Why Judges Let Monopolists Off the Hook
When violations of the law are hard to punish, authorities will usually give them a pass.
Americans have gotten far too used to the idea that corporate behemoths are free to acquire any company they want, engage in predatory behavior, and bully, squeeze out, or demand kickbacks from smaller rivals. Indeed, the U.S. government’s decision to let Facebook buy an obvious rival, Instagram, looks so wrong in hindsight—especially now that leaked documents have revealed Facebook’s seeming indifference to the many problems that its products cause or exacerbate—that Americans should utterly disavow the complex legal framework that allowed the Federal Trade Commission to rationalize that decision. Over the past several decades, establishing that a company has violated antitrust law has become an extraordinarily difficult process. And when violations of the law are hard to punish, authorities will usually give them a pass—as the FTC did with Facebook’s acquisition of Instagram. (Yesterday, Facebook rebranded itself as Meta.)
Anticompetitive behavior is rampant—and not just in the tech industry. Punishing it should be easy.
The law hasn’t always been so lax. From the early 1800s until the 1980s, large companies’ abuse of economic power to crowd out rivals—far from being excused as merely the way the free market works—was broadly seen as illegal. For most of the 19th century, that understanding was embedded in corporate law, common law, and other rules against various restraints of trade. The Sherman Antitrust Act of 1890 and subsequent federal laws formalized the notion that certain types of competition were fundamentally unfair, and some states enshrined similar ideas in their constitutions. In 1967, the Supreme Court ruled against the bicycle manufacturer Schwinn after it set up what antitrust lawyers call “vertical restraints”—limitations on what other entities in a distribution system can do. Schwinn required its distributors to sell its bikes within designated geographical areas and only to designated franchisees. Essentially, it was limiting competition within those regions. It was found guilty of an illegal trade restraint in violation of the Sherman Act. The Supreme Court said the distributor contracts were “so obviously destructive of competition that their mere existence is enough” to show that the law had been broken. To find Schwinn guilty of anticompetitive acts, the government had to prove only that it had been intentional in its contracts.
Today, the same case would lose, because starting in 1977, a wave of federal court cases radically reinterpreted antitrust laws—which are typically written in broad language—to specifically require a weighing of the competitive pros and cons of every business decision, including those that were previously illegal. If the Schwinn case were brought today, the government would need proof not just that anticompetitive behavior occurred, but also that it caused economic harms, including higher costs for consumers, that exceeded any possible benefits of the behavior. The government would have to hire consultants to prove that Schwinn was flexing its economic muscle within the bicycle market, and to prove that the terms of its distributor contracts were not justified by any offsetting consumer benefits. The company would likely hire its own high-priced consultants to make the opposite claim.
Or maybe, seeing the complexity and likely cost of the case, the government simply wouldn’t intervene against behavior that was anticompetitive on its face.
The judges who essentially rewrote our laws—without congressional approval—got it wrong. If Americans want to protect the economy from Goliaths that trample all over workers and small businesses, Congress and the states are going to have to pass new laws that make it easier to bring, and win, antitrust cases.
Under the current regime, judges are given an untenable task: Modern antitrust law treats behavior as legal or illegal depending on whether it can be justified by other positive results. While in our private moral lives these kinds of judgments make sense (philosophers love to debate whether lying might be the morally correct thing to do in some circumstances), public law should be clear and transparent, and not depend on case-by-case balancing.
A basic principle of the rule of law is that laws should be clear, well publicized, stable, and fair, which means we typically do not ask judges to make consequentialist decisions about whether a particular action is “worth it”; we ask them to enforce the decided-upon rules. Imagine if criminal prosecutors had to prove that an embezzler’s victim had a more economically valuable use for the money than the embezzler, or if the defense team in a bribery case could prove that the bribe increased economic efficiency. Imagine if judges not only had to decide whether a restaurant violated health codes, but also had to evaluate reports from economic consultants claiming that the violation actually increased the safety of the restaurant.
Judges are poorly equipped to make those decisions and tend to defer to economists, and any would-be monopolist can typically find at least one analyst who can justify its behavior as pro-competitive. Even though Congress never voted to subject antitrust cases to today’s prevailing standard—which reflects an economic ideology that treats economies as self-healing—judges have mostly stopped blocking mergers or punishing abuses. The more complex and drawn-out the fight, the greater the advantage to monopolists who can afford to spend a lot more than the government. And as big companies get bigger, the even-bigger companies engage in ever more outrageous behavior.
Here’s what a good antitrust fix would look like: Instead of asking judges to apply impossible standards, the law should spell out and prohibit a specific set of abusive business practices—just as it does with bribery, fraud, and employment discrimination. Each of those practices is illegal on its own terms, and we don’t ask whether it was “worth it” to society. Likewise, dominant firms should be explicitly banned from predatory pricing, coercive dealing, and exclusive dealing, for example. Agencies should overtly ban bad mergers, instead of engaging—as they now do—in negotiations for minor concessions that will allow mergers to proceed.
Congress should also recognize that the largest companies exercise far more power in the market than small competitors do—and should therefore be subject to tougher rules. Lawmakers can create transparent standards to determine whether a company is powerful enough to warrant that additional oversight. Congress should also remove any requirement that judges engage in assessing competitive impacts or efficiency. Finally, Congress should be clear that antitrust law is important for protecting consumers from price gouging, but also for protecting workers, small-business owners, and democracy itself. The myopic view that antitrust law exists only to protect consumer welfare has played a singularly destructive role, allowing abusive behavior to flourish. Fortunately, the consumer-welfare standard hasn’t prevented the emergence of a new movement for more vigorous antitrust enforcement—nor has it kept the FTC from trying to make amends for being too lax in the past. The agency has filed suit to undo Facebook’s acquisition of Instagram. Yet although the FTC has a strong chance to win, the case is a nail-biter when it should be a no-brainer.
By simply outlawing abusive, monopolistic corporate behavior, the public would also understand antitrust law better. It would also be easier for businesses and workers to spot anticompetitive behavior when it occurs. Good antitrust laws are like good anti-corruption laws: Strong, simple, clear rules that prohibit misbehavior before it happens are far more effective than trying to clean up the mess afterward.