Knowledge And Decisions

Discussions of the systemic effects of monopoly tend to center on the intentions or behavior of monopolists, when what is crucial is the exclusion of competitors who would offer different terms to his customers. This exclusion of competitors is of course the defining characteristic of monopoly, so its explicit statement may seem unnecessary. However, a real monopoly is quite rare, where governmental exclusion is not involved, and in practice antitrust suits claiming “monopolization” or attempting to prevent mergers or to break up existing large firms usually involve industries where there are not one, but a small number, of firms producing the bulk of a given industry’s output. A treacherous analogy or extension is then made to the situation of one seller (monopoly) producing all of an industry’s output to the situation of a few sellers producing most of an industry’s output — which is implicitly taken to be very similar. But it becomes crucial to recall that the systemic economic effect is not due to what the producer(s) can do but to what the producer(s) can prevent others from doing.

An industry with four firms producing 80 percent of its output may seem to be a quasi-monopoly, but if there are dozens of other firms producing the other 20 percent, then it has failed to exclude, which is crucial. Any artificial raising of prices above competitive levels by collusion among the four firms risks the fate of the tangerine cartel in our other hypothetical example. Customers can start buying from the dozens of other producers. The retrospective statistic that four firms sold 80 percent of the industry output during a given time span does not mean that there is anything fixed or prospective about that number. Antitrust proponents have scored a verbal coup by constantly terming such percentages the “share” of the market controlled by certain firms, as if they were discussing prospective behavior rather than retrospective numbers. Such insinuations of exclusionary powers or intimidation require no evidence but instead rely on the time tested principles of repetition. But historically, market shares have changed over time — some drastically — and in some cases the so-called “dominant” firm has disappeared entirely. Life magazine and the Graflex Corporation are recent examples. Once the Graflex Corporation sold virtually all the cameras used by newspaper photographers. But they “controlled” nothing; there were always many other domestic and foreign producers of press cameras, and almost all of them disappeared along with Graflex when improvements in smaller-sized cameras made the latter effective substitutes.

The intellectual state of antitrust doctrine may be suggested by the fact that some of the leading authorities in this field refer to these prevailing doctrines in such terms as “a secular religion,”⁵⁹ consider them analogous to “evangelical theory,”⁶⁰ or simply “wild and woolly.”⁶¹ Even a Supreme Court Justice observed that in certain kinds of antitrust cases the “sole consistency” is that “the government always wins.”⁶² It is therefore especially important to systematically spell out the specifics behind some of the many vague and tendentious terms used in antitrust doctrines (“control,” “predatory pricing,” “foreclosing” the market, “incipient” monopoly, etc ).