Whatever Happened To Antitrust?
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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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