An article in last Tuesday’s Wall Street Journal noted that after having made records and tapes obsolete, compact discs could themselves eventually be made extinct with the proliferation of ITunes and the phenomenon of downloadable music. The article suggested that in the future, the market for used CDs might overtake that for new ones. Ironically, a USA Today editorial the same day threw cold water on the proposed AT&T/Bell South merger. The editorial lamented the return of “Ma Bell” and “the AT&T monopoly that once ruled the wired world, throttling competition.” The latter assumption speaks to the arrogance of the anti-trust mindset — the presumption that judges, bureaucrats, and politicians can somehow know the future of commerce.
Of course, the anti-trusters hold that they have the best interest of consumers in mind, and that monopolies are the enemy of the consumer. But in blocking deals that they believe will lead to monopolies, they act more like soothsayers than consumer advocates. More, their track record of predicting the future is a poor one.
The history of General Motors is arguably the best example of the failure of monopolistic assumptions to materialize. In his 1952 book, The Concept of Countervailing Power, John Kenneth Galbraith argued that “The decisions of General Motors on power, design, price, model changes, production schedules, and the myriad other details concerning its automobiles are final. There is no appeal; the career or reputation of no authority is at stake.” In 1976, two American Motors executives said if GM’s growth weren’t halted, “they might find themselves selling the whole market,” and that if “they wanted to wipe out everybody by 1980, the only one who could stop them is the government.” Nearly thirty years later GM chief executive Rick Wagoner was reduced to explaining away his company’s failures in a Wall Street Journal editorial, all while making a veiled plea for a taxpayer bailout.
In 1969 the Justice Department began the longest anti-trust investigation in its history when it took on IBM for its supposed monopolistic practices. But by 1982, when the suit was finally dropped, IBM’s descent had already been established — the company had nearsightedly ignored the potential of the personal computer.
What seemingly is missed every time the anti-trust crowd gets in a froth over a proposed merger is the nature of profits. If anything, consumers should hope that companies succeed in achieving monopoly profits. Large profits by definition speak to an unmet market need that is being met. More importantly, large profits attract competition. It can even be argued that if companies do not achieve monopoly gains, they’re engaging in activity that is not important to consumers and that will not attract competition.
According to anti-trust scholars John H. Shenefield and Irwin Stelzer, when courts seek to analyze monopolistic behavior, they “attempt to include in the relevant market all goods that consumers view as realistic substitutes, one for the other.” But corporations within the competitive marketplace can’t even figure this out.
IBM missed the boat on the personal computer, while future monopolist Microsoft initially wrote off the Internet. Blockbuster Video felt that pay-per-view movies were the major threat to their profits, only to ignore Netflix as it proceeded to make the concept of video stores nearly irrelevant. Landline phone connections are gradually being made obsolete by wireless connections, but who’s to say whether or not future innovations will doom the cellphone to the graveyard of antiquated technologies?
Importantly, stocks would be fully priced today if the future were somehow known. That the future is not known speaks to the “fatal conceit” that bureaucrats and courts engage in when trying to divine it.
Meanwhile, the known economic victims of anti-trust intervention are those companies whose mergers are disallowed, not to mention the corporate combinations that are watered down by government decree through the sale of certain parts of businesses. United Airlines and US Airways filed for bankruptcy after their merger was quashed. And while the financial press revels in the supposed underperformance of certain companies post-merger, would the performance of those companies have been better if bureaucrats hadn’t weakened their merger deals in the first place?
The latter is the known in the anti-trust equation, whereas the unknown is all that doesn’t occur out of fear of anti-trust scrutiny. It would be impossible to quantify all the duplication and economic waste that occurs in our economy because mergers were never proposed out of fear of the Justice Department. But this waste is arguably significant and, as such, another obstacle to economic growth.
The history of commerce in the U.S. is one of formerly mighty companies being crushed by newer and more nimble competitors. Anti-trust laws ascribe a static nature to the U.S. economy that belies reality. All this said, the AT&T/Bell South merger should be allowed to occur free of government interference. More, in the future, it should be hoped that the Justice Department lets markets decide what are and are not the best business combinations.
–John Tamny is a writer in Washington, D.C. He can be contacted at email@example.com.