitymight have made feasible.59

In 2008, Sirius and XM, two satelliteradio companies, merged. The JusticeDepartment nearly blocked the mergerdue to the relevant market fallacy. Yes,the merged company would have amonopoly over satellite-based radio,but that is not the relevant market.Satellite radio competes for listeners’attention with terrestrial radio, podcasts,audio books, streaming radio, streamingon-demand music services such asSpotify, and depending on the age ofone’s car, compact discs. Recognizingits true relevant market, SiriusXM hasexpanded beyond satellites and alsooffers subscribers its full channellineup over the Internet, and acquiredInternet radio company Pandora in2019 in an attempt to improve itsInternet offerings.60

A similar argument applies to theWhole Foods-Wild Oats mergerbetween two high-end grocery storechains.61 These compete with othergrocery stores such as Trader Joe’s,Wegman’s, Kroger, Piggly Wiggly,and many others, including small,locally owned stores that are especially

attuned to a community’s tastes andpreferences. The relevant market ismuch larger than Whole Foods’organic and health-conscious niche.After being bought out by Amazon,Whole Foods also entered the onlineordering grocery delivery market,where it now competes with Peapodand other delivery services. Traditionalgrocery stores are responding byincreasing their offerings for onlineordering, curbside pickup, and delivery.Amazon is further upping the ante byannouncing, in March 2019, its ownbrick-and-mortar stores separate fromthe Whole Foods brand.62 Time willtell what the market’s next competitiveresponse will be.

3: Collusion: Cartels, PriceFixing, and Market DivisionAdam Smith famously observed that,“People of the same trade seldommeet together, even for merriment anddiversion, but the conversation ends ina conspiracy against the public, or insome contrivance to raise prices.”63 Hewas right. This is one reason why,historically, price fixing is by far themost common cause for antitrustlawsuits.64 This is usually done bymeans of formal and informal cartelsand agreed-upon market divisions. Butthis does not mean such arrangementsare effective; companies that colludetend to be less profitable thancompanies that do not.65

Time willtell what themarket’s nextcompetitiveresponsewill be.


There are two problems with cartels,price fixing, market division, andother forms of collusion.

The first—a common one withantitrust issues—is where to draw theline. Every corporation in existenceengages in some form of what couldbe considered collusion. A classicexample is a law firm. When two ormore lawyers join together in a lawfirm, they agree in advance to chargecertain rates and not to compete witheach other for clients. They set marketdivisions, say, with one attorneyspecializing in contract law andanother in patent law. These are allexamples of collusion, yet no antitrustregulator would file a case against sucha firm. If collusive behavior isacceptable inside a single firm, whyis identical behavior unacceptablebetween separate firms? Nocompelling argument for this legaland logical oddity exists.

The second problem with attemptingto regulate collusion is that cartels donot last, at least without governmenthelp. Its members have strongincentives to defect and charge lowerprices or increase output. Even if pricefixing and other collusion were theresult of deliberate anti-consumermischief, we would be better offallowing markets, rather than regulators,to take their course. The instability ofinefficient cartel arrangements servesas a built-in insurance policy forconsumers.

Moreover, if cartel members stopcompeting on money prices, they cancompete on other features such asquality, shorter wait times, warranties,or other add-ons. Consumer welfaredepends on more than just moneyprices. The tendency to undermineagreements, and seek a bit ofcompetitive advantage, rendersinefficient cartel arrangements unstableand sets in motion their destruction—unless government enforces the cartel.The more inefficient a cartel becomes—prices are too high or some territoriesare underserved—the stronger theincentive for new competitors to enterthe market.

A prominent example of collusion inU.S. history is the pre-deregulationairline industry.66 Before the Carteradministration and the economistAlfred E. Kahn’s deregulatory efforts,airlines were unable to compete freelyon interstate flights. The CivilAeronautics Board (CAB) ran a cartelarrangement in all but name. If anairline wanted to add, say, a New Yorkto Los Angeles flight, it first had toapply to the CAB. If the agencythought the route was alreadysufficiently served, it could deny theapplication. The CAB also set fares, soairlines were unable to compete onprice. Instead, airlines competed onnon-price features such as in-flightservice and other perks, but air travelremained out of reach of many people’sbudgets. When the CAB was abolished,

The moreinefficient a

cartel becomes,the stronger theincentive for newcompetitors to

enter the market.


prices went down and supply went upalmost immediately. The cartel, just aseconomists predicted, was unsustainablewithout government regulation.

The Civil Aeronautics Board did nothave jurisdiction over intrastate flights,and the vibrancy of those marketscompared to the CAB-regulatedinterstate market was striking.Southwest Airlines began flying onlyinside the state of Texas. It found highdemand for inexpensive, low-frillsflights. Deregulation allowed Southwestto take this business model national,and it is now the fourth-largest airlinein the United States.67Airlines such asPan American and Braniff were unableto keep up and went out of business.Surviving airlines had to cut costs toremain competitive, and new airlinessuch as JetBlue and Spirit emergedwith their own takes on cost-cuttingand unbundling of various amenitiesand services.68

Because cartels and other forms ofcollusion are inherently unstable, manysuch cases involve rent-seeking. Theremedy for such cases is not antitrustenforcement. It is making rent-seekingmore difficult, such as by reformingtax and regulatory codes to inoculatethem against special interest lobbying.

4: Predatory PricingAntitrust regulators can penalize acompany for predatory pricing if it

charges lower prices than itscompetitors. The thinking goes thata company can sell goods at a loss togain market share, causing competitorsto exit the market or even go bankrupt.Then the predator can raise its pricesand enjoy monopoly profits.

The problem here is one of simplearithmetic. Predators nearly alwayshave a larger market share than theprey. This means the larger companymust sell more product at a loss thanthe smaller prey companies, and thusincur a larger loss. The only way forthe predator to keep a permanentmonopoly is to permanently sell at aloss, which results in bankruptcy,not monopoly.

Monopolies are also temporary—again, unless government assists—sothe predator’s monopoly would disap-pear as other companies saw an oppor-tunity to undercut a high monopolyprice and still make a profit.69

A successful example of predatorypricing has never been proven, as theSupreme Court acknowledged in the1986 Matsushita Electric IndustrialCorp. v. Zenith Radio Corp. decision.70

Zenith, an American television setproducer, argued that 21 of its Japanesecompetitors, including Matsushita,colluded to earn monopoly profits inJapan to subsidize predatory pricing inthe U.S. market in order to driveAmerican companies out of business.A skeptical Supreme Court noted that

The only wayfor the predatorto keep apermanentmonopoly is topermanentlysell at a loss,which results inbankruptcy, notmonopoly.


“predatory pricing schemes are rarelytried, and even more rarely successful.”Though the Court declined to repealthe Robinson-Patman Act outright, itnoted that a “predatory pricingconspiracy is by nature speculative.”71

It is possible that a company withsome outside revenue from anotherline of business could subsidize itspredation enough to succeed, butmonopolizing one market in this fashioncomes at the cost of becoming lesscompetitive in another market. Such acompany would not benefit on net, asits profits in one market are negated bylosses in another.

As Nobel Prize-winning economistGeorge Stigler argued in a lecture fiveyears beforeMatsushita, economistsare far more knowledgeable about howcompetition works than they werewhen the Sherman Act passed in 1890:

The content and power ofcompetition have become muchbetter understood after severalgenerations of far-ranging debateabout monopolistic and imperfectcompetition and oligopoly—aword unknown to the professionin 1890. Consider one smallexample: The earlier literature ofpredatory competition had thepredator cut prices in the vicinityof the prey and raise priceselsewhere to recoup the loss.Today it would be embarrassingto encounter this argument

[that predatory pricing is amonopolizing device] inprofessional discourse.72

Predatory pricing is especially difficultto achieve in the tech sector. Many appsand games, social media, and cloudstorage services are available free ofcharge—a difficult price to undercut.They are supported instead byadvertising or other revenue sources.This opens up additional competitiveopportunities. If companies cannotcompete on money prices, they cancompete on other features, such asoffering fewer or less intrusiveadvertisements for a small fee.This type of undercutting is pureconsumer benefit.

Even operating systems, which used tocost hundreds of dollars for updatesback in the days of Windows 95,are now typically updated for free.Android, the most popular mobileoperating system as of this writing, isavailable for free to phone and tabletmanufacturers, who are also free tocustomize it for their devices.

Not only do attempts at predatorypricing usually fail, antitrust remediescan harm consumers.

5: Price DiscriminationPrice discrimination involves sellingthe same good to different people atdifferent prices. The Robinson-PatmanAct is the primary statute regulatingthe practice. As Robert Bork put it,

Not only doattempts atpredatory

pricing usuallyfail, antitrust

remediescan harm

consumers.


“One often hears of the baseballplayer who, although a weak hitter,was also a poor fielder. Robinson-Patman is a little like that. Althoughit does not prevent much pricediscrimination, at least it has stifleda great deal of competition.”73

In a colorful example of pricediscrimination, Burger King ran atemporary promotion in December2018 to sell Whoppers for a penny—but only to customers who used itssmartphone app to order while within600 feet of a McDonald’s location.74

Burger King’s goal was to encouragecustomers to download its relaunchedapp and order online—and yes, to trollits competitor for a laugh. The pennyWhopper promotion was a way forBurger King to persuade customersnot just to download the app, but toassociate Burger King with onlineordering. Down the road, this pricediscriminating provision can saveBurger King future labor costs andstaff time in taking orders, whilereducing error rates.

Other examples of price discriminationinclude quantity discounts for buyingin bulk, putting products temporarilyon sale, membership programs, orstore-specific credit cards offeringdiscounts or benefits such as pointsprograms or frequent flier miles. Someclubs, restaurants, or theaters willcharge different prices to membersand non-members, or sell seasontickets at a special rate.

In 1998, the American BooksellersAssociation and a number of otherindependent booksellers filed antitrustlawsuits against the superstoresBorders and Barnes & Noble forreceiving not just volume discounts,but other favorable terms, such asspecial promotional treatment frompublishers—non-money pricediscrimination.75 Borders is nowbankrupt and Barnes & Noble isstruggling to remain competitivedespite such favorable treatment, so itis unlikely the antitrust case wouldhave helped competition had itsucceeded. However, it would havegiven special government treatment toindividual competitors. This is oftenthe result of antitrust regulation, if notits intention.

In a twist of fate no regulatorpredicted, independent booksellers areenjoying something of a renaissancewithout any antitrust assistance.76

Many stores are even benefiting fromAmazon’s dominance. Amazon allowsindependent booksellers to useAmazon’s website to list and sellbooks (and nearly any other product),and can even handle order fulfillment.77

The stores benefit from gaining accessto a global customer base, and Amazonbenefits from both a cut of the salesand enhancing its desired reputation asa place to buy just about anything.Even individuals who do not own aphysical store or do not want to gothrough the regulatory hurdles of

Independentbooksellersare enjoyingsomething of arenaissancewithout anyantitrustassistance.


establishing one can take advantage ofthis policy, enabling even the smallestof competitors to enter the market andbenefit consumers. Many of thosecustomers will take advantage ofAmazon’s Prime program, a form ofprice discrimination for shipping costs.

As with other items in this TerribleTen list, there is considerableuncertainty as to which forms of pricediscrimination are punishable andwhich are not. Regulators may drawthe line wherever they choose at anytime. Fortunately, policy makers havemostly realized that Robinson-Patmanis unworkable, and it is unenforced.Consumers and businesses would gainpeace of mind from its repeal.

6. Manufacturer Price Restraintson RetailersResale price maintenance agreementsrequire retailers to sell a product at orabove some minimum price set by themanufacturer. They were made illegalon a per se basis by the SupremeCourt’s 1911 Dr. Miles decision.78

The Supreme Court expressedsqueamishness about such a severeprohibition, but upheld it for morethan five decades, most famously inthe 1967 Schwinn decision.79 In thiscase, the Court ruled against Schwinnfor putting territorial restrictions onwhere its distributors could sell itsbicycles to retailers, thus limitingcompetition in a given area. The

decision notes that Schwinn’s marketshare had declined from 22 percent in1951 to 12.8 percent in 1961. Adecade later the Court reversedSchwinn in the Sylvania case betweenSylvania, a television manufacturer,and Continental Television, a Californiaretailer that took issue with Sylvania’ssales policies. Continental, whichalready sold Sylvania televisions inSan Francisco, wanted to expand itssales to Sacramento. Sylvania alreadyhad deals with Sacramento stores, andrefused to allow Continental to sell itstelevisions there. The Court ruled inSylvania’s favor.80

Price maintenance agreements havesince proven to be a valuable pro-consumer tool, and regulators havemostly left them alone since Sylvania.Retailers who are unable to competeon money prices compete instead onnon-money price factors such as qualityof service. Manufacturers who requireretailers to sell at a minimum markupmay have a reason for requiring acertain minimum price. Some of thatextra margin might be spent onmarketing or displays, certificationprograms for repair technicians, or tocover warranty costs. A retailer that isable to maintain an extranormal profitmargin has an incentive to display thehigh-margin product more prominentlythan lower-margin competitors orotherwise give it favorable treatment.This gives those disadvantagedcompetitors an incentive to become

Pricemaintenanceagreementshave proven

to be avaluable

pro-consumertool.


more competitive on some mix ofmoney prices and non-money features,all to consumers’ benefit.

The retailer also avoids a potentialfree-rider problem. With a resale priceagreement, consumers could go to onestore that offers non-price benefitssuch as knowledgeable sales staff andhands-on product demonstrations, thenleave and buy the same product forless from a no-frills competitor. Thistype of short-term gain results in long-term consumer harm. Firms quicklywise up to what is happening, and gainan incentive to do away with non-price benefits. Consumers would thenhave less information available andfewer shopping choices.

Online shopping makes it easier thanever for consumers to free-ride onbrick-and-mortar stores’ non-pricebenefits while buying online instead.For products requiring online sellersto preserve some minimum resaleprice, they must offer similar non-pricebenefits as brick-and-mortar retailers.Amazon, where possible, allowscustomers to peek inside books thesame as they would at a bookstore,without charge. It also relies oncustomer reviews to give credibleassurances of product quality, free ofcharge. Google and services such asConsumer Reports and Yelp also offerreviews for products, stores, restaurants,hotels, and more. If this independentmodel becomes the dominant model

for informing consumers, it may evenspell a market-derived end for retailprice maintenance.81

Traditional retailers are also beefingup their online operations as acompetitive response—anotherconsumer benefit partly attributable toresale price maintenance agreements.

Returning to a pre-Sylvania approachto resale price agreements could makealmost all marketing advertisingactivities by retailers technicallyillegal. Advertising costs money andeats into profit margins. Even low-margin retailers, such as grocers,engage in extensive advertising, suchas in weekly circulars and localtelevision commercials. Retailersoften pay for this pro-competitivebehavior by charging higher prices.

The Schwinn decision has beenroundly criticized by Bork, RichardPosner, Dominick Armentano, andother antitrust scholars, and generallyenjoys a poor reputation in the legalcommunity.82 It is unlikely any judgewould reinstate it. But the extent ofregulatory restrictions of some non-price competition would be a matterof discretion. This would causeuncertainty among affected businessesand have a chilling effect oncompetition and innovation.

7: Exclusive DealingExclusive dealing involves a selleragreeing to sell products exclusively

Traditionalretailers arebeefing uptheir onlineoperations asa competitiveresponse.


from a certain supplier. Examplesinclude car dealerships, restaurantsthat serve Coca-Cola but not Pepsi, ormusicians who exclusively use acertain brand of instrument on stage.An exclusive arrangement can provideimportant benefits to manufacturers,retailers, and consumers. Amanufacturer gains some ability tomake long-term decisions regardinghow much product to make. Retailersgain specialized knowledge of theproduct, making them moreknowledgeable and effective sellers.Consumers benefit from this addedsales expertise when makingpurchasing decisions.

Exclusive dealing has been prosecutedat various points under Section 3 ofthe Clayton Act, Section 1 of theSherman Act, and Section 5 of theFederal Trade Commission Act.83

Exclusive dealing still exists in theeconomy because regulators wiselydecline to enforce the letter of the law.Repealing those provisions wouldremove uncertainty surroundingpotentially pro-consumer businesspractices.

A classic exclusive dealing case isthe 1922 Standard Fashion Co. v.Magrane-Houston Co. decision.Standard Fashion was a clothingmanufacturer that required some of itsretailers to sell its designs exclusively.Magrane-Houston was one of those

retailers, and Standard Fashion sued itwhen Magrane-Houston violated theiragreement. The Court sided withMagrane-Houston, and declared theexclusive contract invalid underSection 3 of the Clayton Act.84

There are several issues in play here.As Bork points out, Magrane-Houston’sexclusive contract was a two-year dealthat left the retailer free to pursue adifferent option upon its expiration.That is not much of a restraint.85

In 2010, there was a court case overthe National Football League (NFL)giving Reebok exclusive rights to selllicensed team jerseys (the league hassince moved to an exclusive deal withNike). It ended in a settlement withthe NFL paying American Needle, anapparel manufacturer disadvantagedby the exclusive Reebok deal, so itremains an open legal question ofwhether, for antitrust purposes, asports league is a single businessentity or whether each team in theleague is a separate entity.86

Franchising is another example ofexclusive dealing promotingcompetition. Opening a restaurant andkeeping it afloat is difficult. A smallentrepreneur can benefit by being ableto put a nationally known brand on thesign outside, backed by nationalmarketing, with the menu andingredients already taken care of andalready popular. Other facets of

An exclusivearrangementcan provideimportantbenefits to

manufacturers,retailers, andconsumers.


running a business, such as payrolland bookkeeping, are oftenstandardized or outsourced altogether,saving further hassle and expense.Thousands of small entrepreneurs areable to make a living and thrive thanksto this franchising model. Meanwhile,the parent company benefits from thefranchising fees, and from sellingingredients and supplies to itsfranchisees. And many of theefficiency gains from marketing tofood costs mean lower prices forconsumers.

At the same time, companies shouldbe free to embrace or reject franchisingas they see fit. Many American stategovernments all but forbid carmanufacturers from selling directly toconsumers, for purely political rea-sons. Car dealer franchisees have cap-tured regulators, who protectincumbent dealerships by requiringcarmakers to use theirservices.87 Tesla, an electric carmanufacturer, has decided to selldirect-to-consumer in some placesanyway, and has angered incumbentcar dealers.88 In March 2019, Teslaannounced it would be closing manyof its self-owned dealerships, butwould keep some locations open toserve as showrooms or promotionalcenters. Rather than embrace thetraditional franchise model, it wouldtransition to online sales.89

One business model is not inherentlybetter than the other. That is for

businesses and consumers to find outover time.90 Antitrust regulators do nothave their own money at stake oversuch decisions; they neither profitfrom making the right decision norlose by making the wrong one. There-fore, they have little incentive to makea decision based on economic effi-ciency and are vulnerable topolitical pressure, including fromrent-seeking parties.

8: Tying or BundlingTying or bundling is selling two ormore products together, but notseparately. Courts have frowned uponthe practice since the Supreme Court’s1912 A.B. Dick decision, whichinvolved a maker of shoe-buttoningmachines that required its customersto also use its shoe-buttoning wire.91

More famously, the 1917 MotionPicture Patents decision found againsta film projector company that requiredthat only movies authorized by theprojector company be screened on itsprojectors.92 A 1936 Supreme Courtcase involved IBM requiringcustomers to exclusively use itspunch cards with its machines. TheCourt decided that while IBM couldimpose standard specifications forcompatible punch cards, it could notprevent other companies from makingthe cards or prevent customers fromusing them.93 Tying was also at theheart of the Microsoft case, the lastmajor case regulators have brought.

Companiesshould be freeto embraceor rejectfranchisingas they see fit.


Determining which products are fit tobe tied and which are not is more amatter of metaphysics than soundpolicy analysis. Left and right shoesare always sold as a pair. A car’s tiresand sound system are almost alwaysincluded in the sale. Transactions likethese are allowed by regulators withoutcontroversy, though technicallyprosecutable—another instance ofdiscretion by regulators creating un-certainty.

In the 1990s, the Justice Departmenttried to prosecute Microsoft for tyingits Internet Explorer Web browser, freeof charge, to its Windows operatingsystem, while not selling a differentversion of Windows without thebrowser. The European Union’s caseagainst Google similarly involvestying its apps to the company’sAndroid operating system—that is,including it at no additional cost(Android is available for free todevelopers).94

Another problem is ease of exit.Internet Explorer could easily be usedto download its direct competitors.This is exactly what happened;Internet Explorer was overtaken in themarketplace by Firefox and Google’sChrome browser. Apple’s Safaribrowser is also popular with Macintoshand iOS users. Microsoft tried replacingInternet Explorer with Microsoft Edgebut has now conceded defeat and willuse Google’s free Chromium software

as a basis for future Edge browsers.95

Edge remains tied to Windows andlittle used, hardly the threat antitrustregulators made Internet Explorerout to be.

9: Strategic Predatory BehaviorThis is often used simply a catchallterm for competitive behavior thatantitrust regulators dislike. Everybusiness, big or small, tries to growand gain or preserve market share.Naturally, this would come atcompetitors’ expense.

Trying to undercut rivals’ profitabilityis the very essence of businesscompetition. But recently, theordinary competitive market behaviorof causing one’s rivals to face highercosts has spawned a veritable academicindustry devoted to identifyingcompetitive strategies as means ofmonopolization.

For example, in her 2012 book CaptiveAudience: The Telecom Industry andMonopoly Power in the New GildedAge, Harvard law professor SusanCrawford argues:

The absence of any effectiveregulatory regime or oversightover the cable giant makes itunlikely that Netflix will ever beable to challenge Comcast.Comcast has a number of optionsthat will make it extremelydifficult for independently

Determiningwhich products

are fit to betied and whichare not is more

a matter ofmetaphysicsthan sound

policy analysis.


provided, directly competitiveprofessional online video tochallenge its dominance.96

Yet, within a year of the publicationof Crawford’s book, Netflix beganproducing original content, aninnovation she did not foresee.97 Asof 2019, Netflix is alive and well, andComcast is the one shifting itsbusiness model to match changingconsumer tastes. A June 2018 coverstory in The Economist sums upthe matter:

This year [Netflix’s] entertainmentoutput will far exceed that of anyTV network; its production ofover 80 feature films is far largerthan any Hollywood studio’s.Netflix will spend $12bn-13bn oncontent this year, $3bn-4bn morethan last year. That extra spendingalone would be enough to pay forall of HBO’s programming—orthe BBC’s.98

There is a case of strategic behaviorthat appears similar to predatory pricing.Rather than a firm lowering its prices,this involves a firm seeking to raise itsrivals’ costs. As George MasonUniversity economist DonaldBoudreaux points out:

All methods of raising rivals’costs depend on the ability of apredator to secure contracts thatexclude its rivals. Such a result

requires that the predator’s rivalsand its suppliers remain ignorantabout its intentions.99

This is a difficult task. Employeesoften move from firm to firm in anindustry, whether horizontally to arival or vertically through the supplychain, taking knowledge of predatoryplans with them. A disgruntledemployee might leak damaginginformation to the press or acompetitor. Trade shows, publicityevents, or even informal socializingprovide regular opportunities forloose lips to accidentally sink acompany’s ships.

10: Exploiting TechnologicalLock-InCompanies can use technologicallock-in to keep customers from fleeingto better alternatives. The famousexample of technological lock-in isthe QWERTY keyboard. As it turnsout, QWERTY keyboards are just asefficient as Dvorak and otheralternatives.100 The handwringingover the VHS-Betamax wars wentaway when DVDs became popular,which have since been superseded bystreaming video. Same with theprogression of music being played on78 RPM, then 45 RPM, and then33 RPM records, 8-tracks, cassettes,CDs, MP3 players, and now streamingservices such as Spotify. A lock-in

Employeesoften movefrom firm tofirm in anindustry, takingknowledge ofpredatory planswith them.


example currently in antitrustcrosshairs is the Internet browsermarket. This is in addition to the tyingallegations brought by EuropeanUnion regulators addressed earlierin this paper.

Here is where the lock-in issue comesin for browsers: Life is much easierwhen all of your passwords and otherinformation are stored in your browserand entered automatically when needed.Logging into a website or buyingsomething online can be almostseamless. But in theory, thisconvenience also makes consumersreluctant to switch to a competingbrowser, even if it offers a better userexperience. This reticence can lockconsumers into an inferior technology,reducing competition and the incentiveto innovate, but that is a problemgrounded in consumer behavior thatgovernment is ill equipped to address.

Even so, the title of most popularbrowser has shifted at least three timesover the past 20 years. Netscape gaveway to Internet Explorer, then Firefox,and now Chrome, which could beeclipsed at any time. The older browsersremain freely available for anyonewho wants to use them; apparentlyfew people do. Apple’s Safari browseris also in the mix, along with numerousindependent and open source browsers,such as Opera. There are also stand-alone programs such as LastPass thatcan store passwords, credit card

numbers, and other information andwork with multiple browsers and otherapplications. A product called aYubiKey reduces the need forpasswords altogether while serving asan additional security layer.101 Facialrecognition is another option forreplacing passwords. If there is athreat of lock-in, it is via regulation,not markets.

ConclusionAntitrust regulation began as a populistreaction against big business andindustrial concentration. Yet, it hasproven ineffective at countering theperceive threat of bigness in business,while causing considerable harm toconsumers, competition, and innovation.Moreover, many antitrust policies arebased on faulty arguments that bearlittle relation to how real-world marketswork. And throughout its history, U.S.antitrust law has created considerableuncertainty for businesses, as federalantitrust enforcers have tried differentregulatory approaches over the last130 years.

The “rule of reason” standard, whichhad no set criteria, became the standardfor enforcing actions from fines to jailterms to firm breakups. During theNew Deal, government policy turnedin the opposite direction and activelyencouraged cartel behavior. After apostwar change of heart, antitrustenforcement reached its peak in the

Many antitrustpolicies arebased on faultyargumentsthat bear littlerelation to howreal-worldmarkets work.


1950s and early 1960s. Around thistime, economists’ arguments slowlyearned mainstream acceptance in thelegal profession. By the 1980s, aChicago-style consumer welfare hadbecome the dominant enforcementstandard, and has remained so up to thepresent day. However, the combinationof a populist presidential administrationwith a growing Neo-Brandeisianantitrust movement on the progressiveside threaten to revert antitrust policyto something closer to an arbitrary ruleof reason standard, which creates thepotential for a sharp upswing inenforcement actions against large orpolitically disfavored firms.

While the Chicago school and theNeo-Brandeisians prefer differentlevels of antitrust enforcement, bothbelieve that antitrust regulation is aneffective tool for managing competitivemarket processes. In this, both are inerror, for a number of reasons.

First, competition is a spectrum, not anon/off switch. That makes it difficult toset predictable standards that companiescan work to avoid violating andplan around.

Second, regulators are prone to fall forthe relevant market fallacy, in which acompany appears to dominate anarrowly defined market but has littlepower in the larger market in which itactually competes.

Third, antitrust enforcement standardsare so broad that they are useless as a

guide to permissible behavior.Allowable behavior changes with thepolitical winds. Cases, especiallymajor ones, are sometimes prosecutedfor publicity rather than merit.

Fourth, antitrust regulation creates rent-seeking opportunities for companiesseeking favors from government toharm competitors. As a result, antitrustregulation, as actually practiced, hasdone far more to stifle competitionthan to protect it or promote it.

Finally, antitrust regulation takes ashort-term approach to a long-termcompetitive process. The IBM casewas in play for a dozen years beforethe government dropped the case. Bythat time, the technology at the heartof the case had changed and IBM’scompetitive position had declined. Acase against one of the FAANGcompanies would likely have similarcompetitive relevance by the time amajor trial would be decided.

As noted, antitrust regulation harmscompetition, consumers, and innovation,and therefore should be repealed.Congress should repeal the ShermanAct of 1890, the Clayton Act of 1914,and the Federal Trade CommissionAct of 1914, as amended, includingthe Celler-Kefauver Act of 1950 andthe Hart-Scott-Rodino Act of 1976. Amarket-based approach to competitionwould enable more powerful marketregulation to replace flawedgovernment regulation. This would

Antitrustregulationtakes ashort-termapproach toa long-termcompetitiveprocess.


reduce regulatory uncertainty and itschilling effects on innovation, reducerent-seeking, and do away with theneed for intellectual rabbit holes suchas defining relevant markets orpermissible levels of firm size ormarket share.

Aggressive antitrust enforcementcan create considerable economicuncertainty, which can have a chillingeffect on long term investment andinnovation in both products and inbusiness practices that could benefitconsumers. Consumers and competition

would greatly benefit from the repealof antitrust regulations regardingrestraint of trade and monopolization,horizontal and vertical mergers,collusion such as price fixing andmarket division, predatory pricing,price discrimination, minimum resaleprices, exclusive dealing, tying andbundling, strategic predatory behavior,and technological lock-in. As theeconomy becomes more high-tech,specialized, and global, antitrust policiesformed in the smokestack era arebecoming progressively less relevant.

NOTES1 Irwin M. Stelzer, “The FAANGs (Facebook, Apple, Amazon, Netflix, and Alphabet) have real problems,”Weekly Standard,

November 24, 2018,https://www.weeklystandard.com/irwin-m-stelzer/facebook-apple-amazon-netflix-and-google-may-get-government-regulation.

2 Facebook news feeds and Google search results often contain news stories critical of the president. Amazon founder Jeff Bezosowns The Washington Post, which President Trump has often criticized for covering him unfavorably. Amazon is a separateentity from the Post. Brian Fung, “Facebook, Google and Amazon are all being looked at for antitrust violations, Trump says,”San Jose Mercury News, November 5, 2018,https://www.mercurynews.com/2018/11/05/amazon-facebook-and-google-are-all-being-looked-at-for-antitrust-violations-trump-says/.

3 Diane Bartz and David Shepardson, “U.S. Justice Department will not appeal AT&T, Time Warner merger after court loss,”Reuters, February 27\6, 2019, https://www.reuters.com/article/us-timewarner-m-a-at-t/us-justice-department-will-not-appeal-att-time-warner-merger-after-court-loss-idUSKCN1QF1XB.

4 TimWu, “Antitrust’s Most Wanted: The 10 cases the government should be investigating—but isn’t,” Medium, December 6, 2018,https://medium.com/s/story/antitrusts-most-wanted-6c05388bdfb7.

5 Carolyn Said, “Uber Hit with Antitrust Suit 3 years after Former Competitor Sidecar Went Bust,” San Francisco Chronicle,December 11, 2018,https://www.sfchronicle.com/business/article/Uber-hit-with-antitrust-suit-3-years-after-former-13458383.php.

6 Jennifer Armstrong, “Drafting Franchise Agreements to Avoid Antitrust “Lock-In” Tying Lawsuits,” McDonald HopkinsInsights, October 31, 2017,https://mcdonaldhopkins.com/Insights/Blog/Industry-Insights/2017/10/31/Drafting-franchise-agreements-to-avoid-antitrust-lock-in-tying-lawsuits.

7 Foo Yun Chee, “Europe Hits Google with Record $5 Billion Antitrust Fine, Appeal Ahead,” Reuters, July 18, 2018,https://www.reuters.com/article/us-eu-google-antitrust/europe-hits-google-with-record-5-billion-antitrust-fine-appeal-ahead-idUSKBN1K80U8.

8 Nat Levy, “Amazon spent close to $23B on R&D in 2017, outpacing fellow tech giants,” Geekwire, April 9, 2018,https://www.geekwire.com/2018/amazon-spent-close-23b-rd-2017-outpacing-fellow-tech-giants/.

9 Joshua Wright, “Requiem for a Paradox: The Dubious Rise and Inevitable Fall of Hipster Antitrust,” working paper,September 19, 2018, forthcoming in the Arizona State Journal of Law, 2019,https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3309735&download=yes.

10 Iain Murray, “HowAntitrust Regulation Hinders Innovation and Competition Framing a Broken Debate,”WebMemo No. 46,Competitive Enterprise Institute, November 14, 2018,https://cei.org/content/how-antitrust-regulation-hinders-innovation-and-competition.

11 Thomas K. McCraw, Prophets of Regulation, (Cambridge, Massachusetts: Belknap Press of Harvard University Press, 1984), p. 109.12 For more on this early and enduring consensus, see George J. Stigler, “Monopolies,” in David R. Henderson, ed., Concise

Encyclopedia of Economics, (Indianapolis: Liberty Fund, 2008 [1993]), pp. 363-366, online athttps://www.econlib.org/library/Enc/Monopoly.html.

13 For examples of such monopolies, including a particularly brutal state-supported Portuguese spice monopoly, see William J.Bernstein, A Splendid Exchange: How Trade Shaped the World, (New York: Atlantic Monthly Press, 2008), pp. 168-216.

14 Joseph Schumpeter, Capitalism, Socialism, and Democracy, (New York: HarperPerennial Classics, 2008 [1942]). Ronald H.Coase, “Durability and Monopoly,” Journal of Law and Economics, Vol. 15, No. 1, April 1972, pp. 143, 149. Ludwig von Mises,Human Action: A Treatise on Economics, Fourth Revised Edition, (Irvington-on-Hudson, New York: Foundation for EconomicEducation, 1996 [1949]). Aaron Director published little. Instead he put his energy into teaching and mentorship. He also playeda large role in building the University of Chicago’s law and economics departments. His name remains well known amongantitrust scholars. Sam Peltzman, “Aaron Director’s Influence on Antitrust Policy,” The Journal of Law and Economics,Vol. 48, No. 2, October 2005, pp. 313-330.

15 University of Chicago Booth School of Business IGM Forum, “Antitrust and International Competition,” June 13, 2018,http://www.igmchicago.org/surveys/antitrust-and-international-competition-2.

16 James Pethokoukis, “‘The Curse of Bigness’: A long-read Q&Awith Tim Wu,” AEIdeas, American Enterprise Institute,February 14, 2019, https://www.aei.org/publication/the-curse-of-bigness-a-long-read-q-and-a-with-tim-wu/.

17 Richard A. Posner, Antitrust Law, Second Edition, (Chicago: University of Chicago Press, 2001). George J. Stigler, The Citizenand the State: Essays on Regulation, (Chicago: University of Chicago Press, 1975). Yale Brozen (David R. Henderson, foreword),“Is Government the Source of Monopoly? and Other Essays,” Paper No. 9, Cato Institute, 1980. Harold Demsetz, The Economicsof the Business Firm: Seven Critical Commentaries (Cambridge: Cambridge University Press, 1996). Sam Peltzman, PoliticalParticipation and Government Regulation, (Chicago: University of Chicago Press, 1998).

18 Robert Cooter and Thomas Ulen, Law and Economics, 6th Edition, (Berkeley, California: Berkeley Law Books, 2016),https://scholarship.law.berkeley.edu/books/2/.



19 Bartz and Shepardson. See also Jessica Melugin, “Court Rejects Antitrust Lawsuit against AT&T/TimeWarner Deal: CEIComment,” news release, Competitive Enterprise Institute, February 26, 2019,https://cei.org/content/court-rejects-antitrust-lawsuit-against-atttimewarner-deal-cei-comment.

20 The term “hipster antitrust” may have originated with former Senator Orrin Hatch (R-UT). Robinson Meyer, “How to FightAmazon (Before You Turn 29),” The Atlantic, July/August 2018,https://www.theatlantic.com/magazine/archive/2018/07/lina-khan-antitrust/561743/.

21 One can make a similar argument about the term “neoliberal,” which is also nearly always pejorative, and almost never used as aself-description. Phillip W. Magness, “What Does ‘Neoliberalism’ Really Mean?” Reason, January 2019, pp. 64-65,https://reason.com/archives/2018/12/30/what-does-neoliberalism-really.

22 Eric Johnson, “We have to rewrite antitrust law to deal with tech monopolies, says ‘Positive Populism’ author Steve Hilton,”Recode.net, October 24, 2018,https://www.recode.net/2018/10/24/18016832/steve-hilton-positive-populism-book-fox-news-monopoly-antitrust-kara-swisher-recode-decode-podcast.John Hawkins, “The Conservative Case for Breaking Up Monopolies Such as Google and Facebook,” National Review,https://www.nationalreview.com/2018/05/breaking-up-tech-giants-conservative-case/. May 16, 2018. Ned Ryun, “Break UpGoogle for the Public Good,” American Greatness, December 17, 2018, https://amgreatness.com/2018/12/17/break-up-google/.

23 Amy Hackney Blackwell, The Essential Dictionary of Law, (New York: Barnes and Noble books, 2004), p. 223.24 Wu, p. 31.25 Ibid. p. 32.26 Tim Wu, The Curse of Bigness: Antitrust in the New Gilded Age, (New York: Columbia Global Reports, 2018), p. 127.27 Ibid. p. 136.28 Ibid. p. 136.29 Harold Demsetz, “Information and Efficiency: Another Viewpoint,” The Journal of Law and Economics, Vol. 12, No. 1 (April

1969), pp. 1-22, https://www.jstor.org/stable/724977?seq=1#page_scan_tab_contents.30 Paul E. Godek, “Does the Tail Wag the Dog? Sixty Years of Government and Private Antitrust In the Federal Court,”

The Antitrust Source, December 2009, p. 2,https://www.americanbar.org/content/dam/aba/publishing/antitrust_source/Dec09_Godek12_17f.authcheckdam.pdf.

31 The Justice Department provides a quick explanation of the Herfindahl-Hirschman Index athttps://www.justice.gov/atr/herfindahl-hirschman-index.

32 U.S. Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines, updated August 19, 2010, p. 19,https://www.justice.gov/sites/default/files/atr/legacy/2010/08/19/hmg-2010.pdf.

33 Brown Shoe Co., Inc. v. United States, 370 U.S. 294 (1962),https://supreme.justia.com/cases/federal/us/370/294/. For market share data, see Robert H. Bork, The Antitrust Paradox: A Policyat War with Itself, (New York: Basic Books, 1978), p. 211.

34 United States v. Von’s Grocery Co., 384 U.S. 270 (1966), https://supreme.justia.com/cases/federal/us/384/270/.35 Bret Swanson, “Lessons from the AT&T break up, 30 years later,” AEIdeas, American Enterprise Institute, January 3, 2014,

http://www.aei.org/publication/lessons-att-break-30-years-later/.36 Bruce Yandle, “Bootleggers and Baptists: The Education of a Regulatory Economist,” Regulation, Vol. 7, No. 3 (May/June 1983)

American Enterprise Institute, republished by the Cato Institute, pp. 12-16,http://object.cato.org/sites/cato.org/files/serials/files/regulation/1983/5/v7n3-3.pdf. Adam C. Smith and Bruce Yandle, Bootleggersand Baptists: How Economic Forces and Moral Persuasion Interact to Shape Regulatory Politics (Washington: Cato Institute,2014).

37 Greg Miller, Ashley Dunn, and Jube Shiver, Jr., “Oracle Defends Its Spying on Microsoft as ‘Public Service,’” Los AngelesTimes, June 29, 2000, http://articles.latimes.com/2000/jun/29/business/fi-45932.

38 Timothy P. Carney, “How Hatch forced Microsoft to play K Street's game,”Washington Examiner, June 24, 2012,https://www.washingtonexaminer.com/carney-how-hatch-forced-microsoft-to-play-k-streets-game.

39 Rajiv Chandrasekaran and John Mintz, “Microsoft’s Window of Influence,”Washington Post, May 7, 1999,https://www.washingtonpost.com/archive/politics/1999/05/07/microsofts-window-of-influence/424f0b28-e86c-42cf-a4c8-cb2db173715d/?utm_term=.5501604f9863.

40 Bork, p. 311.41 A PDF scan of the original handwritten Sherman Act is online at

https://www.ourdocuments.gov/doc_large_image.php?flash=false&doc=51. Amore legible version is available athttp://www.stern.nyu.edu/networks/ShermanClaytonFTC_Acts.pdf.https://www.ourdocuments.gov/print_friendly.php?flash=false&page=&doc=51&title=Sherman+Anti-Trust+Act+%281890%29.

42 Sherman Act, 15 U.S.C., Section 1.43 Sherman Act, Section 2.


44 Some of the relevant literature is collected in McChesney and Shughart, The Causes and Consequences of Antitrust.45 W. Kip Viscusi, John M. Vernon, and Joseph E. Harrington, Jr., Economics of Regulation and Antitrust, Third Edition,

(Cambridge, Massachusetts: MIT Press, 2000), pp. 258-262.46 As Isabel Paterson wrote in The God of the Machine, “Standard Oil did not restrain trade; it went out to the ends of the earth to

make a market. Can the corporations be said to have ‘restrained trade’ when the trade they cater to had no existence until theyproduced and sold the goods?” Isabel Paterson, The God of the Machine (New Brunswick: Transaction Publishers, 1943;reprinted, 1999), p. 172.

47 Ida Tarbell, The History of the Standard Oil Company, (New York: Peter Smith, 1950), p. 385.48 Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911), https://supreme.justia.com/cases/federal/us/221/1/.49 Ralph and Muriel Hidy, Pioneering in Big Business, 1882-1911: History of the Standard oil Company (New Jersey) (New York:

Harper and Row, 1955), p. 289.50 Rule of reason standards are not unique in their arbitrary nature. For more on the subjectivity of much legal reasoning,

see Edward H. Levi, An Introduction to Legal Reasoning, (Chicago: University of Chicago Press, 1946).51 For an in-depth account and analysis of the Microsoft case, see Robert A. Levy, Shakedown: How Corporations, Government,

and Lawyers Abuse the Judicial Process, (Washington: Cato Institute, 2004), pp. 161-286.52 Kate Bachelder Odell, “It’s Not Too Late to Quit Social Media,”Wall Street Journal, January 25, 2019,

https://www.wsj.com/articles/its-not-too-late-to-quit-social-media-11548457601.53 Jacob Kastrenakes, “Facebook knows Facebook isn’t the future,” The Verge, March 7, 2019,

https://www.theverge.com/2019/3/7/18253547/facebook-zuckerberg-future-blog-post-redefining-reputation.54 Rani Molla, “Amazon spent nearly $23 billion on R&D last year—more than any other U.S. company,” Recode, April 9, 2018,

https://www.recode.net/2018/4/9/17204004/amazon-research-development-rd.55 Oliver E. Williamson, “Economics as an Antitrust Defense: The Welfare Tradeoffs,” American Economic Review, Vol. 58 (March

1968), pp. 18–36. See also Robert H. Bork, “The Consumer Welfare Model,” chap. 5 in The Antitrust Paradox, pp. 107-115.56 Dominick T. Armentano, “Drawing the Line on Mergers: An Action Bordering on the Incoherent,” New York Times, July 27,

1986, p. C2.57 Federal Trade Commission, “Staples, Inc. and Office Depot, Inc.,” Cases and Proceedings, April 10, 1997,

https://www.ftc.gov/enforcement/cases-proceedings/9710008/staples-inc-office-depot-inc.58 Renae Merle, “Federal judge blocks Staples’ $6.3 billion acquisition of Office Depot,” The Washington Post, May 10, 2016,

https://www.washingtonpost.com/news/business/wp/2016/05/10/federal-judge-blocks-staples-merger-with-office-depot/?utm_term=.40d89b6ec379.

59 Fred L. Smith Jr., “The Case for Reforming the Antitrust Regulations (If Repeal Is Not an Option),” Harvard Journal of Law andPublic Policy, Vol. 23, No. 1 (2000), pp. 101–136.

60 Marc Schneider, “SiriusXM Finalizes $3.5 Billion Purchase of Pandora,” Billboard, February 1, 2019,https://www.billboard.com/articles/business/8496108/siriusxm-finalizes-pandora-acquisition.

61 Diane Bartz, “Whole Foods, FTC settle on Wild Oats merger,” Reuters, March 6, 2009,https://www.reuters.com/article/us-wholefoods-ftc/whole-foods-ftc-settle-on-wild-oats-merger-idUSTRE5253AL20090306.

62 Nathaniel Meyersohn, “Amazon's grocery plans go way beyond Whole Foods,” CNN, March 4, 2019,https://www.cnn.com/2019/03/04/business/amazon-groceries-whole-foods/index.html.

63 Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, (New York: Modern Library, 1994 [1776]),p. 148. Immediately after, Smith cautions that, “though the law cannot hinder people of the same trade from sometimesassembling together, it ought to do nothing to facilitate such assemblies, much less to render them necessary.”

64 Richard A. Posner, Antitrust Law, Second Edition, (Chicago: University of Chicago Press, 2001), pp. 36-37.65 Peter Asch and Joseph J. Seneca, “Is Collusion Profitable?” Review of Economics and Statistics, Vol. 58, No. 1 (February 1976),

pp. 1-12, https://www.jstor.org/stable/pdf/1936003.pdf?seq=1#page_scan_tab_contents.66 For a history of airline deregulation, see Martha Derthick and Paul J. Quick, The Politics of Deregulation, (Washington: Brookings

Institution Press, 1985), pp. 147-206 and Thomas K. McCraw, Prophets of Regulation, (Cambridge, Massachusetts: BelknapPress of Harvard University Press, 1984), pp. 222-299.

67 Ajay Kumar Reddy Jammula, “The world’s biggest airlines in 2018,” Airport Technology, June 22, 2018,https://www.airport-technology.com/features/worlds-biggest-airlines-2018/.

68 Ryan Young, “Are Text Messages an Antitrust Issue?,” The American Spectator, March 7, 2011,https://cei.org/content/are-text-messages-antitrust-issue-0.

69 Donald J. Boudreaux and Andrew N. Kleit, “Cleaning Hands in Predation Cases: AModest Proposal to Improve Predatory-Pricing Suits,” Antitrust Reform Project, Competitive Enterprise Institute, October 1996, http://www.cei.org/pdf/1614.pdf.

70 Matsushita v. Zenith Radio Corp., 475 U.S. 574 (1986), https://supreme.justia.com/cases/federal/us/475/574/.71 Ernest Gellhorn, William E. Kovacic, and Stephen Calkins, Antitrust Law and Economics in a Nutshell, Fifth Edition, (St. Paul,

Minnesota: West, 2004), pp. 167-169.72 George J. Stigler, The Economist as Preacher and Other Essays (Chicago: University of Chicago Press, 1982), p. 52.


73 Bork, p. 382.74 Amelia Lucas, “Burger King sells Whoppers for a penny at McDonald's locations to promote its app,” CNBC.com, December 4,

2018, https://www.cnbc.com/2018/12/04/burger-king-sells-whoppers-for-a-penny-at-mcdonalds-locations.html.75 American Booksellers Association v. Barnes & Noble, Inc., 135 F. Supp. 2d 1031 (N.D. Cal. 2001),

https://law.justia.com/cases/federal/district-courts/FSupp2/135/1031/2503184/.76 Jake Blumgart, “Independent bookstores are coming back in Philly, across the U.S.,” Plan Philly, January 22, 2019,

http://planphilly.com/articles/2019/01/22/independent-bookstores-are-coming-back-in-philly-across-the-u-s.77 Jennifer Rankin, “Third-party sellers and Amazon—a double-edged sword in e-commerce,” The Guardian, June 23, 2015,

https://www.theguardian.com/technology/2015/jun/23/amazon-marketplace-third-party-seller-faustian-pact.78 Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911), https://supreme.justia.com/cases/federal/us/220/373/.79 United States v. Arnold, Schwinn & Co., 388 U.S. 365 (1967), https://supreme.justia.com/cases/federal/us/388/365/.90 Continental Television v. GTE Sylvania, 433 U.S. 36 (1977), https://supreme.justia.com/cases/federal/us/433/36/.81 Tim Wu argues that Google has stolen a significant number of reviews from Yelp, as Yelp has long argued. If true, Yelp may well

deserve compensation, but such a case would be an intellectual property issue, not an antitrust issue. Wu, pp. 125-126.82 In The Antitrust Paradox, Bork argues that “Neither here nor in any vertical restraint case did the Court ever explain why such

restraints are destructive of competition.” (p. 284). Posner notes that, “The government’s victory in Schwinn was Pyrrhic.Schwinn responded by terminating its independent distributors and opening its own distribution outlets, in other words, byintegrating forward into retailing.” (Antitrust Law, Second Edition, p. 188) Armentano writes, “The problem with Schwinn is thatthere had been no explicit recognition that territorial agreements that might decrease intrabrand competition, might also lead toan increase in interbrand competition.” (Antitrust and Monopoly, p. 224) Justice Lewis F. Powell, in the Sylvania decision, writesof Schwinn, “The great weight of scholarly opinion has been against the decision.” (pp. 47-48)

83 Bork, pp. 302-303.84 Standard Fashion Co. v. Magrane-Houston Co., 258 U.S. 346 (42 S.Ct. 360, 66 L.Ed. 653),

https://www.law.cornell.edu/supremecourt/text/258/346.85 Bork, pp. 305-307.86 American Needle, Inc. v. National Football League, 560 U.S. 183 (2010), https://supreme.justia.com/cases/federal/us/560/183/.87 Ryan Bourne, “Government and the Cost of Living: Income-Based vs. Cost-Based Approaches to Alleviating Poverty,” Policy

Analysis No. 847, Cato Institute, September 4, 2018, p. 14,https://www.cato.org/publications/policy-analysis/government-cost-living-income-based-vs-cost-based-approaches.

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89 Alexis Keenan, “Tesla’s move to close stores puts dealer franchise debate into spotlight,” Yahoo Finance, March 1, 2019,https://finance.yahoo.com/news/teslas-move-to-close-stores-puts-dealer-franchise-debate-into-spotlight-214547665.html.

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About the Authors

Clyde Wayne Crews, Jr. is Vice President for Policy at the Competitive Enterprise Institute (CEI). He is widelypublished and a contributor at Forbes.com. A frequent speaker, he has appeared at venues including the DVDAwards Showcase in Hollywood, European Commission–sponsored conferences, the National Academies, theSpanish Ministry of Justice, and the Future of Music Policy Summit. He has testified before Congress on variouspolicy issues. Crews has been cited in dozens of law reviews and journals. His work spans regulatory reform,antitrust and competition policy, safety and environmental issues, and various information-age policy concerns.

Alongside numerous studies and articles, Crews is co-editor of the booksWho Rules the Net? Internet Governanceand Jurisdiction, and Copy Fights: The Future of Intellectual Property in the Information Age. He is co-author ofWhat’s Yours Is Mine: Open Access and the Rise of Infrastructure Socialism, and a contributing author to otherbooks. He has written in theWall Street Journal, Chicago Tribune, Communications Lawyer, International HeraldTribune, and other publications. He has appeared on Fox News, CNN,ABC, CNBC, and the PBS News Hour. Hispolicy proposals have been featured prominently in theWashington Post, Forbes, and Investor’s Business Daily.

Before coming to CEI, Crews was a scholar at the Cato Institute. Earlier, Crews was a legislative aide in the U.S.Senate, an economist at Citizens for a Sound Economy and the Food and DrugAdministration, and a fellow at theCenter for the Study of Public Choice at George Mason University. He holds a Master’s of BusinessAdministrationfrom the College of William and Mary and a Bachelor’s of Science from Lander College in Greenwood, SouthCarolina. While at Lander, he was a candidate for the South Carolina state senate. A dad of five, he can still do ahandstand on a skateboard and enjoys custom motorcycles.

Ryan Young is a Senior Fellow at the Competitive Enterprise Institute. His research focuses on regulatory reform,trade policy, antitrust regulation, and other issues. His writing has appeared inUSA Today, The Wall Street Journal,Politico, The Hill, Investor’s Business Daily, Forbes, Fortune, and dozens of other publications. He is a frequentguest on radio programs, has been interviewed by outlets including the Huffington Post and Voice ofAmerica, andhas been cited in media outlets including ABC News, CNN, and London’s City AM. He formerly hosted the CEIPodcast, and writes the popular “This Week in Ridiculous Regulations” series for CEI’s blog, OpenMarket.

Young holds an M.A. in economics from George Mason University in Fairfax, Virginia, and a B.A. in history fromLawrence University inAppleton, Wisconsin. He was previously CEI’s 2009-2010Warren T. Brookes JournalismFellow. Before joining CEI, he worked in the Cato Institute’s government affairs department. His personal blog isInertia Wins.

This paper is in part an update of a 2001 paper by Clyde Wayne Crews, “The Antitrust Terrible Ten: Why theMost Reviled ‘Anti-competitve’ Business Practices Can Benefit Consumers in the New Economy,” PolicyAnalysis No. 405, Cato Institute, June 28, 2001,https://www.cato.org/publications/policy-analysis/antitrust-terrible-10-why-most-reviled-anticompetitive-business-practices-can-benefit-consumers-new-economy.

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barriers to economic freedom, innovation, and prosperity through timely analysis, effective advocacy, inclusive coalition-

building, and strategic litigation.

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