Revisiting the Gilded Age - "The Curse of Bigness" Review

The Wall Street Journal
By Richard A. Epstein

Are Google, Facebook, Apple and Amazon akin to the dominant “trusts” of the late 19th century—and thus deserving of antitrust action? 

Before his 1916 appointment to the Supreme Court, Louis Brandeis was the nation’s most prominent critic of large concentrations of wealth and power. Brandeis coined the phrase “the curse of business” to express his outright hostility to monopoly power, which he equated with the bigness of the new industrial trusts in railroads, oil, steel and tobacco. Brandeis wrote that “competition is in no sense consistent with large-scale production and distribution”; that such monopolies are secured by “cut-throat competition, espionage, doing business as fake independents, the making of exclusive contracts”; and that America must place “ample power in a government board to aid the small man as against his mighty opponent.”

Tim Wu, a professor at Columbia University’s law school, is Brandeis’s most avid contemporary disciple. In “The Curse of Bigness,” he borrows Brandeis’s impassioned rhetoric to express his fear that a new Gilded Age is upon us, with Google, Facebook, Apple and Amazon appearing as the successors to the dominant trusts of more than 100 years ago. By blindly forgetting the lessons of history, we now face, in Mr. Wu’s words, “extreme economic concentration,” which “yields gross inequality and material suffering, feeding an appetite for nationalistic and extremist leadership.”

Mr. Wu writes with elegance, conviction, knowledge—and certitude. But he goes over the top in his effort to slay the dragon of the so-called Chicago School of antitrust analysis, which finds its clearest expression in the late Robert Bork’s influential 1978 book, “The Antitrust Paradox.” Bork and the Chicago School insist that “consumer welfare” should be the sole standard for antitrust law. Nothing else matters.

There are, of course, some limited points on which Mr. Wu accepts Bork’s conclusions. Both men oppose monopoly power whenever it occurs. Mr. Wu seems to accept Bork’s concern that the over-enforcement of the antitrust law led to perverse Supreme Court decisions, like Brown Shoe (1962) and Von’sGrocery (1966). Both cases struck down mergers between tiny firms whose efficiency gains dwarfed any supposed social losses from increased market concentration.

The two men quickly part company thereafter. Whereas Bork recognized that large firms often have little or no monopoly power, Mr. Wu insists, wrongly, that the two are highly correlated. In addition, Bork was less concerned than Mr. Wu about the ability of firms to gain monopoly power by vertical integration—that is, by combining into one company the firms that operate at different stages of production. Bork was also largely untroubled by the dangers of predation—pricing products at below marginal cost in the short-run with the hope of recouping gains once local rivals are driven out of the market.

The deeper source of philosophical disagreement, however, lies in Mr. Wu’s self-proclaimed “neo-Brandeisian” attack on Bork’s underlying worldview. First, Mr. Wu claims that Bork’s consumer-welfare theory shows too little solicitude toward the small businessman, who can be steamrolled by larger businesses with greater economic power. Second, Mr. Wu claims that Bork’s thesis ignores the perverse influence that dominant firms exercise on the overall political system.

Against both challenges, Bork’s position holds up reasonably well. As to the first, the protection of the small businessman comes at a high price. It forces consumers to do business with small firms that may well have a local geographical monopoly, which would be undercut by a larger firm offering better goods at lower prices. Today the entry of such a competitor often comes from online merchants, like Amazon, that sell to everyone anywhere, and it is hard to think of any sensible restriction on Amazon’s business practices that would produce a net social benefit, given the many underserved areas in the United States. In addition, Amazon is always vulnerable to other online sellers that can take advantage of their skills in niche markets. Finally, a big entrant doesn’t always destroy local businesses. The dominant firm could be the anchor tenant at a shopping mall, for instance, whose presence makes way for smaller businesses offering complementary goods and services. What is more, the high administrative and compliance costs involved in Mr. Wu’s aggressive antitrust regime could easily exceed whatever gains in market efficiency he is aiming for.

Similarly, both Brandeis and Mr. Wu have an oversimplified vision of political markets, for economic dominance need not translate into political dominance. Companies like Google and Facebook today enjoy dominant positions with their search engines or social-media platforms, but they face massive political opposition, not only from regulatory authorities but also from skilled political operatives—activist groups, litigation centers, unions, trade associations—who can make their lives a public-relations nightmare. Fighting off bad publicity, consumer protests, hostile investigations and well-financed litigation is no small task. If these companies do indeed need more regulation, as Mr. Wu claims, it would be better to bring it about in spheres other than antitrust—say, added privacy protections or measures to combat consumer fraud.

Finally, Mr. Wu’s Brandeis fixation blinds him to the distinctive features of modern antitrust litigation, which must contend with often complicated economic arrangements and effects. When American Express tried to prevent its merchants from steering their customers to credit-card companies that charge lower fees to retailers, it was hit with an antitrust lawsuit. But the Supreme Court this year upheld the policy, claiming that it didn’t result in an abuse of market power but was pro-competitive because of indirect effects that improved the benefits to Amex card holders. With his over-concern with bigness per se, Brandeis had nothing to say about these novel issues, and neither, alas, does Mr. Wu.

Tim Wu
The Curse of Bigness