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Antitrust or Bust

The Bush administration’s antitrust chief, Charles James, and his band of trustbusters in the Department of Justice have turned out to be a major disappointment for those who expected significant change in antitrust. Rather than challenge and refute several of the nonsense cases initiated by the Clinton administration, James and company are expanding and legitimizing the previous administration’s major antitrust blunders.

For example, the Bush team has appealed Judge J. Thomas Marten’s ruling in April of this year that had dismissed predatory pricing charges against American Airlines. Judge Marten ruled definitively that American has the right to lower prices to meet the lower prices of (smaller) competitors and that such behavior was efficient and enhanced consumer welfare.

Instead of applauding this ruling, however, the new antitrust division has asked the 10th Circuit Court of Appeals to review it and actually wants to go to trial in order to prevent American Airlines from engaging in price competition with its rivals. Very dumb.

Even dumber, of course, is the absolutely relentless pursuit of Microsoft. The Bush administration has wasted a golden opportunity to defuse and quickly settle this decade long regulatory monstrosity it inherited. Instead, it is aggressively opposing Microsoft at every turn, including its most recent attempt to block Microsoft’s appeal (of the recent U.S. Court of Appeals decision) to the U.S. Supreme Court. Again, very dumb.

Twenty years ago, under very similar circumstances, the Reagan administration handled a major antitrust problem it inherited very differently. IBM was indicted by the Johnson administration’s Department of Justice in 1969 and charged with illegal monopolization of the general-purpose digital computer systems market. The suit alleged that IBM had systematically engaged in certain exclusionary practices -- sound familiar? -- that tended to create and maintain a monopoly in violation of the Sherman Act. The case finally went to trial in 1975. Yet after more than six years in court and a trial transcript of more than 104,000 pages, the government abandoned the case in 1982 since, as Assistant Attorney General William Baxter so bluntly put it, the 13-year legal persecution was simply "without merit."

IBM, like Microsoft, was accused of bundling software with hardware and thereby excluding competitors, even though, again like Microsoft, the bulk of the consumer-relevant information demonstrated that IBM had innovated rapidly and lowered prices. Finally, in IBM as in Microsoft, there were disgruntled competitors and business rivals who were anxious to see IBM convicted and "tied up" (as one competitor so colorfully put it) by antitrust regulation for years.

In contrast, although there were no findings of fact in the IBM case, there are very unfavorable ones in Microsoft’s case. Yet the only reason that there were no unfavorable findings in the IBM case is because it was withdrawn before the angry trial judge could write one!

There is no question whatsoever that IBM was tried before a biased and hostile trial court judge (IBM unsuccessfully tried to remove Judge David Edelstein from the case) who made it perfectly clear in court that he would have found against the company and, perhaps, have even ordered divestiture to break up its supposed monopoly. Allowed to do so, Judge Edelstein would no doubt have produced massive (and completely incorrect) findings of fact, similar in all important respects to the Microsoft fairy tale findings produced by Judge Thomas Penfield Jackson, and now accepted as sacred and untouchable by the antitrust establishment. Such findings in the IBM case would have meant, as they will mean in Microsoft’s case, that the prosecution would have dragged on (at least in civil proceedings) for years, perhaps decades, without any legitimate social purpose.

What were the ill effects of aborting the IBM suit in 1982? Absolutely none. Indeed, all of the consequences of removing regulatory uncertainty in the computer industry were positive. IBM proceeded to introduce the personal computer and the industry (led by upstart Microsoft) expanded and grew dramatically in directions few could have predicted.

And all of the trial talk about monopoly stifling technological advances in the computer industry evaporated like the hot academic air that it was. Indeed, no one (outside of the antitrust bar) has ever looked back with any regret that the feds didn’t bust up IBM or saddle it with innovation regulations that would have benefited its competitors but hurt consumers.

Exactly the same beneficial results will happen if and when the Bush administration smartens up and abandons the unholy crusade to smash Microsoft. But don’t hold your breath.

Dominick T. Armentano is a Research Fellow at the Independent Institute, professor emeritus in economics at the University of Hartford (Connecticut), and author of Antitrust and Monopoly: Anatomy of a Policy Failure.

From Dominick T. Armentano
ANTITRUST AND MONOPOLY: Anatomy of a Policy Failure
Does antitrust law restrain and restrict the competitive process, injuring the public it is supposed to protect? In this breakthrough study, Professor Armentano thoroughly researches the classic cases in antitrust law and demonstrates a surprising gap between the stated aims of antitrust law and what it actually accomplishes in the real world. Instead of protecting competition, Professor Armentano finds, antitrust law actually protects certain politically-favored competitors.