There is something to be said for respecting natural monopoliesby Niall Ferguson / December 14, 2018 / Leave a comment
Is big tech too big? In the past year, interest has grown in the idea that the giants of Silicon Valley have morphed into monopolies. Tim Wu of Columbia Law School argues they should be broken up: Facebook should relinquish Instagram and WhatsApp; Google should give up YouTube and DoubleClick; Amazon should spin off Amazon Web Services. Such arguments have ceased to be the preserve of progressives. Even President Donald Trump is said to have “wondered aloud if there may be any way to go after Amazon with antitrust or competition law.”
We’ll hear a lot more about breaking up big tech in 2019. However, there are significant problems with anti-trust law that we would do well to note. History tells us that enforcing competition against big concentrations of capital is harder than it looks. The analogy with John D Rockefeller’s Standard Oil is often drawn (I’ve heard Google referred to as “Standard Data”). Antitrust law was developed in the US over a century ago, as a response to the rise of trusts and combinations—that is, cross-ownership and management structures facilitating collusion. At first, Standard Oil had been praised for bringing down the price of kerosene. However, in the early 1900s, journalists helped turn public opinion against Rockefeller. Supreme Court Justice Louis Brandeis coined the phrase “the curse of bigness,” arguing that firms could be too big to treat employees on equal terms, to be efficient, and to treat rivals fairly. A landmark 1911 judgment broke Standard Oil up into no less than 34 separate firms.
For half a century, Brandeis’s approach was dominant in the courts. But this view of antitrust law was challenged by Robert H Bork and Ward S Bowman of Yale Law School, who argued persuasively from the 1960s, that antitrust law could in fact harm consumer welfare by punishing aggressive pricing and preventing mergers that would reduce prices. Gradually, “consumer welfare”—often defined by low prices—came to be equated with economic efficiency in the court rooms and in public policy.
This helps explain why Microsoft was not split up by the US courts in the 1990s. The most that happened was that it was obliged to disclose details about the workings of its Windows operating…