The Strange Thing Called Anti-Trust
by Mayank Kumar (April 2, 2006)

Guest Columnist
Mayank Kumar is a 21 year-old computer engineering student at I.I.T. He currently lives in India, but anticipates moving to the United States in 2007 to become a businessman. He enjoys reading political theory - particulary Ayn Rand.

In Wikipedia, the antitrust or competition law is defined as “Laws which seek to promote economic and business competition by promoting anti competitive behavior and unfair business practices.” These laws led to the dissolution of innumerable companies, dominant of them being Rockfeller Oil and AT&T and almost led to dividing Microsoft into two sub companies in 2000. For not the first time in history, people are punished using these laws for being too good… for raising the bar too high.

Those in favor of antitrust argue that these laws are needed to prevent monopoly and control of marketplace and promote competition. But what they forget is that government's only function (envisioned by the Founding Fathers) is to protect the borders and its citizen from criminals. Government has no right whatsoever to prevent any trade between two willing parties. Any deviation from such a process does more harm then good in the long run both to the people and commerce.

There are two kind of monopolies – one due to government support and subsidies and one in which a company outrivals its competitors. The problem monopolies that are formed due to government support is that there is now a federally supplied safety net. These entities do not fear the failures of inefficiency or poor decisions and therefore are not beholden to provide better services to consumer at cheaper rates. Supporters of antitrust generally say that a monopolistic company will not hesitate to offer goods and services at higher cost and lower quality. But any company has to constantly grow and continue offering the best services due to the threat of competitors that are trying to take a share of its market. Even if its competitors have been eliminated, it doesn't mean that competition has been eliminated. There will always be new startup companies or new sub-companies floated by big ones trying to eat into its market share. Remember that the monopoly is created by the consumer and can be brought down whenever people find a better option.

And for those who think that a monopoly will stop growing once it eliminates its competitors, d uring the 1880s output of monopolistic industries grew seven times faster than the overall economy, while prices in these industries were generally falling—even faster than the 7% rate of decline that occurred in the economy as a whole.

Another example, Microsoft, which has a very clear and large monopoly in operating systems, has been recently on the edge after rumours(though unsupported) that Google is developing their own operating system. It is not that Microsoft has stagnanted. They have come out with a new improved system every second year and is still working heavily on its improvements. They know that if somebody comes with even slightly better operating system then they will no longer be the market leaders as they are now.

Competition law advocates state that a big monopoly may indulge in predatory pricing if new competitors enter. They contend that a big company always has cash reserve and can go on a loss for some time until the new competitor is forced out of buisness. But there are three fallacies in that hypothesis. First, predatory pricing leads to lowering of prices which benefits no one but general public at the cost of big companies. Isn't this what the politicians always want? Second, saying that new entrant will have no cash reserve may not be true as it may be supported or an offshoot of another big company and thus may also be able to lower its prices. Finally, if the startup has got a better or more economic way of producing goods and services then it will ultimately be accepted regardless of monopolistic tactics by the rival company.

Again in 1880's, as a result of predatory pricings, cost of iron, zinc and sugar fell by 58%, 20% and 22% respectively. Who were benefitted if not the public?

Note that the nature of free trade is that every exchange occurs willingly and it ends up benefitting everyone according to what one deserves. Even though a monopoly may look like the antithesis of competition, it is very much in accordance with the essence of free trade. The only obstacle to free trade is government regualtion based on claims that it is acting for public good. Behind all the papers, theories, and government regulation lies a gun. In words of Alan Greenspan,

“But the very existence of those undefinable statutes and contradictory case law inhibits businessmen from undertaking what would otherwise be sound productive ventures. No one will ever know what new products, processes, machines, and cost-saving mergers failed to come into existence, killed by the Sherman Act before they were born. No one can ever compute the price that all of us have paid for that Act which, by inducing less effective use of capital, has kept our standard of living lower than would otherwise have been possible. ”

Presently, there is an antitrust law going against Microsoft in Europe which was filed by competitors like Oracel, IBM and Sun Microsystems. They state that dominant position of Microsoft gives it unfair and dominant advantage in rolling out new products. After this case Milton Friedman stated that,

“The computer industry, moves so much more rapidly than the legal process, that by the time this suit is over, who knows what the shape of the industry will be. Never mind the fact that the human energy and the money that will be spent in hiring my fellow economists, as well as in other ways, would be much more productively employed in improving your products. It's a waste! But beyond that, you will rue the day when you called in the government. From now on the computer industry, which has been very fortunate in that it has been relatively free of government intrusion, will experience a continuous increase in government regulation. Antitrust very quickly becomes regulation. ”

Also note the facts that Sun Microsystems itself tried to come up with a new operating system but its product was so complicated and full of bugs that it had to open its system to the public for debugging. Secondly, when IBM was the world leader, Bill Gates predicted in an interview that IBM will fall behind because of their inefficient way of working… which is exactly what happened. Ironcially, these companies are blaming Microsoft for their own failures.

Each company has come out with brilliant products at some time or other but they erred when they invited government in computer industry. They never pondered that government might come after them were they to become too successful.