Google, Facebook, Amazon And The Future Of Antitrust Laws

Google, Facebook, Amazon And The Future Of Antitrust Laws

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


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