The New Trustbusters

What's behind the resurgence of antitrust activism--and why it's bad news for consumers.

James V. DeLong from the March 1999 issue

(Page 4 of 4)

More genteelly, participants note that most of the ongoing antitrust actions lack basic clarity and coherence. The Microsoft litigation started with the idea that the company was illegally tying sales of a Web browser to its operating system. Then, during the trial, the theory shifted to a charge that Microsoft wanted to divide the browser market with Netscape--a pretty silly idea, given the capacity of other companies to make browsers of their own. Now the government seems to be trying to prove that Microsoft is a meanie, which is not an offense under the Sherman Act. It is for the most part simply hard-edged jockeying over the terms of the partial integrations that are crucial to an efficient software industry.

The government also seems to think that high market share alone meets the legal definition of monopoly, even if there is only tenuous evidence of power to raise prices. Microsoft argues, of course, that it has a high share only because it keeps prices low and that this is what really bothers its competitors. They want Microsoft to be forced to set prices high enough to leave room for them.

The incoherence extends beyond the Microsoft case. The FTC accuses Intel of withholding information about forthcoming chips from companies that sued it for patent infringements. This is a novel extension of antitrust law. The relief sought would force Intel to treat all similarly situated customers alike, which would put the FTC in the middle of endless disputes over the meaning of "similarly situated" and "alike." The case looks like intervention in contract disputes combined with casual meddling in difficult intellectual property issues, plus an unarticulated assumption (also apparent in the Microsoft case) that any company with a large market share should be converted into a new breed of public utility by government fiat.

The DOJ's Visa/MasterCard case is also puzzling. Two separate violations are charged. First is the practice called "duality," whereby the two brands of card are issued by the same banks. The government contends that duality causes both Visa and MasterCard to go easy on introducing new products, such as smart cards, that might damage the other. The second alleged violation is that the Visa/MasterCard banks do not issue AmEx, Discover, or any other card.

These theories are confusing. If Visa and MasterCard are agreeing to slow down innovation, then AmEx, Discover, and other potential competitors should be thanking them for leaving open such a valuable market opportunity. Government intervention would be superfluous, and the last thing a competitor would want is for the government to wake Visa and MasterCard up.

As for the other theory, if duality is illegal, then why is the government trying to make it into quadrality? Or is the government saying that the banks must become the partners of anyone who wants to go into the credit card business? Again, this is a theory that converts any dominant company into a public utility.

All of these matters, and more besides, fan suspicions that government policy is blown by the winds of special pleading and political interest, and that the complex intellectual rationales are simply a new cover for old-fashioned rent seeking.

In a 1961 paper later published in Ayn Rand's Capitalism: The Unknown Ideal, Alan Greenspan wrote: "The entire structure of the antitrust statutes in this country is a jumble of economic irrationality and ignorance. It is the product: (a) of a gross misinterpretation of history; and (b) of rather naive, and certainly unrealistic, economic theories." His analysis is still on target. Building a new structure of "buzzwords and bullshit" atop an old one of irrationality and ignorance will not fix the problem.

In the end, the private interests that are so eager to foster this activism will regret it. As more than a few princes of Renaissance Italy could testify, once you bring in the condottieri you have a problem. Before long, you don't own them; they own you. The princes of Silicon Valley will soon have cause to reflect on this lesson of history, as they plead with ignorant but arrogant lawyers for permission to make deals or enter partnerships.

As T.J. Rodgers of Cypress Semiconductor recently warned his fellow tycoons in a New York Times op-ed piece: "Winning by politics is antithetical to the free-market competition that underpins Silicon Valley's success. The Justice Department isn't just attacking Microsoft; it's attacking the way Microsoft does business--and, by extension, the way most successful high-technology companies do business."

Rodgers closed by pleading with his colleagues to go back before it's too late. It is possible they will see their own interest and bring their political weight to bear on the side of free markets. If not, then the weary witness to the predictive power of public choice theory, watching the government re-create the good old days of antitrust disasters, will be left with nothing but the consolations of schadenfreude.