Most people have been taught that the Sherman Anti-Trust laws broke up “monopolies” in order to protect consumers. However, the truth is that the Sherman Anti-Trust laws were actually designed to protect inefficient businesses against the more efficient businesses which hurt the consumer by raising prices and reducing quality. The law was written so vaguely that virtually any business can be prosecuted under it. Lowell Mason of the Federal Trade Commission is quoted saying:
“American business is being harassed, bled, and even blackjacked under a preposterous crazyquilt system of laws, many of which are unintelligible, unenforceable and unfair. There is such a welter of laws governing interstate commerce that the government literally can find some charge to bring against any concern it chooses to prosecute. I say that this system is an outrage.”
Supreme Court Justice Robert H. Jackson remarked while he was head of the Justice Department’s Antitrust Division that “…it is impossible for a lawyer to determine what business conduct will be pronounced lawful by the courts. This situation is embarrassing to businessmen wishing to obey the law and to government officials attempting to enforce it.”
The anti-trust case that most people are familiar with was Rockefeller’s Standard Oil Company. Rockefeller at one point had cornered close to 90% of the oil and kerosene market. In doing so, he reduced the price of kerosene, which was used in most homes and businesses for heat and light, from over $1.00 per gallon to $ .05 ! This resulted in saving millions of whales because expensive whale oil for lighting was replaced by cheap kerosene. He also cleaned up the environment because he found uses for virtually all of the bi-products from refining which many of his smaller competitors just dumped into streams. And, by the time Standard Oil was actually broken up, it’s share of the market had already dropped to less than 25%.
The fact is that, in most industries, no one can profit from their monopoly position by raising prices and reducing services. As soon as they do, a competitor will see an opportunity to profit from the situation and they will offer better services and a lower price. Alan Greenspan, the Federal Reserve Chairman stated –
“It takes extraordinary skill to hold more than 50% of a large industry’s market in a free economy. It requires unusual productive ability, unfailing business judgment, unrelenting effort at the continuous improvement of one’s product and technique. The rare company which is able to retain its share of the market year after year and decade after decade does so by means of productive efficiency – deserves praise, not condemnation.
“The Sherman Act may be understandable when viewed as a projection of the nineteenth century’s fear and economic ignorance. But it is utter nonsense in the context of today’s economic knowledge … The entire structure of antitrust statutes in this country is a jumble of economic irrationality and ignorance.”
There are a few situations which need to be controlled. These would involve natural monopolies, such as utilities, predatory pricing in small markets plus collusion and price fixing. Most utilities, such as electric power companies were granted monopolies because it would not be feasible to build large generating plants and distribution networks without a monopoly. These should continue to be regulated until alternatives are found.
In small markets there is the possibility that a large competitor could use predatory pricing to force small competitors out of business. For example, in a small community with only two gas stations, the larger gas station could sell their products below cost in order to drive out the smaller gas station. Once the smaller station was gone the larger station could raise prices above the market price because there would be no competition. This should be relatively easy to prove since it could be shown that the larger company reduced prices compared with other markets they serve in order to force out a competitor and then raised them after the competitor was eliminated.
Therefore, any company who is convicted of predatory pricing should be liable for treble damages to their smaller competitor.