Is Antitrust What You Think it is? / Prosperity in Wars: Part I

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Is Antitrust What You Think it is?

Antitrust is said to be a series of laws that involve restricting the market share that is held by a company. It is said it protects trade and commerce from unfair business practices. Is this true?

Let’s take a look at what the actual history says.

The Sherman Antitrust Act, 1890, and the Federal Trade Commission Act, 1914, say: They “criminalize every contract, combination… or conspiracy in restraint of trade, and attempts to “monopolize” through mergers and acquisitions”.

What does restraint of trade mean? It means it is a practice where a large dominant firm lowers and limits production to raise its prices and earn more profits.

Imagine a great tennis player of your time, and that he or she is in violation because he or she has 100% of the share for tennis games, which makes him or her a monopolist. Why? Well, he or she restricts his or her tennis games by only making 6 to 7 games a year. He or she is restricting, and lowering his or her output, to raise the amount of money he or she earns per game. What is the government supposed to do, according to the antitrust law? Force him or her to raise his or her tennis games, so that consumer welfare can be maximized.

Is this correct? I’ll leave it to you.

Still, this is how the government thinks.

Now, throughout history there is no case or time in which the government actually did something like this. What I mean is; the government never stopped someone who was raising prices, but stopped those who were lowering them. We have some clear examples of why this never happened.

In 1911, U.S. vs. American Tobacco. American Tobacco merged with smaller companies, but never established a “monopoly”. The output rose, and prices fell for decades before the case. It had thousands of competitors, and it was easy to get entry into the industry. There was also no demonstration of injury to the consumers, yet, it got punished because of that.

In 1945, U.S. vs. Aluminum Company of America. Alcoa consistently lowered their prices, so the government punished them. This is what the judge, Learned Hand said: “It was not inevitable that it should always anticipate increased in the demand for ingot and be prepared to supply them. Nothing compelled it to keep doubling and redoubling its capacity before others entered the field. It insists that it never excluded competitors; but we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connections and the elite of personnel.”

In other words, he is saying, because it is a good company that finds new ways to innovate, produce effectively, and keep producing more product, its excluding others who aren’t as good. In case you didn’t know, the free market is supposed to do that, it’s supposed to exclude others that are not as good, because they are wasting our resources.

I will place one last example, U.S. vs. American Can in 1949. This company had persuaded consumers to sign a long-term lease, and in trade it offered substantial price discounts for large can orders. According to the court, the company had “coerced” the consumers into accepting these leases. The solution they proposed? The company should raise its prices, and this would make the industry more competitive. Did this help the consumers? NO! Actually, what the American Can company did is something we see every day in the free market. Oh yeah, sure, it damages consumers to have low prices! I thought you were supposed to punish those who were raising them!

Then, we have mergers and acquisitions. This is when a company acquires another company. Now, this is supposed to be horrendous, and unfair, but let’s analyze something very important.

How many American car companies are there? Would it be wise to say that there aren’t enough car companies, that we need more competition? Let’s suppose that there are 10,000 American car companies, and each of these companies sell 1,000 cars a year. Would they be able to survive? How much money does it cost to make a car? A lot! None of the companies would be able to make up all the money they spent to make the cars. They would go out of business! This would make no sense; all they would be doing is wasting the resources. So, I’m thinking it would be better to have way fewer car companies. In this case, mergers and acquisitions would be the only good solution.

Last but not least, in 1890, they were giving high tariffs on imported goods. What is a tariff? A tariff is so that American businesses can afford to charge higher prices to consumers, because consumers are now hampered in trying to get goods from foreign sources. They can’t get those goods, so now the American companies can exploit them by raising their prices.

In other words, the government is saying that they are fighting against big businesses, that you should look at the Sherman Antitrust Act, but they don’t even mention the high tariffs they’re imposing that actually help big businesses, and they don’t even mention that the language in the Sherman Antitrust Act is very hard to understand, and it is almost impossible for an average person to know what is really being prohibited or not. Oh, but don’t worry, that’s not your job, that’s the courts job. Just stay dumb as if nothing were going on, believe our lies, and let us keep stealing from you.

The New York Times wrote this about antitrust: “That so-called Anti-Trust law was passed to deceive the people and to clear the way for the enactment of this… law relating to the tariff. It was projected in order that the party organs might say to the opponents of tariff extortion and protected combinations, ‘Behold! We have attacked the Trusts. The Republican party is the enemy of all such rings.”

This is what Professor Armentano said: “Antitrust theory and history are both a myth and a hoax. The laws were never intended to help consumers… and their long historical track record is that they have not helped consumers. They have, instead, punished innovative and efficient business organizations while protecting less efficient competitors and every state-sanctioned monopoly. They have tended to make consumers poorer and the overall economy less efficient and they deserve to be repealed, not reformed. That the antitrust paradigm still can find support among a majority of economists, lawyers, and the public is a testament to intellectual laziness, to the power of special interest, and to decades of successful myth making.”

With nothing more to say, I completely agree with what they said.

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