Regulatory Policy

Antitrust Litigation Usually Causes More Harm Than Good. Big Tech Is No Different

Attendees walk past a Facebook logo at the company’s developers conference in San Jose, Calif., April 30, 2019. (Stephen Lam/Reuters)
Consumers won’t thank the antitrust enforcers for repeating the mistakes of the past.

Advocates of expanded antitrust regulation often cite past cases to demonstrate the benefits of pursuing litigation against today’s Big Tech firms. But when the details of these cases are examined in light of today’s competitive landscape, they suggest more caution than zeal in pursuing antitrust litigation.

Standard Oil Co. of New Jersey v. United States (1911) is the case that started it all. At the time of trial, the defendant was cutting prices to consumers and increasing output. That is not what one expects to find in a monopolized market. While Standard Oil’s competitors were understandably unhappy with the refiner’s ability to bring the average cost per gallon of kerosene from almost 3 cents in 1870 to 0.452 cents in 1885, consumers were benefiting from the lower price. At the time, the courts had not yet established a clear standard for designating and punishing monopolies. Since the 1970s, however, courts have adopted the “consumer welfare” standard, pursuing litigation against monopolistic activity only when they harm consumers. As in many of history’s flawed antitrust lawsuits, the Federal Trade Commission’s case against Facebook fails to establish consumer harm.

One issue is the social-media giant’s acquisition of Instagram. But the reality for consumers is that Facebook took a glitchy and obscure photo-sharing app and, using its superior resources and expertise, turned it into a better product that had a billion users as of 2018 and remains free to use.

The U.S. v. American Telegraph and Telephone Company case is often held up to demonstrate the benefits of government intervention in busting a monopoly. But AT&T’s monopoly was established and maintained by the government. Before AT&T willingly agreed to provide universal telephone service at regulated rates in exchange for government-mandated monopoly status, the telephone sector was competitive and innovative. The significance of the AT&T case for today’s antitrust discussion is recognizing the dangers to consumers of a government-protected monopoly, even if in subtler forms such as government regulation and regulatory capture.

U.S. v. International Business Machines Corp holds a valuable lesson about the harmful, unintended consequences of antitrust action. The looming case against IBM inadvertently created incentives for the company to raise its prices to consumers. IBM worried about what market share and profits it would be allowed to enjoy in the future if it lost the case, so it raised prices in the short-term to reduce market share to a level that would not concern regulators. Ironically, in its efforts to protect consumers from higher prices, the Department of Justice created incentives for IBM to raise prices. The DOJ has taken a similar risk in its suit against Google, which targets the company’s agreements with smart-phone manufacturers to preinstall its search tools. Search-engine competitors don’t like these arrangements, but consumers benefit by paying less for phones. If the interests of competitors are put before those of consumers, the lower prices and innovations that the latter enjoy will be sacrificed to protect inferior firms.

Perhaps it is easiest to see the dangers of today’s antirust actions against Big Tech in U.S. v. Microsoft. Microsoft raised the ire of regulators by including its Explorer browser free of charge with its Windows operating system, which brought the cost of a browser from $39 for Netscape Navigator to zero, the same price consumers pay for many of the services of today’s tech leaders. That was bad news for Netscape, but good news for consumers.

Real-world market developments during the course of the Microsoft trial also called the wisdom of the case into question. The computing world was shifting online, but the browser’s relative importance was no longer what prosecutors had made it out to be. Data and advertising were quickly becoming far more important to profits than including a free browser with an operating system. The move to mobile devices, the rise of search, monetized advertising, the Internet of things, voice-controlled technology, social media, widespread wireless Internet access, and online commerce all make the desktop “browser wars” look antiquated. Market forces acted faster than litigation proceeded, and it’s hard to imagine how that won’t also be the case for antitrust litigation against firms such as Amazon, Apple, Facebook and Google.

The flawed nature of these cases is a strong argument against expanding antitrust regulations. Consumers won’t thank the antitrust enforcers for repeating the mistakes of the past.

Jessica Melugin is the associate director of the Center for Technology and Innovation at the Competitive Enterprise Institute.

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