Microsoft’s recent effort to ensnare Yahoo!–fended off in part by a cooperative venture between Yahoo! and its competitor Google–raises important but overlooked questions: What happened to antitrust? Can competitors today combine at will? Would Microsoft, whose grip on the desktop computer remains unshaken after a decade of antitrust litigation and court-ordered relief, have been allowed to acquire control of a new portal so that Internet users might remain in its thrall?
The answer to the “What happened to antitrust?” question lies in the echo of a similar one posed by historian Richard Hofstadter more than forty years ago: “What happened to the antitrust movement?” He pointed out that the political impulses animating antitrust in its first half-century faded as the United States became comfortable with big business. The last great antitrust crusader with political visibility, Thurman Arnold, turned antitrust over to postwar enforcers, who transformed it into a technical exercise managed by lawyers and economists. Hofstadter wrote, “Once the United States had an antitrust movement without antitrust prosecutions; in our time there have been antitrust prosecutions without an antitrust movement.”
We now appear to have reached a time when we have neither an antitrust movement nor antitrust prosecutions. We have dropped “movement” from the question. It’s “What happened to antitrust?”
One thing that happened is that we have taken too seriously Hofstadter’s view that antitrust had become a technical exercise, divorced from political concerns. This is not so. The technical economic analysis that rightly underpins antitrust often provides contested solutions to questions of business behavior and market structure, not clear-cut “truth” on which everyone can agree. Something other than technical analysis is thus needed to make decisions. And the choice of the core concepts on which to focus antitrust enforcement is the product of political values, not technical decisions. Do we care about the distribution of wealth? About maintaining opportunities for entrepreneurs to challenge entrenched monopoly firms? Or do we just want to allow companies the mostly unfettered ability to operate “efficiently”?
Anyone who thinks antitrust is solely a technical exercise should look at what the Bush Administration has done to enforcement. Bookending this period is the Microsoft monopolization litigation. Brought in 1998 by the Clinton Justice Department, twenty states and the District of Columbia, the litigation demonstrated Microsoft’s wide-ranging effort to suppress challenges to the dominance of its Windows operating system, in which it choked off new entrants and controlled the pace and direction of innovation in desktop computing. The remedy was to be a restructuring of Microsoft into two companies, each with market incentives to compete against the other. With Bush’s ascendancy, however, the case was settled with a decree prohibiting certain conduct, but without structural relief.
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The Justice Department then went from being Microsoft’s prosecutor to being its enabler. It vocally criticized antitrust enforcers in Europe and Korea for pursuing cases against Microsoft that were very much in line with the original Clinton Administration prosecution. Most recently, Justice refused to join state plaintiffs in asking for an extension of key provisions of the settlement decree, an extension the district court judge granted on the ground that the entire decree needed to continue if it were to achieve its goals. Apparently, the department is no longer concerned about achieving those goals.
But the Microsoft litigation only provides the bookends. In between we have seen a general vanishing of Justice Department civil antitrust litigation. Bush Administration officials have given speeches expressing a definite hands-off attitude toward monopolists, and their enforcement record reflects that view: they have brought just one monopolization case since taking office. In seven years Justice has brought only fourteen civil cases involving agreements in restraint of trade. It has brought forty-four merger cases, but compare that with forty-one cases filed by the Clinton Justice Department in just the two years before the Bush Administration walked in the door. Symptomatic is the department’s recent approval of the merger-to-monopoly of XM and Sirius, the only providers of satellite radio. The department reasoned that consumers could just switch on their iPods if the new monopolist raises the subscription price and that, who knows, “within several years” the next generation of wireless networks will likely be able to stream radio programming to our phones in our cars, which would take care of the XM-Sirius monopoly.
If politics is “What happened to antitrust?,” politics can happen again. By this I don’t mean just a change of administration in Washington but a change in public values. In antitrust, as in many other areas involving economic regulation, there is a general perception today that businesses have slipped the traces of public control and that unregulated market forces will not ensure a just, or even efficient, economy. It is time to push the reset button, time to reassert the legitimacy of public intervention.
The reset needs to be broader than the Justice Department, of course. Conservative judges have made it more difficult for antitrust litigants to win when they do bring cases. The Supreme Court has relentlessly closed its doors to antitrust plaintiffs–ten straight wins for antitrust defendants in the past four terms. Even Justice and the Federal Trade Commission are finding lower courts markedly unreceptive when they attempt to litigate.
What might an antitrust reset look like? There are three important changes in direction that would help consumers and the economy. First, federal antitrust enforcers need to change their hands-off approach to agreements between manufacturers and distributors that can make it harder for discounters to compete through lower prices. If ever there was a time to be concerned about the buying power of people who need low prices, not expensive brand-name retailing, this is it. Think Wal-Mart. Think the Internet. Antitrust should make sure that less efficient retail distributors can’t pressure manufacturers to set high “suggested retail prices” and then force discounters to follow. Second, antitrust enforcers need to cast a more skeptical eye toward mergers. Having fewer competitors in markets that are already concentrated increases the chances of higher prices and decreases consumer options. Think airlines, where mergers are being proposed for the very purpose of raising fares and reducing available flights. This benefits competitors, but not competition and not consumers. Third, antitrust enforcers need to police dominant-firm exclusionary conduct. Much innovation comes from small firms pioneering new technology. Incumbents often want to control the pace of innovation and fear disruption to their businesses. Think MCI, at one time a tiny company whose efforts eventually destroyed the (old) AT&T monopoly. Think Netscape, which saw the possibilities of the Internet before Microsoft did and was effectively destroyed by Microsoft’s exclusionary practices.
It will take time to reset antitrust. Meanwhile, we might answer the “What happened to antitrust?” question this way: it is alive and well and living in Europe. In fact, the European Commission is trying to encourage private antitrust litigation in Europe rather than discourage it. Why? According to European Competition Commissioner Neelie Kroes, it is to provide “justice for consumers and businesses, who lose billions of euros each and every year as a result of companies breaking EU antitrust rules.” Americans used to think about economic justice. Perhaps soon we will think about it again.
