Vance Ginn, Ph.D.
America’s Antitrust laws have been essential to the legal landscape for over a century. They were designed to protect competition and consumer welfare. However, the Biden administration’s onslaught on competition through flawed antitrust efforts has threatened consumer welfare and profitability. This is especially true for “Big Tech” companies that generate substantial consumer welfare and billions of dollars in economic activity.
While these efforts are purportedly aimed at safeguarding the interests of consumers, they pose a major threat to free-market capitalism and, thereby, the nation’s prosperity. Understanding the origins of antitrust laws illuminates why current antitrust accusations are far from their original purpose.
Antitrust laws trace back to the Sherman Anti-Trust Act’s enactment in 1890. The landmark legislation was aimed to curb anticompetitive practices. Section 1 prohibits contracts in restraint of trade, regardless of the size of the firms participating. Section 2 prohibits monopolization or the abuse of monopoly power by firms with substantial market shares. Further reinforcement came with the Clayton Act in 1914, which focused on preventing mergers that could substantially lessen competition or tend to create a monopoly.
However, applying antitrust laws lacked consistency and often yielded ambiguous results, especially during the mid-20th century.
Fast forward to the 1970s, legal scholars proposed a paradigm shift. Figures like Aaron Director, Robert Bork, and others delved into the legislative history of the Sherman Act, concluding that its primary purpose was to protect consumers from the harm caused by cartels without undermining economic efficiency.
This approach laid the foundation for what we now call the consumer welfare standard, a critical development in antitrust enforcement.
In the late 1970s, the U.S. Supreme Court recognized this standard in several cases, asserting that business conduct raising antitrust concerns must be evaluated based on demonstrable economic effects. This standard has since guided antitrust law, emphasizing a simple question: does the conduct make consumers better or worse off? If the conduct improves or does not harm consumers, the conduct is allowed; otherwise, the government can intervene.
The consumer welfare standard is a seemingly straightforward approach that has been a guiding light to antitrust cases. But it has failed to hold those currently at the Federal Trade Commission (FTC) and Department of Justice accountable for their excessive efforts.
In recent years, calls to wield antitrust laws to address the conduct of prominent technology companies like Amazon and Google, which some pejoratively call “Big Tech,” have gained momentum. However, these movements are misguided and pose significant risks to the principles of free-market capitalism.
Expanding the enforcement powers of antitrust agencies, as advocated by some on the left and right, revives an old “big is bad” approach reminiscent of a bygone era when antitrust enforcement was highly politicized. Instead of fostering competition, such a progressive approach undermines the competitive market process. This destroys the instrumental activity that provides innovation, affordable prices, and high-quality goods and services, all critical for human flourishing.
This lawsuit purports to challenge Amazon’s management of its online marketplace, alleging that sellers are forced to charge high prices and lose profit by using Amazon’s add-on services and advertisements. The FTC contends that these choices are obligatory and accuses Amazon of operating as a monopoly, leading to higher prices for lower-quality products.
Numerous surveys and studies reveal that consumers are pleased with Amazon’s services, so this attack against the consumer welfare standard does not appear to be about what is best for customers despite the claims of progressive antitrust enforcers. Moreover, consumers have the agency to take their dollars elsewhere, as Amazon is hardly the only online seller.
The principles that drive capitalism are rooted in competition; when competition is stifled, consumers and entrepreneurs lose.
Another example of abusing antitrust is the Department of Justice’s (DOJ) lawsuit against Google.
The suit contends that Google has dominated the market as the default browser on popular devices through monopolistic means and must be stopped. However, Google is the default browser via legal marketing tactics, which the consumer can easily change, as numerous search engine options can be implemented on any device.
Therefore, the case fails to meet the standard of a solid antitrust law violation of making consumers worse off. Consumers still have many options when selecting a default browser, but most choose Google because they like it best.
This lawsuit is emblematic of a broader issue – applying antitrust laws to preserve competition. Antitrust laws should protect consumers by evaluating whether they are better or worse off due to a company’s actions. It should not be a mechanism to stifle competition to level the playing field. Enforcing such laws without considering the diverse preferences of consumers is a disservice to the very principles on which capitalism–and antitrust laws–were founded.
If we’re going to have antitrust laws rather than just letting market forces work, the consumer welfare standard is an essential framework for evaluating antitrust cases.
It ensures that the focus remains on improving people’s lives rather than manipulating the market based on antitrust enforcers’ interests or political persuasions. This standard can help keep regulators from blocking innovation and economic growth by limiting their ability to pick winners and losers.
While concerns about the size of large tech companies and their censorship practices may be warranted, granting more power and discretion to government bureaucrats is not the solution. Expanding antitrust laws and enforcement powers will lead to politicized enforcement, often aimed at serving the interests of big government, with a disregard for the effects on consumers and the broader economy.
Such a big-government approach would curtail entrepreneurship, freedom of speech, job creation, investment, and economic prosperity.
Proposals to create new antitrust laws are unlikely to address concerns related to censorship and bias in tech companies. Instead, they will usher in uncertainty as legal standards evolve, causing companies to settle such cases to avoid costly legal battles. Such settlements may not necessarily benefit consumers or the economy and will drive up entry costs, creating a high barrier for startups.
At a time of elevated inflation, the labor market faces challenges, and the economy is in turmoil. Pursuing lawsuits against successful companies diverts resources from critical issues and misuses taxpayer money.
The time is now to refocus on what genuinely matters, acknowledge the limitations of government intervention in regulating markets, and allow the principles of free-market capitalism to flourish. This approach should recognize that dispersed, decentralized information through people in markets is much better than through central planning.
Free-market capitalism is not the enemy but the best path to prosperity and freedom. We would be wise to have more of it, not destruction by the radical Biden administration.
Vance Ginn, Ph.D., is a senior fellow of the James Madison Institute, president of Ginn Economic Consulting, and previously served as the associate director for economic policy of the White House’s Office of Management and Budget, 2019-20. Follow him on X.com at @VanceGinn.
