If the public now knows the name Robert Bork, it is for his failure to become confirmed to the Supreme Court in the 1980s, yielding the verb “to Bork” a candidate. But in retrospect his ideas proved far more influential than most of the justices whom he failed to join. By the early 2000s, antitrust was not merely pruned but enfeebled, with most of antitrust’s anti-concentration agenda wiped out. In many areas, but especially the laws governing bigness, concentration, and monopoly, the law was severely weakened, and in some cases, completely abandoned.
How did it happen? We have said that Bork was, above all, a great lawyer; the Chicago School’s success came mainly through the courts, where antitrust became attached to a broader backlash against 1960s and 1970s judicial activism.
At first, in the late 1970s the Chicago-driven attack was at the margins of the antitrust law’s war on monopoly, concentrated on the subject of “vertical restraints,” the complex rules by which producers deal with their retailers. During peak antitrust, in the late 1960s, the Supreme Court had imposed an absolute ban on nearly all such limits, regardless of their rationale. That absolute ban was difficult to defend, and was the first to collapse.
But it was in these cases, over which reasonable minds could disagree, that antitrust lost its traditional goals. The Supreme Court, in these cases, almost casually abandoned the foundation of the law, adopting Bork’s theory that the end goal of the antitrust laws was nothing more than the “protection of consumer welfare.” The symbolic capstone was a 1979 line in an opinion by Chief Justice Burger writing that “Congress designed the Sherman Act as a ‘consumer welfare prescription.’” His citation: “R. Bork, The Antitrust Paradox 66 (1979).”
It is, however, unfair to give Chicago all the credit, because its theories began to gain intellectual and academic influence in what could be described as a case of good intentions gone awry. By the 1970s, if Chicago represented a fringe of intellectual thought, the center was occupied by the Harvard School, and in particular, by two professors, Donald Turner and Philip Areeda, the authors of what remains the most influential guide to the antitrust laws. Turner had been head of the Justice Department’s Antitrust division in the late 1960s, the first lawyer who was also a PhD economist to hold that role. He was determined to bring greater intellectual and economic rigor to what the department was doing. Both Turner and Areeda were sensitive to the critique that antitrust had become the province of “coonskin cap” law enforcement—the blind firing of muskets at companies that just seemed bad.
Nor were these criticisms baseless. While vigorously enforcing the new 1950 anti-merger law, lawyers in the Kennedy and Johnson administrations had grown aggressive, and blocked some relatively minor mergers, as in the famous Von’s Grocery case, where the Justice Department undid a merger between two Los Angeles grocery chains with a combined market share of merely 7.5 percent. In its defense, the Justice Department maintained that Congress was concerned about “creeping” concentration, achieved “not in a single acquisition but as the result of a series of acquisitions.” But it can still be asked whether merger actually inhibited competition in any meaningful way. It gave grounds to Bork’s charge that law enforcement in the 1960s was out of control—the Justice Department was like the “sheriff of a frontier town: he did not sift evidence, distinguish between suspects, and solve crimes, but merely walked the main street and every so often pistol-whipped a few people.”
Turner was, on the one hand, not shy to use the power of government. He believed, for example, that longstanding monopolies should be just broken up, regardless of whether they had done anything “wrong” or were a “bad trust.” As Turner’s deputy and future Nobel laureate Oliver Williamson put it, “[The] persistent dominance of an industry by a single firm is not to be expected,” and long-term, sustained dominance “should be regarded as an actionable manifestation of market failure.”
But Turner was also intensely devoted to increasing the influence of economics over antitrust law and enforcement, and he and Areeda increasingly accepted the premise that greater rigor meant an acceptance of the narrower theory of harm, suggested by price theory—in other words, the consumer welfare standard. To be sure, as authors of a guide to the law, the men were bound to report on the law as it existed, meaning that Turner and Areeda were bound to accept the Supreme Court’s adoption of Chicago’s main premises. But there was more to it than this—there was a defensiveness born out of a decade of stinging attacks by some of Chicago’s most brilliant economists and lawyers. And so without any grand declaration, it was the Harvard School that quietly made mainstream the premise that “consumer welfare” should be the measure of all things antitrust.
In this way, Bork won the culture war, by convincing a vast middle comprising practicing lawyers and judges seeking respectability with the appearance of rigor. If Bork himself could be too spicy and even a little bit frightening, Turner and Areeda served up the blander, more reassuring fare favored by judges and practicing attorneys. As Rebecca Allensworth writes, the Harvard School “grafted economic thinking onto existing antitrust doctrine in a way that was both more moderate and more workable” than Chicago, but accepting of its main premises. Bit by bit, the Chicago critique reached deeper into antitrust law—zooming past the matter of vertical restraints and reaching the historic core of the law: the problem of monopoly. And here, breaking with its primary mandate, antitrust law underwent a truly radical change and suddenly became extraordinarily tolerant of the monopolist’s conduct.
Let us dwell for a moment on this. It is true that the original Trust Movement, and men like John D. Rockefeller, had argued that monopoly was inherently efficient and spiritually uplifting. But by the 1980s, monopoly was out of fashion, and competition was as American as apple pie. Some other approach was needed, and indeed was developed during the AT&T and IBM trials over the 1970s. It was during the defense of IBM and AT&T that the Chicago School and the opponents of antitrust finally found ways to stop worrying and fall in love with the monopoly form.
The contemporary monopolist, it turned out, had been gravely misunderstood. He was not the threatening brute feared by previous generations, but a well-meaning and timid creature, almost a gentle giant, whose every action was well-intentioned, and who lived in constant fear of new competitors. Even if he had already killed his actual competitors, he was nonetheless restrained, by just the thought of them. For that reason, he would not dare raise prices or destroy his rivals.* This theory was deployed to defend AT&T, among the most entrenched monopolists in American history, yet apparently so afraid of potential competition that any wrongdoing was unthinkable.†
When it came to the monopolist’s conduct, both antitrust enforcers and Congress were guilty of a similar misunderstanding. What Congress had condemned as abusive conduct—predatory pricing, price discrimination, coercive tying of unwanted products—was really no such thing, but being practiced for the best and happiest of reasons. A cascade of Chicago School papers based purely on pricing theory and ignoring any strategic considerations (let alone evidence), suggested that the monopolist had little to gain from these practices, and so must presumably be doing them to make their operations more efficient. After all, as McGee had said, one must always presume that “the existing structure is the efficient structure.”
Jumping from theory to reality in a novel way, the Chicago School then asserted that that which did not exist in theory probably did not exist in practice. Robbing banks is economically irrational, given security guards and meager returns; ergo bank robbing does not happen; ergo there is no need for the criminal law. Exaggerated only slightly, this premise has been at the core of Bork-Chicago antitrust for more than thirty years.
The absurdity of its logic and its rejection of Congressional intent is what ultimately made the movement political, even while it always strenuously avoided the claim. It didn’t matter that Congress wanted many mergers blocked (the 1950 law), or wanted small businesses protected (the Robinson-Patman Act of 1936). Those laws “didn’t make economic sense” and therefore could be ignored, or should only be enforced in a “sensible” way, meaning the Chicago way, Congress be damned. In this sense, economics held a trump over the plain text of the law in a manner that can only be described as Constitutional. Bork, who styled himself an opponent of “judicial activism,” was perfectly happy to allow his own political and economic preferences to trump the clearly expressed will of Congress.
The Chicago movement, unsurprisingly, began to encounter major resistance during the 1980s through the 2000s. A group of economists and other academics, styled the “post-Chicago” school, emerged to challenge many of its basic premises. What the post-Chicago academics demonstrated was this: Even if you took a strictly economic view of the antitrust laws, you didn’t actually reach Bork’s conclusions.
On further inspection, it did make sense for a dominant firm to create barriers to competitors and generally “raise rivals’ costs,” as prominent antitrust economists Thomas Krattenmaker and Steven Salop put it. Thickets of patents were sometimes deployed to slow down those seeking to bring new products to market, said economist Carl Shapiro. Merger enforcement should take seriously dynamic effects on innovation, said Michael Katz and Howard Shelanski. Exclusion should be a core concern of the antitrust laws, wrote economist Jon Baker. Newer econometric techniques used by scholars like Daniel Rubinfeld might measure the harms that Chicago tended to assume away.
Most members of the post-Chicago school were economists who were chagrined and dismayed by the misuse of economic tools to justify a laissez-faire ideology that was always suspiciously in line with the dictates of big business. A new group, the American Antitrust Institute, was founded in 1998 by Albert Foer to create an institutional counterweight to antitrust erosion. And a leader of the resistance was Robert Pitofsky, who, as the FTC’s chairman, restored it to fighting weight, and who asserted that “[b]ecause extreme interpretations and misinterpretations of conservative economic theory (and constant disregard of facts) have come to dominate antitrust, there is reason to believe that the United States is headed in a profoundly wrong direction.”
But the Clinton years were, in the end, just a speed-bump, for during the Bush years, the anti-monopoly provisions of the Sherman Act went into a deep freeze from which they have never really recovered. After pausing briefly to settle the Microsoft case, the Bush Justice Department proceeded to bring a grand total of zero anti-monopoly antitrust cases over a period of eight years, and did not block any major mergers. The judiciary continued to drift toward Bork, and with a Supreme Court intent on cracking down on private plaintiffs using the law, antitrust wandered further and further from its origins, leaving far behind its Congressional intent.
By the second term of the Bush administration, antitrust had drifted very far from having a say about the structure of the economy, and increasingly became something that merely governed explicit price-fixing cartels, blatant mergers to monopoly, and little else. If one wanted to mark a point as the fall of Brandeisian antitrust, it would be 2004, when the Supreme Court, under Justice Antonin Scalia, elevated what was once called “the evil of monopoly” to something different: an essential motivating factor within the American economy. In an unnecessary aside, Scalia wrote:
The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system. The opportunity to charge monopoly prices—at least for a short period—is what attracts “business acumen” in the first place; it induces risk taking that produces innovation and economic growth.
If the Chicago School had once portrayed the monopolist as a gentle giant, he had now become something akin to an Ayn Randian hero. In the underlying case, the defendant was Verizon, who despite holding a monopoly for nearly a hundred years, was supposedly encouraging others to take risks, even as it destroyed the entrepreneurs who had actually taken the risks. This was an antitrust with the “anti” removed, a law that now glorified monopoly instead of condemning it.
In Defense of the Big Case Tradition
In the United States, there have been no trustbusting or “big cases” for nearly twenty years: no cases targeting an industry-spanning monopolist or super-monopolist, seeking the goal of breakup. As we’ve seen, that was the original tradition of antitrust enforcement pioneered by Theodore Roosevelt. But in our times tradition has fallen victim to a defamation campaign. The big cases have been portrayed as wasteful and useless, and breakups, the original remedy, as too radical to take seriously. The Justice Department and the FTC have been depicted as bumblers who can’t do anything right, or bullies who unfairly attacked successful firms, and in their misguided efforts, did nothing but hurt the American economy and punish winners.
It is time to rehabilitate the reputation of the big cases, give them their due, and stress their importance—particularly for a dynamic, technologically driven economy. We have already discussed the AT&T case and its dramatic reboot of the communication industries, transforming a stagnant backwater into a centerpiece of the American economy. Similarly, the Microsoft case must be given credit for preventing the giant from dominating the nascent web economy of the early 2000s. But the defense can also be made even for cases that had been widely decried as failures and seen as examples against bringing big monopoly-busting cases at all.
Exhibit A is the case against the IBM monopoly, which, next to AT&T, was the biggest antitrust case of the 1970s. IBM is today a relatively mellow, service-oriented company, but “Big Blue” was once the great monopolist of computing with a terrifying reputation. The United States sued IBM in 1969, alleging that it had illegally maintained its monopoly in general purpose computing using a variety of measures, including sabotage at the sales level and false product announcements.
The case, which lasted an extraordinary thirteen years (including six years of trial), came under extraordinary attack. It was dubbed “the antitrust division’s Vietnam” by Robert Bork and a “monument to arrogance” by scholar John Lopatka. Steven Brill, the founder of American Lawyer, wrote a scathing attack on the IBM trial, depicting the government’s lawyers as incompetent, the judge hungry to make his name, all of them feasting on a great American corporation, yet accomplishing nothing in the end. Brill called the case “a farce of such mindboggling proportions that any lawyer who now tries to find out about it … will be risking the same quicksand that devoured the lawyers involved in the case.”
The government’s battle with IBM did reach epic proportions. At the lengthy trial, the government’s presentation took 104,000 pages of transcript, while for its part, IBM called 856 witnesses and cited 12,280 exhibits. In legal fees, the case consumed millions, if not hundreds of millions of dollars. And at the end of it, thirteen years later, the Reagan administration simply dropped the case, on the same day it settled with AT&T. Was it all just a waste of resources?
That’s no trip to the county courthouse, and no one can defend how the court managed the litigation, which became as bloated as a 1970s muscle car. But consider the stakes: The computer and software industries were already bringing in billions in revenue, are today collectively worth many trillions of dollars, and include many of the most valuable companies on Earth. Small effects on this industry would and did have major longterm effects. It has become clear that the IBM case decisively influenced the computing industry that is now a centerpiece of the American and world economy.
First and most importantly, IBM dropped its practice of bundling (or tying) its software with hardware. That is broadly understood, even by IBM’s own people, to have kickstarted the birth of an independent software industry. Second, the IBM litigation also affected the development of the personal computer industry in the late 1970s and early 1980s. The IBM PC, developed while the lawsuit was still pending, was antitrust proof: IBM went with an extremely open design and declined to buy or exert excessive control over the firms who made the components, including Intel, Seagate, and Microsoft, among others. IBM actually entered the personal computer market gingerly, and separately from its other products.
Above all, IBM spent the 1970s with a “policeman at the elbow,” and subsequent research makes clear that the firm steered shy of anything close to anticompetitive conduct, for fear of adding to the case against it.* The period consequently saw the birth of independent software, the dawn of the personal computer, the rise of firms like Apple and Microsoft—all matters, by any count, of major economic importance and of great value to the American economy.
How much the “policeman at the elbow” contributed to the extraordinary developments in the computing industry is hard to measure precisely, but if the answer is even a little bit, then the case mattered a lot. And that is why I think the whining about the number of pages in the IBM trial record is petty, or the hassle experienced by IBM’s lawyers, or the millions in costs, when hundreds of billions if not trillions were at stake. If the effect of the litigation was to prevent IBM from killing its main emergent challengers, the IBM case was not expensive, but incredibly cheap.
We have said that some have criticized the big cases because they last too long and waste too many resources. But a different critique suggests the big cases were unnecessary because the market would have reintroduced competition anyhow. This line of argument—a version of the “best of all possible worlds”—strikes me as baffling. Consider that AT&T, for example, ruled its industry for decades, destroying myriad would-be challengers, with the tacit or sometimes active assistance of government. Having waited for several decades, are society and the economy supposed to wait for several more? This line of argument ignores the idea that deliberate investments in building barriers to entry can be effective, and it is often utterly rational for the monopolist to make such investments. Of the great mysteries of the Chicago School was the fact that it posited ultra-rational, profit-seeking monopolists, yet somehow imagined that they would generally leave themselves completely vulnerable to competitive attack. The truth is that investments in barriers to entry are a magnificent investment.
It would be crazy, however, to defend every case that was brought as part of the big case tradition. For example, in the 1970s, the Federal Trade Commission went after the cereal industry based on the observation that it was profitable and somewhat concentrated. This was, challengingly, not a case about an abusive or even persistent monopoly, but rather an oligopoly of about four firms. The agency believed that product differentiation (that is, products aimed at children, older people, the health-conscious, and so on) was the anti-competitive tool of choice. To even describe the theory is to reveal its absurdity.
But there is a different critique of the big case tradition that I take seriously: that it is simply much less effective than it could be, being subject to the inherent randomness of litigation. As William Kovacic, former FTC chair, once wrote, “trustbusting is the Sherman Act’s most alluring and enduring mirage.” As he explained, “federal enforcement officials have mounted memorable campaigns to disassemble leviathans of American business, yet the tantalizing goal of improving the economic and political order by restructuring dominant firms frequently has eluded its pursuers.”
That’s why some have pushed different approaches: One is the writing of pro-competitive rules for persistently uncompetitive industries. Another new law targets longstanding monopolies based on their persistence alone. The United Kingdom has such a law, known as a “Market Investigation Authority.” Donald Turner of Harvard proposed a law that would create an authority to break up monopolies that had been proven to be “substantial” and “persistent” and lasted at least ten years. As he wrote, “the evils of Monopoly are largely independent of the manner in which it is achieved or maintained.”
The Age of Oligopoly
We can see that it is to the George W. Bush era that we owe our present economic state, as the administration dismantled most of the checks on industry concentration. In a run that lasted some two decades, American industry reached levels of industry concentration arguably unseen since the original Trust era. A full 75 percent of industries witnessed increased concentration from the years 1997 to 2012, according to an extensive study by economist Gustavo Grullon and his co-authors, which was echoed by studies by the Council of Economic Advisors in the White House, and an independent study by the Economist magazine.
But to get a sense beyond the statistics it is worth considering some concrete examples:
• The AT&T monopoly, which had been forced to divide into 8 pieces, was allowed, over the 2000s, to reconstitute itself in two giant firms: Verizon and AT&T. Later, AT&T bought DirecTV and then TimeWarner to return close to its size in the 1980s. The idea of allowing AT&T to come back in such a fashion might have seemed shocking to those who thought the breakup was important to competition.
• The airline industry, which had been deregulated in the 1970s with the goal of increasing competition, was allowed to merge into an increasingly smaller number of “major” airlines. Delta bought Northwestern airlines; United bought Continental, and American bought U.S. Airlines, reducing the total number of traditional major airlines to just three. Since then, the airlines have found it easy to cooperate on matters like the shrinking of seats or the introduction of new fees, yielding unprecedented profit for years on end.
• The cable industry, which at one point in the 1960s had been an upstart challenger to the broadcasters, was allowed to combine into just three major regional monopolies, facing limited competition in each area. Cable was also freed to charge monopoly prices, and happily raised monthly prices at some eight times the rate of inflation. During a period of historically low inflation, it managed to raise its prices by an impressive 8 percent per year. Bills that were once in the $30–40 range rose over $100, and as much as $200 per month.
• The pharmaceutical industry, which had been fairly fragmented, underwent a major consolidation from 2005 through 2017, with thousands of combinations that reduced the international market from some sixty-odd firms to about ten. This consolidation was international in scope. Meanwhile, within the United States, enforcement agencies allowed passage of a new and disturbing kind of drug acquisition: the sale of a drug to a firm whose immediate design was to take full advantage of the monopoly pricing potential, by raising prices by at least 1,000 percent and sometimes as much as 6,000 percent. The most famous example was that of an opportunistic young man named Martin Shkreli who managed to acquire the facilities for the production of a rare drug named Daraprim, and immediately increased the price from $13.50 a pill to $750. But that was just one of many similar transactions—none of which were challenged—and indeed the price of Daraprim remains at $750.
• Ticketmaster, the nation’s dominant seller of tickets to live events, was allowed to merge with LiveNation, the nation’s near-monopoly promoter of events. Among other effects, this deal allowed Ticketmaster to survive any potential challenge in primary ticket sales stemming either from Live-Nation’s own entry, or from any internet startups.
• Bayer, the German descendent of the I.G. Farben monopoly, was allowed to buy Monsanto to reduce the global seed and pesticide industry to just three major players. (Other mergers include a Dow-DuPont merger and ChemChina’s acquisition of Syngenta.) Over recent years, the price of a bag of seed corn has risen from $80 to $300, based on reduced competition.
• The global beer industry consolidated into a single firm in 2016, as Anheuser-Busch InBev and SABMiller merged. The combination controls over 2,000 beers, including most of the major non-craft brands in the world like Budweiser, Beck’s Bass, Labatt’s, Michelob, Corona, and Stella Artois. In the United States, Anheuser-Busch InBev and Miller-Coors control over 70 percent of beer sales.
Many of these combinations happened during the Obama administration. President Barack Obama said in 2008 that he wanted “an antitrust division in the Justice Department that actually believes in antitrust law.” He appointed officials who were understood to be more enforcement-oriented. Yet when it came time to bring cases, the government faced a judiciary that had now widely accepted the Chicago and Harvard schools’ premises, and enforcers often felt powerless to stop the ongoing concentration. But it would be unfair to say that all of the resistance was judicial. For among the lawyers and economists who staff the agencies, Chicago and Harvard’s influence had been strongly felt. Bork’s insinuation that strict reliance on economic analysis was a mark of good character had became something of a controlling meme. Those demanding a return to the law’s traditions of trustbusting and breakups were cast as wild-eyed radicals in an administration that favored moderation and composure.
And of all of the blind spots during the last decade, the greatest was surely that which allowed the almost entirely uninhibited consolidation of the tech industry into a new class of monopolists.
*The premise that elevated prices alone might attract new competitors is not irrational; yet where the premise falls short is ignoring the fact that exclusionary tactics, the concern of the Sherman Act, might well keep out potential competitors while also allowing collection of higher profits.
†Economist William Baumol is most associated with the theory of “contestable markets” alluded to here, but by that phrase he meant markets where entry is costless and exit free, which was decidedly not the case for AT&T.
*A much deeper dive into the IBM case can be found in Tim Wu, “Tech Dominance and the Policeman at the Elbow,” forthcoming in After the Digital Tornado (Kevin Werbach, ed., 2019).