Whatever happened to antitrust?

http://isteve.blogspot.com/2011/05/whatever-happened-to-antitrust.html

by Steve Sailer
Sunday, May 15, 2011

One century ago today, May 15, 1911, the Supreme Court upheld the federal 
government's lawsuit under the heretofore unused 1890 Sherman Anti-Trust 
Act against the Standard Oil near-monopoly in refining. The company 
founded in 1870 by John D. Rockefeller was broken up into 34 companies, 
including ones that eventually became Exxon and Mobil.

Of course, today they are back together again as ExxonMobil.

One of the less expected changes in public life over the last third of a 
century has been the growing apathy over the subject of antitrust (known 
outside of America as "competition law"). For example, the proposed merger 
of AT&T and T-Mobile, reducing the number of national cell phone network 
competitors from four to three, isn't popular in the Senate, but it 
doesn't seem to be a big news story with the public.

The last time I can recall anybody trying to make a big deal out of 
antitrust was in the mid-1990s when Pearl Jam, the most popular rock band 
of the period, sick of the absurd fees that Ticketmaster adds to concert 
ticket prices, tried to run a successful national tour without venues 
dominated by Ticketmaster.

Pearl Jam failed. People seemed to take away the message that, well, sure, 
Pearl Jam might have seemed cool and their crusade public-spirited. But 
their economic failure just shows that, deep down, they are losers. What's 
really cool is having a monopoly.

It's hard to explain to today's youth what a big deal trust-busting was 
just a third of a century ago. Alternatively, it's hard to figure out why 
nobody cares much anymore about cartelization.

When I was majoring in economics at Rice in the late 1970s, monopoly was a 
massive topic. I took a semester-long course devoted to propounding the 
emerging libertarian line that there was very little to worry about. 
Competition would tend to rapidly eliminate monopolies. This popular idea 
of businessmen getting together in smoke filled rooms to agree to keep 
prices up was a stereotype. I got a very good grade in that course. I 
believed.

The young professor making these arguments against antitrust law in the 
late 1970s saw himself as a rebel against orthodoxy. Today, though, his 
free market ideas seems to have become conventional wisdom, or at least 
nobody cares that much to argue against them.

The funny thing was that when I got a job with a young company, however, 
it turned out that competition, from the perspective of owners and 
employees holding stock options, was awful. It's like Adam Smith said, in 
a genuinely competitive market, it's hard for a business to make more than 
the risk-adjusted cost of capital, which is not much fun at all. Why go 
through the immense amount of hard work to invent a new, better way of 
doing business if that's all you'll end up with? To make good money, the 
kind of money the stock market demands you make, you need some kind of 
quasi-monopolistic edge.

The founder of the company, as strong a competitive personality as you 
could want, looked at the high fixed cost economics of this submarket of 
marketing research and quickly sold the firm to our chief competitor for a 
lot of money. But the Reagan Justice Department shot the deal down because 
our clients whined so much. That began a price war that quickly drove the 
third firm in the industry out of business, and kept the two survivors 
from making decent profits all through the prosperous '90s. As I had jobs 
over time with both competitors, I came up with various novel ways to 
reduce competition, but top management, knowing the government was keeping 
an eye on them from their earlier merger attempt, was unenthusiastic. So, 
years of minimal profits rolled on.

This dreary fate did not befall most other industries, though. The Dow 
Jones average is about an order of magnitude higher than when I started to 
work in late 1982, because profits are vastly higher. It's easy to 
understand the high profits of, say, Apple, but why does Procter & Gamble 
make so much off toothpaste and detergent these days?

One difference is that in the inflationary 1970s, it was common for 
members of the public to suspect that rising prices were caused by 
monopolistic practices. With the prices of manufactured goods stable or 
even falling in much of the time since the 1970s, however, it's common to 
assume that anticompetitive activities can't be a problem because, say, 
cell phones or TVs keep getting awesomer. Psychologically, it's hard to 
worry much about whether prices should be falling even faster.

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