Antitrust for Fun and Profit: The Democrats’ Better Deal (Part 3)

This continues Part 1 and Part 2 of my critique of the arguments for aggressive antitrust activism offered in Steven Pearlstein’s Washington Post article, “Is Amazon Getting Too Big,” which is largely based on a loquacious law review article by Lina Kahn of the Google-funded “New America” think tank. 

My previous blogs found no factual evidence to support claims of Pearlstein and Kahn that many markets (which must include imported goods and services) are becoming dominated by near-monopolies who profit from overcharging and under-serving consumers.  

Yet the wordiest Kahn-Pearlstein arguments for more antitrust suits against large tech companies are not about facts at all, but about theories and predictions.

Kahn makes a plea for preemptive punishment based on omniscient futurism. “The current market is not always a good indication of competitive harm,” she writes.  Antitrust enforcers “have to ask what the future market will look like.” But how could antitrust enforcers’ predictions about what might or might not happen in the future be deemed a crime or a cause for civil damages?  If the law allowed courts to levy huge fines or break-up companies on the basis of prosecutors’ predictions of the future, the potential for whimsical damages and political corruption would be almost limitless.

We have already experienced extremely costly federal (and European) antitrust cases based largely on incredible predictions about “what the future market will look like” – mostly obviously in the cases against IBM and Microsoft.

IBM was the subject of 13 years of antitrust “investigation” (harassment) before the suit was finally dismissed “without merit” in 1982.  My first article about antitrust was a 1974 critique of the IBM case in Reason magazine which remains the best explanation (aside from this book) of what I mean about antitrust being “for fun and profit.”

Pearlstein imagines “it was the government’s aborted prosecution of IBM … that made Microsoft possible.”  But IBM’s decision to offer three operating systems for the PC and allow Microsoft to sell MS-DOS to Compaq had nothing to do with the government’s antitrust crusade against IBM.  That crusade was a well-funded project of Control Data, Honeywell, NCR and Sperry Rand – competitors of IBM’s who hoped to do better in court than they had with customers.

 “In May 1998,” notes Pearlstein, “U.S. attorneys general filed an antitrust suit against Microsoft, which lurks in the background of the current debate” (about Amazon, Google and Apple).  Microsoft was said to have a supposedly invincible monopoly of “Intel-based” personal computers (inexcusably excluding Apple, Sun, Palm, Linux and others from the market), but the prosecutors could not deny that this dominance was achieved legally by consumer preference. The essence of the antitrust allegations was that Microsoft was accused of extending its legal dominance in PCs to achieve a monopoly of Internet browsers and assorted “middleware” (media players, email clients and instant messaging) that could supposedly serve as “alternative platforms” to Windows (or iOS) in some totally incomprehensible fashion.  In reality, the Internet was the alternative platform, and it is platform-independent. Online services also don’t know or care which media player you use to watch movies or listen to music. Online tax return services don’t care either.

The government’s technologically illiterate case against Microsoft became a decade-long, ever-changing battle waged by prosecutors and judges who were unable to even contemplate that (1) Apple, Amazon and Google could ever be competitive rivals of Microsoft in hardware, software or services, or that (2) cellphones and tablets could possibly serve as handy computers.  The Microsoft settlement “barred Microsoft from entering into Windows agreements that excluded competitors from [offering software installed on] new computers, and forced the company to make Windows interoperable with non-Microsoft software.” But Windows had always been far more welcoming to outside software than Apple.  And the browsers, search engines or media players preloaded on new computers became a non-issue once broadband made it easy to install any or all of them on PCs, tablets and phones.  Open-source VLC soon became a popular media player, and open-source Firefox is a popular browser. Instant messaging is dominated by Facebook, Snapchat and Skype.

Google’s Android, Apple’s IOS and Amazon’s Kindle (which is not counted in those shares) have greatly eroded Microsoft’s share of all relevant markets without help from antitrust cops.  By July 2017, Windows had only a 26.8% share of platforms used to access the Internet, and IE/Edge had an 8% share of browsers

Ms. Kahn now worries that antitrust must now shift focus toward Microsoft’s (previously unnoticed) rivals lest they prove to be just as firmly entrenched as DOJ wrongly predicted that Windows and IE would now be.  “Google, Apple and Amazon have created disruptive technologies that changed the world,” says Kahn. “But the opportunity to compete must remain open for new entrants and smaller competitors that want their chance to change the world.”  Sure, but the opportunity to compete was always open and still is.  New entrants explain why IBM gave up making PCs, and why few people use Microsoft’s capable Edge browser or Bing search engine. 

Rather than offer any evidence that new entrants are somehow excluded from [undefined] markets supposedly dominated by Google, Apple and Amazon, Kahn offers theoretical conjecture.  Paraphrasing her, Pearlstein says, “Chicago antitrust theory is ill equipped to deal with high-tech industries, which naturally tend toward winner-take-all competition. In these, most of the expenses are in the form of upfront investments, such as software (think Apple and Microsoft), meaning that the cost of serving additional customers is close to zero… What this “post-Chicago” economics shows [asserts?] is that in such industries, firms that jump into an early lead can gain such an overwhelming advantage that new rivals find it nearly impossible to enter the market… [emphasis added].”  

Tim Muris and Bruce Kobyashi, by contrast, find Post-Chicago economics is all about “stylized theoretical models, producing possibility theorems that largely eschew empirical testing.  [The] lack of empirical verification of these theories likely has limited the impact of Post-Chicago School economics on U.S. antitrust law.”

Consider the possibility theorem that early entrants into high-tech gained “such an overwhelming advantage that new rivals [found] it nearly impossible to enter the market.”  Anything might be possible in theory, but that claim has not been true in fact.  

  • In personal computers, Apple, Commodore and Sinclair were first, followed by Apollo and the IBM PC in 1981, Osborne and Sun in 1982, Compaq in 1983.  Contrary to what trustbusters predicted, IBM gave up the ThinkPad business in 2005.
  • Netscape had an overwhelming dominance of Internet browsing in 1995, but that not deter Opera and Internet Explorer from entering the market that year, nor Firefox in 2002, Safari in 2003, or Google Chrome in 2008. 
  • AOL was the dominant Internet portal in 1993 until challenged by Netscape in 1994, Yahoo in 1995 and later by Comcast, Google, Facebook and many more. 
  • AltaVista, Lycos and Yahoo were meta-search engines that “jumped into an early lead,” yet were soon trumped by Google, Bing and numerous specialized “vertical” search engines (Amazon, Yelp, eBay, Trip Advisor, Expedia…) and Comparative Shopping Engines (Nextag, Shopzilla… ) which lobbied for “the absurd EU antitrust case against Google.”
  • Palm, Nokia and Motorola jumped into an early lead in cellphones, yet were shoved aside by Blackberry, which in turn was shoved aside (for the moment) by Samsung and iPhone.
  •  Friendster, Linked-in and My Space jumped into an early lead in social networking in 2002-03, yet Facebook did not find it impossible to jump into that market in 2004, nor did Twitter in 2006, followed by Google+, Snapchat, Instagram, and others.

Ms. Khan would not only have antitrust czars prosecuting cases based on their technological predictions, but would have them “overseeing concentrations of power that risk precluding real competition.” This “structural” approach removes all annoying requirements for evidence that competition is impeded in any way.  All that would be needed is a prosecutor’s perception that apparent concentration of undefinable “power” might someday risk some undefinable vision of “real competition” or otherwise harm some undefinable “public interest.” 

Pearlstein quotes former antitrust authorities who view Ms. Kahn’s proposed carte blanche antitrust mandate as an invitation to “political and ideological mischief.”  President Trump, for example, threatened Jeff Bezos with “a huge antitrust problem” because Amazon owns The Washington Post “and he’s using that as a tool for political power against me.” 

Mr. Pearlstein began his piece by noting that, “Democrats cited stepped-up antitrust enforcement as a centerpiece of their plan to deliver ‘a better deal’ for Americans should they regain control of Congress and the White House.”  If such stepped-up enforcement follows the advice of Pearlstein and Kahn, it would add paralyzing uncertainty to business plans and decisions.  The Kahn-Pearlstein vision of stepped-up antitrust activism is a recipe for judicial fiat.  It would encourage interest group meddling in business planning and pricing, invite political corruption, and largely replace the rule of law with the rule of lawyers.