By: Oliver Goldman
Edited by: Alexandre Brunet and Sophia Chang
The passage of the Sherman Antitrust Act in 1890 marked the beginning of antitrust law in the United States. This law was enacted in direct response to monopolistic business practices that emerged in the late nineteenth century. As a way to solidify market control in the new industrialized world, firms within the same industry began to organize themselves into trusts –– for example, The Standard Oil Trust formed in 1882 –– wherein a single group of trustees was placed in charge of all the component companies, which then enabled one monopolistic entity, the trust, to dominate entire industries.[1]
Besides the Sherman Act, there are currently two other major federal antitrust laws: the Clayton Antitrust Act of 1914 and the Federal Trade Commission (FTC) Act of 1914. Together, these three laws are supposed to function to protect a freely competitive market and ensure that consumers have access to low prices and new and better products.[2] Today, however, these century-old regulations are failing to adequately protect small businesses and consumers from the monopolies of the twenty-first century. Big businesses, such as Amazon, Google, Meta, and AT&T, exert control over and collectively possess an outsized share of the American economy. Three companies control close to 80 percent of the mobile telecommunications industry.[3] Amazon alone controls more than 40 percent of e-commerce sales.[4] Meanwhile, Apple controls more than 50 percent of the US smartphone market share.[5]
As Nobel Prize-winning economist and Columbia University professor Joseph Stiglitz wrote in 2017, “[s]ome century and a quarter ago, America was, in some ways, at a similar juncture.” The current landscape, though, is importantly different and precarious.
In recent decades, antitrust litigation has centered around consumer harm, “with strong presumptions that the market was in fact naturally competitive,” Stiglitz wrote. These presumptions have made it “almost impossible” to bring successful predatory pricing cases, as the theory went that new firms would inevitably enter the marketplace if existing firms attempted to raise prices above costs, thus restoring competition. In practice, this has not been the case. Big firms have been successful in concentrating their market power, as well as in raising their prices relative to costs, in turn lowering consumers’ standard of living, decreasing workers’ wages, and creating difficult terrain for new and small businesses.
These dynamics are due to what Stiglitz describes as “new antitrust standards that made the creation, abuse, and leveraging of market power easier” in the evolving modern economy.[6] These standards can be seen by looking at the history of American antitrust policy over the course of four cycles, as explained by Maurice Stucke and Ariel Ezrachi in The Harvard Business Review.
The first cycle was the previously-discussed period from 1900-1920, characterized by the creation of antitrust law and the promise of reform to break up and prevent future versions of monopolistic trusts like Standard Oil.
Stucke and Ezrachi define the second cycle as the period from the 1920s to the 1930s, during the early New Deal, when “antitrust activity was rare since administrations generally preferred industry-government cooperation over robust antitrust enforcement.” In other words, the US government relaxed antitrust laws in order to facilitate industrial and commercial cooperation to serve the interest of public welfare.
The third cycle––”the golden era of antitrust”––was marked by antitrust becoming closely associated with the ideals of economic and political freedom. In response to fascism and communism abroad, the United States believed in the power of competition in “dispersing economic and political power from the hands of a few” and creating “greater opportunities to compete, improve, and win.” During this period, between the 1940s and the late 1970s, robust antitrust policy became seen as a condition necessary for effective competition. In creating these conditions, Congress amended the Clayton Act of 1914 to enable government agencies and courts the power to break the dynamic force of concentration “before it gathered momentum.” The Supreme Court upheld this change in 1962, when it ruled in Brown Shoe Co., Inc. v. United States that the merger of two shoe companies tended to “create a monopoly in the production, distribution and sale of shoes” and stood in violation of the Clayton Act.[7]
During the third cycle, the Department of Justice (DOJ) also wielded the Sherman Act to prosecute “unreasonable restraints of trade and monopolistic abuses.” In 1958, in Northern Pacific R. Co. v. United States, a district judge ruled that the Northern Pacific Railroad Company’s “preferential routing” agreements constituted “unreasonable restraints of trade” under Section 1 of the Act.[8] These litigation efforts signaled the “shaking off [of antitrust enforcement] inactivity that had characterized the early New Deal period.”
According to Stucke and Ezrachi, however, the fourth cycle, the period they identify as the late-1970s to the mid-2010s, saw the re-contraction of antitrust enforcement due to the emergence of the Chicago and post-Chicago Schools’ neoclassical economic theories. These theories assumed that markets would “self-correct” and concerned themselves less with antitrust enforcement as a necessary condition to make competition effective. Instead, they side-stepped historic concerns about thwarting concentration in industries in favor of the “prospect of future efficiencies and innovation.” In general, the fourth cycle was defined by the ideology of letting market forces naturally correct themselves and letting antitrust take a backseat role in regulating markets.[9]
Over the last few decades, the anti-monopoly movement has been renewed in litigation efforts, but with little success given the inefficacy of the enforcement mechanisms in place. There have been numerous cases brought to confront certain companies’ monopolistic market behavior, starting with The United States of America v. Microsoft Corporation in 1998. In the case, the DOJ and the attorneys general of 20 other states charged that Microsoft’s “bundling of additional programs into its operating system constituted monopolistic actions” and stood in violation of antitrust law.[10] The suit was brought in the aftermath of the downfall of Microsoft’s top competitor, Netscape, as well as the beginning of Microsoft giving away access to its browser services for free. In the end, after a long appeals process, Microsoft reached a settlement with the DOJ that included the DOJ abandoning their goal to break up the company.
This case set an important precedent in antitrust litigation, showing how long, arduous, and unsuccessful lawsuits against modern-day tech monopolies can be. Since then, the DOJ has experienced bouts of success in litigating firms, such as Visa in November 2020.[11] But the problem remains that the current American antitrust framework is simply not equipped to check the structure and scope of modern-day behemoths.
Particularly when it comes to dismantling tech firms, existing antitrust proves to be antiquated. Current statutes, even with their evolution during parts of the twentieth century, view antitrust through the narrow lens of harm to the consumer. As Zachary Karabell notes, that creates a problem for litigation efforts “because the companies give away many of their products for free and can argue in other cases they lower prices.”[12]
It is clear that the American antitrust framework needs to be updated and expanded according to the still-evolving modern economy. For the sake of protecting small businesses and consumers, as well as protecting the general democratic ideal of free and competitive markets, the rules of the American economy need to be rewritten, starting with antitrust law.
Notes:
“Our Documents - Sherman Anti-Trust Act (1890)” (U.S. Department of Justice), 6.
“Antitrust Enforcement and the Consumer” (Justice Department, 2021).
Blake Droesch, “Amazon Dominates US Ecommerce, Though Its Market Share Varies by Category” (2021).
“US Smartphone Market Share: By Quarter” (Counterpoint Research, 2021).
Joseph Stiglitz, “America Has a Monopoly Problem—and It’s Huge” (Roosevelt Institute, 2017).
“Brown Shoe Co., Inc. v. United States, 370 U.S. 294 (1962)” (Justia Law).
“Northern Pacific R. Co. v. United States , 356 U.S. 1 (1958)” (Justia Law).
Maurice E. Stucke, and Ariel Ezrachi, “The Rise, Fall, and Rebirth of the U.S. Antitrust Movement” (Harvard Business Review, 2017).
Andrew Beattie, “Why Did Microsoft Face Antitrust Charges in 1998?” (Investopedia, 2021).
Kelly Anne Smith, “What’s Going On With The Facebook Antitrust Lawsuit?” (Forbes Advisor, 2021).
Zachary Karabell, “What the EU Gets Right—and the US Gets Wrong—About Antitrust.” (Wired, 2020).
Bibliography:
Beattie, Andrew. 2021. “Why Did Microsoft Face Antitrust Charges in 1998?” Investopedia. October 25, 2021. https://www.investopedia.com/ask/answers/08/microsoft-antitrust.asp.
“Brown Shoe Co., Inc. v. United States, 370 U.S. 294 (1962).” n.d. Justia Law. Accessed November 16, 2021. https://supreme.justia.com/cases/federal/us/370/294/.
Droesch, Blake. 2021. “Amazon Dominates US Ecommerce, Though Its Market Share Varies by Category.” Insider Intelligence. April 27, 2021. https://www.emarketer.com/content/amazon-dominates-us-ecommerce-though-its-market-share-varies-by-category.
Karabell, Zachary. 2020. “What the EU Gets Right—and the US Gets Wrong—About Antitrust.” Wired. November 21, 2020. https://www.wired.com/story/what-eu-gets-right-us-wrong-antitrust/.
Mauldin, John. 2019. “America Has A Monopoly Problem.” Forbes. April 11, 2019. https://www.forbes.com/sites/johnmauldin/2019/04/11/america-has-a-monopoly-problem/?sh=2eac8d212972.
“Northern Pacific R. Co. v. United States :: 356 U.S. 1 (1958).” n.d. Justia Law. Accessed November 16, 2021. https://supreme.justia.com/cases/federal/us/356/1/.
“Our Documents - Sherman Anti-Trust Act (1890).” n.d. https://www.ourdocuments.gov/doc.php?flash=false&doc=51.
Smith, Kelly Anne. 2021. “What’s Going On With The Facebook Antitrust Lawsuit?” Forbes Advisor. May 17, 2021. https://www.forbes.com/advisor/investing/update-facebook-antitrust-lawsuit/.
Stiglitz, Joseph. 2017. “America Has a Monopoly Problem—and It’s Huge.” Roosevelt Institute. October 26, 2017. http://rooseveltwec.wpengine.com/2017/10/26/america-has-a-monopoly-problem-and-its-huge/.
Stucke, Maurice E., and Ariel Ezrachi. 2017. “The Rise, Fall, and Rebirth of the U.S. Antitrust Movement.” Harvard Business Review, December 15, 2017. https://hbr.org/2017/12/the-rise-fall-and-rebirth-of-the-u-s-antitrust-movement
U.S. Department of Justice. n.d. “Antitrust Enforcement and the Consumer.”https://www.justice.gov/atr/file/800691/download.
“US Smartphone Market Share: By Quarter.” 2021. Counterpoint Research (blog). August 16, 2021. https://www.counterpointresearch.com/us-market-smartphone-share/.
