Once we gave high regard to those who created great enterprises by designing desirable products, producing them at low cost, and offering them at such attractive prices that they won a large body of customers. Henry Ford, in his day, was looked upon as an industrial hero. Today, he would be regarded as a monopolizing fiend upon whom the antitrust prosecutors should be unleashed. The 1921 Ford Company, with its more than 60 percent share of the market, would today be called a dominant firm and charged with violating the antitrust laws.

Just a few months ago [1978], an antitrust complaint was served upon Du Pont because it developed a low-cost method for producing titanium dioxide pigments. There was no objection to the development of a lower-cost method of production, but Du Pont made the fatal error of passing enough of the cost saving on to buyers to win 40 percent of the market served by domestic producers. Not only did it do that but it is going on to enlarge its capacity, building a new plant at De Lisle, Mississippi, in order to serve even more customers (who also would like to obtain domestic titanium dioxide at low cost). Can you imagine that any enterprise would engage in such a nefarious activity? It should, according to the Federal Trade Commission (FTC), behave like a monopolist. It should restrict its output, instead of expanding, and charge higher prices (and let the business go to foreign firms).

Antitrust Upside Down

That is a total perversion of the intent of our antitrust law. If the FTC is not standing antitrust law on its head, then I simply do not understand what our antitrust law says. The words “every contract, combination, or conspiracy, in restraint of trade is hereby declared to be illegal” say that it is restraint of output that is in violation of the law. But the FTC contends that Du Pont is violating the law because it has “adopted and implemented a plan to expand its domestic production capacity.”[1] That quite plainly says that the FTC regards Du Pont as breaking the law by expanding trade. Is that what the law says is illegal?

In whatever way I torture the phrases in the antitrust law, I simply cannot get it to say that expanding trade is illegal despite the thunder in the FTC complaint. Whenever anyone builds more capacity and uses it to produce more product, more trade must result. I can’t believe that Du Pont is building a new titanium dioxide plant just because it wants a handsome monument at which to gaze and neither does the FTC. What the FTC is complaining about is that Du Pont intends to produce titanium dioxide in its new plant and increase its sales and it is nasty of Du Pont to have already built enough plant to take care of 40 percent of the needs of customers for domestic product. That makes Du Pont “the nation’s dominant producer.” There can hardly be anything more venal than a “dominant producer,” unless it is a “shared monopoly.”

“Brand Proliferation” Through Hypnotic Advertising

“Shared monopoly” sounds like a label for a conspiracy among several firms to monopolize a market and share the fruits of that monopoly. But that is not what the FTC means by the label. The phrase is FTC code for a few firms winning and holding a large share of the business in some product line. The FTC staff is currently prosecuting Kellogg, General Foods, and General Mills for "sharing a monopoly" of ready-to-eat (RTE) cereals. These three firms have managed to produce and distribute cereals that taste good enough and cost consumers little enough to win more than three-quarters of the RTE business. That is their crime.

Did these three firms conspire with each other to somehow force other firms out of the industry and then conspire to reduce supplies and raise prices? The FTC disavows any accusation of any such conspiracy. It says that the crime of which these firms are guilty is “brand proliferation.” The heinous conduct of which it accuses these firms is that of trying to give consumers what they want. It is now a crime, that is, the FTC is trying to make it a crime, to follow that old merchandising maxim for success, “give the lady what she wants.”

The cereal companies should have stuck to producing corn flakes. Never mind the demand for a bran cereal, or a high-protein cereal, or a vitamin-enriched cereal, or a presweetened cereal. Anyway, says the FTC in its complaint, there are no differences between cereals except those artificially created in the minds of consumers by hypnotizing them with advertising.[2] Of course, if the new brands offered by the three firms in the 1950s and 1960s had not won a large share of the market, nothing would have been wrong with “brand proliferation.” But the new brands pleased consumers. They won for the three firms a large share of the market. That, at bottom, is the crime these firms committed. The RTE cereal industry has become “concentrated,” that is, most of the sales in the industry are made by a few firms. That is a condition which neither the FTC nor the Antitrust Division intends to tolerate.

The FTC staff also has accused the eight major petroleum refiners of engaging in a “shared monopoly” in the petroleum-refining industry. It is asking that these corporations be broken into smaller companies. The major crime of which the Big Eight stand accused is that of maintaining a “noncompetitive market structure.” This phrase is never cogently defined by the FTC staff, but "concentration" seems to be the nub of it. Complaint counsel says the eight companies “are well vertically integrated firms with substantial horizontal concentration at every level of the industry” (emphasis supplied).[3] Counsel also says the eight “own and operate refineries accounting for approximately 65 percent of rated crude oil refining capacity in the relevant market.” Even more damning, “This figure. . . understates concentration . . . because [the eight firms] . . . utilize more of their refining capacity than other refiners. Hence [their] share of production of refined petroleum products . . . is higher than their share of rated refinery capacity. . . .”

Again, here is the accusation that these alleged monopolists are not behaving like monopolists. Instead of restricting output and restraining trade, they push their capacity harder than do their competitors and expand output and trade. Apparently they are unaware of the fact that they are monopolists who can get higher prices by restricting output. Again, the FTC is displeased by efforts to expand trade and is standing antitrust law on its head by saying that the failure to restrict trade is a violation of the law. The FTC even accuses the companies of building pipelines to provide themselves with “cheap transportation.” Again, as in titanium dioxide, it is apparently illegal to reduce costs and pass enough of these cost savings on to customers to win an appreciable share of the market. (In the petroleum case, we cannot say a “large” share of the market has been won since no petroleum-refining firm sells as much as ten percent of the petroleum products sold in the United States.)

These three cases are cited to show the current state of antitrust doctrine at the antitrust agencies. The question remains of whether the courts will buy this upside-down view of antitrust law in view of its legislative history.[4]

Antitrust Not Intended to Fragment Industry

When federal antitrust policy began, with the signing of the Sherman Act in 1890, it was aimed at benefiting consumers. In the words of Senator John Sherman, the act was to outlaw arrangements “designed, or which tend, to advance the cost to the consumer.” It was neither intended to fragment industry nor to prevent occupancy of a major share of a market by one or a few firms. When Senator George Hoar explained to the Senate the Judiciary Committee’s final draft of the bill, he declared that a man who “got the whole business because nobody could do it as well as he could” would not be in violation of the Sherman Act. As Professor Robert Bork has pointed out in his examination of Sherman Act legislative history, “The statute was intended to strike at cartels, horizontal mergers of monopolistic proportions, and predatory business tactics.”[5] As the act itself says, “Every conspiracy in restraint of trade . . . is hereby declared illegal” (emphasis supplied).

Cost and price reductions and product improvements by a firm expand the trade of a whole industry. Since firms doing this frequently win a large share of the markets in which they operate, judges in the early days of antitrust litigation did not hold “concentration” of sales in the hands of a few firms or “dominance” by a single firm to be illegal in and of itself. Standard Oil and American Tobacco were broken up in 1911 because they had been built by a very large number of mergers of monopolistic proportions with wrongful intent and had then engaged in “acts and dealings wholly inconsistent with the theory that they were made with the single conception of advancing the development of business . . . by usual methods. . . .” The defendants failed to show that the intent underlying their mergers and their acts was the normal one of efficiency and expansion of trade they failed to show “countervailing circumstances” in Chief Justice Edward White’s phrase. They were, therefore, subjected to antitrust remedies. The remedies were not applied because of their dominance but because they were formed and maintained by monopolizing acts and intent that is, by a desire to gain control of the supply of a product and to use that control to charge a monopoly price and thereby restrain trade.

Dominant Firms Do Not Control Supply and Price

There is a distinction between controlling the supply of a product and producing or selling most of the supply of a product. “Dominant” producers who sell a major portion of a product’s supply usually have no control over the supply. They have no power to set any lower level of industry output and a higher price than that which would prevail in a market with many suppliers and no dominant firm. Usually, a dominant producer is the most efficient firm in the industry. Its large output is the result of its efficiency in supplying the market. The market price is as low as it would be with many producers frequently lower. Any attempt by a dominant firm to restrict its own supply and increase price after reaching a “dominant” position simply results in the expansion of output by other firms, the entry of additional firms, and loss of its dominance. A dominant firm can keep its dominance only by behaving competitively. The fact that there is a dominant firm, or small group of firms, in an industry is evidence of competitive behavior not of monopolization.

The lack of ability of a dominant firm (or group of firms) to control supply and price simply because it produces a major part of the supply of a product is illustrated by the experience of the automobile industry in 1927. From 1921 to 1925 the Ford Motor Company supplied more automobiles than all other firms combined. The Ford Company was a dominant firm. It completely shut off its supply to the market for nearly the entire year in 1927 when it closed down to retool for the change from the Model T to the Model A. If the fact that a firm supplies the majority of a market gives it any power to control supply and price, then the complete withdrawal of that firm’s supply should certainly cause a rise in price. Yet the prices of automobiles failed to rise when Ford shut down despite its having been the dominant producer. Other manufacturers increased their output and prices fell by mid-1927 despite the complete withdrawal of the Ford supply of newly manufactured cars from the market.[6]

The fact that a dominant producer has, at most, a very short-lived ability to influence the price of a product can be illustrated by numerous anecdotes. The American Sugar Refining Company merged 98 percent of the capacity for refining sugar east of the Rockies in 1891 and 1892. By cutting production it managed to raise refining margins by 40 percent in 1893 (which raised the price of sugar by 8 percent). Expansion of output in other firms cut sugar-refining margins in 1894 to a level little higher than the 1891 margins despite further reductions in output by American Sugar. By 1894, the entry of additional capacity had forced margins back nearly to 1891 levels and had cut American’s share of the sugar business by one-quarter. American was still a dominant firm by today’s FTC definition, but it had lost all influence over price and output despite its 85 percent share of capacity.[7]

In 1901, American Can merged 90 percent of all capacity in the can business. It raised prices by one-quarter and lost one-third of its share of market in short order despite additional buying up of competitors and their output. Prices returned to the pre-merger level in a very short time.

These are the most successful monopolizing cases I can find aside from the Air Line Pilots Association, the Teamsters, and similar labor unions.[8] What they demonstrate is that a dominant firm quickly ceases to have any influence in the market if it charges a supracompetitive price. In some cases a dominant firm willing to restrict output greatly has no ability to obtain a supracompetitive price even in the short run.

Shifting Market Shares

Dominant firms, that is, firms which sell a major part of all product sold, remain dominant only if they charge the competitive price and are more efficient than other firms in their industries. If they are less efficient, they soon find their market share dwindling despite selling at competitive prices. The Big Four in the meatpacking industry, for example, has seen its share of the market dwindle from 56 percent in 1935 (and from an even higher share in earlier years) to 47 percent in 1947 to 38 percent in 1956 to 22 percent in 1972.[9] The relative inefficiency of the Big Four showed in the 1920s when their rates of return on investment ran at one-third the rate earned by smaller companies.[10] That situation continued up to at least 1972, and market share of these inefficient firms fell.

The Big Four meat-packers (the Big Five in the 1917 FTC investigation) originally achieved a large market share in meatpacking by their efficiency by instituting assembly-line methods with complete utilization of all by-products. They became known for using everything “but the squeal.” Also, their development of refrigerated packing houses, cold storage, the refrigerator car, and an efficient distribution system created enlarged markets for meat supplied from cheaper livestock sources. They grew large by being innovative. Once their innovations were imitated by other packers, the decline of the Big Four began, accelerating with the spread of highways and the rise of trucking.

The “dominance” of the Big Four did not give them any power to restrict output or to control price. If anything, the rise of the Big Four decreased the dominance of local markets by local butchers who had to compete with fresh meat brought in by train by the Big Four,[11] especially after state laws prohibiting the sale of “foreign” meat were ruled unconstitutional. Nevertheless, the FTC filed one of its earliest “shared monopoly” suits in September 1948 against Armour, Cudahy, Swift, and Wilson, accusing them of “conducting . . . operations . . . along parallel non-competitive lines.” They had served consumers too well, thus incurring the hostility of local butchers in the late nineteenth century and the first quarter of this century. Long after local packers began outcompeting the Big Four, in the second quarter of the century, the FTC, in a flagrantly anticonsumer action, rode to rescue the fair maidens who by now had grown mustaches and larger biceps than the Big Four. The FTC demanded that Armour and Swift each be broken into five companies and that Cudahy and Wilson each be broken into two firms. The FTC reluctantly dropped the suit in March 1954, nearly six years and millions in legal costs after it was brought, but only because the court ruled that pre-1930 behavior was irrelevant in a 1950s proceeding.

Why Are Dominant Firms Being Attacked?

The attacks on concentration whether in the form of an attack on a “dominant” firm or a “shared monopoly,” seem to be fairly episodic. The question to be asked is why large firms with a large share of the market are left undisturbed for long periods and then turned on at other times. It is not purely coincidental that the nation suffered a severe deflation from 1882 to 1890, prices dropping by 25 percent in that interval, and the Sherman Act was passed in 1890. At that time, the declining prices were blamed on “cutthroat” and “predatory” competition and this was also a time in which economies of scale in manufacturing, combined with a rapidly declining cost of transportation, led to centralization of production in enlarged facilities.

From 1867 to 1887, for example, sugar production doubled, from one-half to one million tons annually, and the number of refineries decreased from 60 to 27. In the same period, railroad freight rates fell by 60 percent.[12] The economies of centralized production together with reduced transport costs led to larger plants supplying more distant markets at lower prices than the smaller plants resident in those markets. So the myth of “cutthroat” competition and “predatory” pricing was born in this and many other industries. Antitrust cases were brought against dominant firms such as American Sugar, Standard Oil, American Tobacco, and others.

Another deflation in which prices again dropped by 25 percent, from 1929 to 1933, again led to animus against “Big Business” and especially against that rising innovation in marketing, the chain store. The investigations of the Temporary National Economic Committee once again directed the country’s ire toward dominant firms and industrial concentration. Antitrust cases were brought against dominant firms such as Alcoa and A&P and against “shared monopolies” as in the Mother Hubbard case against the petroleum companies, the proceeding against the major cigarette companies, and the FTC case against the Big Four in meatpacking.

Currently, we are trying to find scapegoats for inflation.13 So we have brought cases against “dominant” firms such as IBM, AT&T, and Du Pont, and against the “shared monopolies” already described.

When we are troubled by deflation or by inflation, both brought on by the government’s ineptness in operating our monetary and fiscal policy, the politicians export the blame to somebody else. Mr. Carter tells us in his speeches that the government is not at fault for our inflation it is up to business and labor to bring inflation to a halt.

In this modern day, we are no longer subject to the kind of superstitions that led the early colonists to hang witches when they were troubled by forces they did not understand. Instead, in this enlightened age, when we seek to rid ourselves of the causes of inflation and other mysterious ailments, we pillory dominant firms or the Big Fours in concentrated, and not so concentrated, industries.

The Potential Losses from Deconcentration

This absurd behavior by our politicians and its acceptance by the electorate as being something more than a hunt by politicians for witches to blame for their own mistakes might be tolerable if it were nothing more than expensive entertainment of voters. But it is something more. It is counterproductive in terms of the ends we seek less inflation, higher rates of growth, and improved levels of living.

Prices have gone up less rapidly in our most concentrated industries than in others and productivity has grown more rapidly. From 1967 to 1973, prices in our most concentrated industries rose less than half as rapidly as prices in all manufacturing.[14] From 1958 to 1965, prices in our most concentrated manufacturing industries actually fell while prices in other manufacturing industries rose. Yet it is our concentrated industries with a superior record for moderating inflation and a superb record for increasing productivity that are being cast in the role of economic villains.[15]

If this witch-hunt continues, the result will be economic disaster. If we deconcentrate all our manufacturing industries in which four firms produce and sell more than 50 percent of the product, the result will be a 20 percent rise in costs and a 10 to 15 percent rise in prices.[16] If we want to hasten our decline to the status of a banana republic, the attack on concentration will contribute to that end.


1. FTC News Summary, April 14, 1978, p. 1. Emphasis supplied.

2. FTC Docket No. 8883, April 26, 1972.

3. Complaint Counsel’s Prediscovery Statement, In the Matter of Exxon Corporation, et al., Docket No. 8934, pp. 7 10.

4. The Court did accept this upside-down view in reversing the lower court in the Alcoa case. Yale Brozen, “Antitrust Out of Hand,” The Conference Board Record, vol. 11, no. 3 (March 1974). [The government did not prevail in any of these cases. Ed.]

5. Robert Bork, The Antitrust Paradox (1978), p. 20.

6. Federal Trade Commission, Report on Motor Vehicle Industry (Washington, D.C.: U.S. Government Printing Office, 1939).

7. Richard Zerbe, “The American Sugar Refinery Company, 1887 1914; The Story of Monopoly,” Journal of Law & Economics, vol. 12 (1969), pp. 353 57.

8. Yale Brozen, “The Consequences of Economic Regulation,” New Guard, vol. 15 (June 1975).

9. The 1956 and subsequent figures overstate the share of market retained by the original Big Four since Cudahy was displaced by Hormel.

10. Ralph C. Epstein, Industrial Profits in the United States (New York: National Bureau of Economic Research, 1934), reports that 23 leading meat-packers earned 1.9 percent on equity in 1928 while 46 minor meat-packers earned 10.0 percent. In 1964, leading packers earned 3.7 percent while small packers earned 13.6 percent.

11. Ambrose Winston, “The Chimera of Monopoly,” The Atlantic Monthly (1924), reprinted in The Freeman (September 1960).

12. The average rail rate fell from 19 mills per ton-mile to 7.5 mills.

13. J. Cotlin, “Increased Corporation Antitrust Suits Prompt Industry Fears of New Federal Policy,” National Journal Reports, September 15, 1973, p. 1371.

14. Steven Lustgarten, Industrial Concentration and Inflation (Washington, D.C.: American Enterprise Institute for Public Policy Research, 1975), Table 2.

15. Shirley Scheibla, “Monopoly the Villain,” Barron’s, November 4, 1974, pp. 9, 18 20; “Economic Concentration: The Perennial Fall Guy,” First National City Bank Monthly Economic Letter, April 1972.

16. Sam Peltzman, “The Gains and Losses from Industrial Concentration,” Journal of Law & Economics, vol. 20 (October 1977).