There’s much brewing in Washington these days about “Big Tech.” Are Amazon, Google, and Facebook (yes, the perennials: Microsoft and Apple are there, too) mistreating consumers or competitors? Should the government, either by new legislation, or enforcement actions taken by the DoJ, Federal Trade Commission, FCC or other agency, rein them in?
Having worked for that old champion monopolist—AT&T—some years back, I am wary of the effectiveness of such actions, government is always going to play “catch-up” in trying to manage rapidly changing industries. But beyond the particulars of antitrust law, it’s important to understand the broad history of regulation and what it’s for.
Speaking broadly and roughly, the theory of antitrust, developed at the end of the 19C is a counterpart to a much longer theory of monopolies and government regulation of powerful businesses. Formal, legal monopolies were set up by the State as a means of coopting private businessmen to engage in an enterprise which the State could nominally control but wasn’t very good at managing. The English East India Company, for example, was set up in the 17C to trade between England and the Far East and they were granted a monopoly on this trade, i.e., the EIC was the only legal importer of spices, etc. back into England. In return, the State took a (often substantial) cut of the action. In addition, certain “natural monopolies” e.g., ferry boats or bridges were authorized or regulated as necessary enterprises whose unbridled market power could gouge the ordinary citizenry. This last type eventually evolved into our modern regulation of utilities, such as transportation, power and water companies and, until recently, communications companies (especially my former employer).
Modern antitrust grew in response to the creation of cartels and other forms of business combination (sometimes structured as a “trust”). While grounded in economic theories of distortion of markets (e.g. monopolization or price-fixing) and enacted to meet public outcries against abusive practices, to me the essence of anti-trust has always been about power.
The State is conceived as the fundamental crystallization of society and its power structure. The standard definition of a State is an entity which plausibly claims a monopoly on the legitimate use of force in a society. But it’s power goes well beyond physical coercion (armies, police) to encompass the supreme authority in a society. Unlike normal policing, or concerns with domestic unrest/terrorism, with antitrust the State is recognizing that power works in ways beyond physical force and it wants to ensure that it keeps all its competitors in the power game under its control.
In this way, antitrust works in conjunction with traditional regulation of railroads (late 19C under the Interstate Commerce Commission), banks, and utilities. The mother of all anti-trust cases was against Standard Oil, the Rockefeller vehicle for dominating the oil and gas industry. In 1911, the Supreme Court found that Standard Oil had violated the Sherman Act (1890) and the courts ordered it split into seven different major companies (some of which subsequently recombined).
The break-up of AT&T (1982) was a similar situation, complicated by the existence of regulatory structures and the beginnings of rapidly changing telecommunications technology. It, too, was broken up into seven major companies (one of which hired me in 1983), all of which eventually recombined into the new AT&T and Verizon. Most antitrust cases are not of this magnitude and significance. Price fixing among auction houses, while a glamorous story at the time, only affected the small group of people who are in the market for a Picasso painting.
The same cannot be said of today’s Big Tech companies. Their behavior affects billions every day and, more importantly, the uncertainty over the evolution of the advertising, retail, entertainment, and media industries in which they operate makes their potential market power scary. Their high profitability make them juicy targets from a PR perspective. However, as with every aspect of governmental intervention into society, its political, bureaucratic and procedural constraints make regulating private companies difficult. This is especially so for Big Tech since their products and markets are evolving rapidly. It’s challenging to know clearly what kind of products and practices are problematic since by the time the legal and administrative processes take their course, the market will have moved on, with new services and new competitors. (Imagine spending a lot of time and effort to control AOL or Yahoo!).
So, what’s really going on? Some of the governmental effort is grandstanding: how much fun it is to watch Mark Zuckerberg being raked over the coals in a Congressional hearing. Some is signaling/deterrence (“Don’t take any more aggressive steps in your markets, Google, or we will really come down hard on you.”). And some use antitrust mechanisms to beat up on companies for being too big and amassing too much effective power, even if there is no clear antitrust violation going on. As you might suspect, these three modes usually bleed into one another. Companies also use antitrust laws to go after competitors and suppliers when they can’t win in the market; it’s relatively cheap to do so, generates good PR, and you might get lucky; but it’s also pretty difficult to sympathize with either side in the various battles of the corporate giants, whether it’s MCI vs. ATT, high-tech patent battles, or Apple vs. Microsoft.
None of this is to say that Big Tech is innocent of wrongdoing and exploitation of market power. While corporations are not charities, fat profits make for arrogance and blindness in how corporate actions affect suppliers, competitors, and customers. It’s easy to rationalize abusive behavior when your business model increases margins.
Still, at bottom, much of the regulatory/Antitrust game is about big government making sure nobody else in society gets uppity and forgets who is really in charge.
Having worked for that old champion monopolist—AT&T—some years back, I am wary of the effectiveness of such actions, government is always going to play “catch-up” in trying to manage rapidly changing industries. But beyond the particulars of antitrust law, it’s important to understand the broad history of regulation and what it’s for.
Speaking broadly and roughly, the theory of antitrust, developed at the end of the 19C is a counterpart to a much longer theory of monopolies and government regulation of powerful businesses. Formal, legal monopolies were set up by the State as a means of coopting private businessmen to engage in an enterprise which the State could nominally control but wasn’t very good at managing. The English East India Company, for example, was set up in the 17C to trade between England and the Far East and they were granted a monopoly on this trade, i.e., the EIC was the only legal importer of spices, etc. back into England. In return, the State took a (often substantial) cut of the action. In addition, certain “natural monopolies” e.g., ferry boats or bridges were authorized or regulated as necessary enterprises whose unbridled market power could gouge the ordinary citizenry. This last type eventually evolved into our modern regulation of utilities, such as transportation, power and water companies and, until recently, communications companies (especially my former employer).
Modern antitrust grew in response to the creation of cartels and other forms of business combination (sometimes structured as a “trust”). While grounded in economic theories of distortion of markets (e.g. monopolization or price-fixing) and enacted to meet public outcries against abusive practices, to me the essence of anti-trust has always been about power.
The State is conceived as the fundamental crystallization of society and its power structure. The standard definition of a State is an entity which plausibly claims a monopoly on the legitimate use of force in a society. But it’s power goes well beyond physical coercion (armies, police) to encompass the supreme authority in a society. Unlike normal policing, or concerns with domestic unrest/terrorism, with antitrust the State is recognizing that power works in ways beyond physical force and it wants to ensure that it keeps all its competitors in the power game under its control.
In this way, antitrust works in conjunction with traditional regulation of railroads (late 19C under the Interstate Commerce Commission), banks, and utilities. The mother of all anti-trust cases was against Standard Oil, the Rockefeller vehicle for dominating the oil and gas industry. In 1911, the Supreme Court found that Standard Oil had violated the Sherman Act (1890) and the courts ordered it split into seven different major companies (some of which subsequently recombined).
The break-up of AT&T (1982) was a similar situation, complicated by the existence of regulatory structures and the beginnings of rapidly changing telecommunications technology. It, too, was broken up into seven major companies (one of which hired me in 1983), all of which eventually recombined into the new AT&T and Verizon. Most antitrust cases are not of this magnitude and significance. Price fixing among auction houses, while a glamorous story at the time, only affected the small group of people who are in the market for a Picasso painting.
The same cannot be said of today’s Big Tech companies. Their behavior affects billions every day and, more importantly, the uncertainty over the evolution of the advertising, retail, entertainment, and media industries in which they operate makes their potential market power scary. Their high profitability make them juicy targets from a PR perspective. However, as with every aspect of governmental intervention into society, its political, bureaucratic and procedural constraints make regulating private companies difficult. This is especially so for Big Tech since their products and markets are evolving rapidly. It’s challenging to know clearly what kind of products and practices are problematic since by the time the legal and administrative processes take their course, the market will have moved on, with new services and new competitors. (Imagine spending a lot of time and effort to control AOL or Yahoo!).
So, what’s really going on? Some of the governmental effort is grandstanding: how much fun it is to watch Mark Zuckerberg being raked over the coals in a Congressional hearing. Some is signaling/deterrence (“Don’t take any more aggressive steps in your markets, Google, or we will really come down hard on you.”). And some use antitrust mechanisms to beat up on companies for being too big and amassing too much effective power, even if there is no clear antitrust violation going on. As you might suspect, these three modes usually bleed into one another. Companies also use antitrust laws to go after competitors and suppliers when they can’t win in the market; it’s relatively cheap to do so, generates good PR, and you might get lucky; but it’s also pretty difficult to sympathize with either side in the various battles of the corporate giants, whether it’s MCI vs. ATT, high-tech patent battles, or Apple vs. Microsoft.
None of this is to say that Big Tech is innocent of wrongdoing and exploitation of market power. While corporations are not charities, fat profits make for arrogance and blindness in how corporate actions affect suppliers, competitors, and customers. It’s easy to rationalize abusive behavior when your business model increases margins.
Still, at bottom, much of the regulatory/Antitrust game is about big government making sure nobody else in society gets uppity and forgets who is really in charge.
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