The One Minute Case Against Antitrust

Antitrust punishes the best companies

The list of antitrust targets reads like a Who’s Who of American business success stories. Standard Oil Company, Alcoa Aluminum Company, IBM, and Microsoft, are just a few. These companies were pioneers in developing new and beneficial products. Who doesn’t benefit from cheaper gasoline using methods pioneered by Rockefeller, the aluminum foil and light-weight aluminum parts invented by Alcoa, or the computer revolution, first in mainframes by IBM, and then in personal computing by Microsoft? These companies pioneered new industries and offered new products that were widely demanded by customers. The huge demand for their products and their large marketshare was a sign of how successful these companies were in selling products that many people wanted. Yet, that market share became the basis for antitrust lawsuits.

Antitrust is used by unscrupulous companies against their competitors

An honest businessman competes by selling a better product. It is not a coincidence that it is usually second and third-tier companies who use antitrust to hammer a more successful competitor. What does it say about the competitive spirit of a company that must cry to “mother” (i.e., the Federal Trade Commission) when the competition gets too tough? Antitrust is used by less successful businessmen to stifle competition.

Antitrust is arbitrary and non-objective; it is bad law

A good law is easy to understand and apply, so that one clearly knows in advance what is a crime and what is not a crime. Antitrust laws make it impossible to know whether one is committing a crime. Under antitrust, it can be illegal to charge less than your competitor (that is considered “price gouging” or “dumping”), to charge the same price as a competitor (that could be “collusion” or “oligarchy”), or to charge a higher price than your competitor (that could be “monopolistic behavior” or “destroying consumer surplus”). Thousands of lawyers and regulators extract hundreds of millions of dollars out of the economy wrestling with these questions. No one should be subject to such arbitrary law.

Capitalism doesn’t need antitrust

The great successes in business were achieved by companies that began small, and became large through innovation and lower prices. Antitrust did not make those successes happen. On the contrary, antitrust is poised like a guillotine at the throats of every businessman who has the foresight, perseverance and pluck to become successful. His very success, his large market share, puts a target on his back for unscrupulous competitors and eager bureaucrats.

Further reading

6 Comments

Filed under Economics, Politics

6 Responses to The One Minute Case Against Antitrust

  1. Jim

    I think you’re wrong. In the 80s, IBM was under consent decree, and therefore had to license an OS from Microsoft (MS-DOS/Q-DOS) instead of purchasing them, as monopolies want to do to competitors or those who can break their monopoly.

  2. Jim

    *by purchasing them, I mean buying the Microsoft company outright, and then raising price to consumers, etc…

  3. I didn’t realize IBM licensed, rather than bought Microsoft’s operating system (or Microsoft itself) because of the antitrust consent decree. That transaction was famous in Microsoft’s history, since by retaining rights to the software, Microsoft established its dominance of personal computing software, an industry that subsequently grew extremely rapidly.

    Although Microsoft in hindsight may have gotten an extra boost from the application of antitrust against IBM, that in no way justifies antitrust, which is rule by arbitrary government decree. Microsoft’s “gain” in this case was at IBM’s expense. Microsoft’s gain came by violating the rights of IBM. In fact, both parties rights were violated since since Microsoft was denied the option of selling its software (or the company) to IBM. It could only license the software.

    The fact that a particular antitrust-dictated outcome such as this one appears beneficial in hindsight in no way justifies the government’s exercise of this arbitrary, tyrannical power. Clearly, even judging each antitrust action on its own, antitrust is not only violative of the right to property and freedom to contract of companies, but it also in nearly all cases stifles innovation, reduces economies of scale, and destroys wealth. The histories of the impact of antitrust on the great innovators, such as the companies mentioned above, bear this out.

  4. Michael Groves

    The author fails to address the *reasons* why antitrust legislation exists.

    Capitalism is based on the idea of a competitive market, without signficant barriers to entry, and without collusion between sellers. In some types of industry, a company can get a stanglehold on the market which makes it all but impossible for other companies to compete.

    It might be due to unfair business practices such as predatory pricing (the big estabished competitor deliberately sells at below cost as soon as a start-up tries to enter the market, and drives it out of business, then raises prices again).

    Or it might be due to a patent or copyright, for example, or sole access to certain resources (oil, say).

    If we’re going to embrace the ideal of capitalism, then we need to embrace the underlying ideals as well – the assumption of low barriers to entry into each market needs to be preserved, otherwise legitimate and effective competition won’t exist. Capitalist theory says that super-normal profits can only be made for a limited time – thereafter new firms will be attracted by those profits, and the competiton will drive down the prices.

    The purpose of anti-monopoly laws is simply to keep the players to the basic rules of capitalism. You can be the #1 player in your market, but you cannot be the *only* significant player on an ongoing basis. It must be possible for true competition to take place.

  5. Capitalism is not based on the idea of a competitive market. The essential principle, and the only requirement of a capitalist economy is the protection of property rights.

    See this case to understand why the “perfect competition” model is wrong:

    http://oneminute.rationalmind.net/advertising/

    See this case for the definition of capitalism:

    http://oneminute.rationalmind.net/capitalism/

  6. Michael Groves

    Be careful if you try to redefine capitalism without the concept of a competitive market. The “morality” of capitalism, and the classical benefits it brings society as a whole, depend on that feature. Of course, you can (and evidently have) defined it in whatever way you like, but in doing so, you bring it down to the level of simple “might is right”.

    If you take away the competition aspect of capitalism, from either the supply or the demand side, you render meaningless the whole “invisible hand” guiding the market argument.

    I am amused that you give evidence for your point of view by pointing to two articles written by yourself!

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