ANTITRUST POLICY IS ON A BETTER footing today than it was 25 years ago, but it still shares some features with the story of the emperor's new clothes.
The tailors of antitrust policy tell us that the antitrust laws are the "Magna Carta of free enterprise," that they protect consumers against the conspiracies and depredations of business. Despite mistakes that we can ignore, the proponents say, the well-intentioned antitrust endeavor has improved U.S. economic performance by suppressing collusion and serving notice that firms may use only fair means to attain or protect a monopoly. The courts and the agencies did get a little out of hand in the 1960s and '70s, but a bipartisan consensus has emerged that keeps monopolies in check, they say reassuringly. You do see, ask the tailors, that a broad variety of suspect but otherwise legal business behaviors can hurt consumers? More importantly, you do see that our antitrust laws have increased our standard of living?
"Yes" is a tempting answer for a variety of reasons, none very good. The fear of powerful, unseen forces and conspiracies runs through human history. In addition, losers and those who fear they may be losers prefer to put the blame on others rather than their own bad luck or bad planning. Finally, as we know from the story of the emperor's new clothes, only the naive or courageous are prepared to admit that they do not see what the experts claim as fact. The antitrust bar, law professors, antitrust officials, economic consultants, and firms anxious to see brickbats thrown at their competitors maintain a steady drumbeat for their own versions of vigorous enforcement.
Despite the drumbeat, the empirical case for antitrust remains weak. We know that polio vaccine effectively eradicated polio; we do not know that the antitrust laws have made us better off. Twenty years ago, George Stigler wrote: "There have been no persuasive studies of the effects of the Sherman and Clayton Acts throughout this century." Little has changed. The antitrust experts may be having fun, but the clothes they have draped on the emperor are threadbare at best.
MAGNA CARTA OR POLITICS AS USUAL?
One myth needs immediate debunking: Antitrust law was not a response to textbook monopoly. Rather, it was a response to disruptive technologies and new forms of business that arrived thick and fast in the late nineteenth century. For example, centralized meatpackers put local slaughterhouses under competitive pressure after the invention of the refrigerated railcar. Similarly, Standard Oil pioneered the use of tank cars to transport petroleum, putting pressure on refiners that shipped oil in barrels. Analogous stories played themselves out in dozens of industries. In a seeming paradox, firms in those industries often formed "trusts," "pools," and other cartel-like arrangements.
Many of the classic "trust" industries also pioneered the modern corporate form. When Congress passed the Sherman Act in July of 1890, fear of disruption, low prices, and new, larger forms of business organization were as much in the air as fear of high prices. Tellingly, Congress passed the McKinley Tariff (with a rate of almost 50 percent) only a few months earlier -- the opposite of what one would expect from a champion of consumer welfare.
A second myth also requires attention. The courts have not interpreted antitrust law-whatever its origins-selflessly and in a political vacuum. Rather, they respond to political pressure and, like all bureaucracies, protect their turf. For example, the Supreme Court originally viewed the Sherman Act as inapplicable to acquisitions via stock purchases. After Teddy Roosevelt attacked an unpopular railroad consolidation, it narrowly reversed itself in 1904. Similarly, the court created the per se rule against price fixing in the mid-1890s, but abandoned it just months before passage of the 1933 National Industrial Recovery Act, …