After a two-decade lull following the Microsoft case, big antitrust enforcement cases are back in vogue. Both political parties are making antitrust regulation a 2020 campaign issue. Regulators, politicians, and voters have reasonable concerns about concentrated corporate power. But few policies are easier for big companies to game than antitrust regulation. Reformers should favor having fewer regulations for special interests to capture, not more.
Antitrust regulation is also often used for political purposes, not to enhance competition. President Trump has threatened antitrust actions against Facebook, Google, and Amazon, reportedly due in part to unfavorable press coverage appearing in Facebook feeds and Google searches, as well as the fact that Amazon’s Jeff Bezos owns the Washington Post. Trump’s Justice Department already tried, unsuccessfully, to block the AT&T-Time Warner merger, allegedly for political reasons. The company owns CNN, an even bigger nemesis of Trump's.
Meanwhile, Sen. Elizabeth Warren, D-Mass., put forward a comprehensive antitrust policy as a signature part of her presidential campaign platform. She would break up the same tech companies President Trump is targeting. She would also undermine the sanctity of contracts by pledging to “appoint regulators who are committed to using existing tools to unwind anti-competitive mergers” that have already been completed. Other politicians are taking similar stances, from Bernie Sanders to Beto O’Rourke, who advocates “stronger antitrust regulations that break up monopolies.”
Antitrust enthusiasts are right to be worried about corporate favor-seeking and government corruption by powerful interests. Few of their targets are saints. The trouble is that antitrust regulation would make the problem worse. It takes government to keep competitors from competing. Cartels and monopolies do not last long without government’s help, as airlines found out after the Civil Aeronautics Board was abolished. Airlines such as Pan-Am that were not able to adapt to a lower-price business model went out of business, while upstarts such as Southwest prospered. The temptation to cheat on agreed-upon output restrictions or undercut rivals is too great. Antitrust policy is just one more way established firms can weaponize regulation in their favor against would-be rivals.
This has happened in sectors from newspaper advertising to dentistry. The majority of antitrust lawsuits are brought privately, usually by one company suing a competitor. This is playing the influence game in Washington rather than competing in the marketplace.
Big tech companies, even seemingly dominant firms such as Amazon and Google, are, in fact, very vulnerable to competition — enough to spend more than $22 billion and $16 billion on research and development last year, respectively. Today’s $500 billion Facebook could easily become tomorrow’s MySpace or Friendster. It has to adapt to what consumers want, not the other way around. For now, consumers hold the cards — unless Washington grants the company’s recent pleas for government regulatory protection.
Someone should tell Washington about the unicorn fallacy, to use Duke University economist Michael Munger’s term. This is comparing real-world market outcomes with a hypothetical perfect government. A better method is to compare real-world markets to real-world governments. There, the case for populist antitrust policy greatly weakens, regardless of which party is in charge.
The current Republican administration’s antitrust threats are a useful reminder of the danger of putting too much power in the executive branch. The progressive movement’s push to revive smokestack-era antitrust policies is a reminder that good intentions do not equal good results. Rather than squabble over whether to take an active or restrained approach to a failed policy, it would be better to be rid of antitrust regulations altogether.
Ryan Young is a senior fellow at the Competitive Enterprise Institute. He is coauthor with Clyde Wayne Crews Jr. of the new study, “The Case against Antitrust Law: Ten Areas Where Antitrust Policy Can Move on from the Smokestack Era.”