It’s nice to be able to keep your own score. Supporters of the recent antitrust cases against Google and Amazon like to stress America’s long history of successful technology industry interventions. But who says that the iconic cases of the past were necessary and successful? They do.
There are at least three reasons to doubt this assertion: 1) technological change has eventually reined in the power of even the mightiest of companies, 2) antitrust cases take so long that they tend to be still going well after the power of the accused firm has passed its peak, and 3) settling these cases seems to have helped foreign competitors much more than American consumers. Consider the effects of the RCA, Xerox, IBM, AT&T, and Microsoft suits summarized below.
In a 1958 Consent Decree, the Justice Department (DOJ) required RCA, then the largest electronics company in the world, to provide its valuable patent portfolio to U.S. competitors at no cost. However, RCA was allowed to charge foreign companies. Because it had long relied on licensing revenue, RCA wound up licensing its technology to foreign firms, including Japanese firms seeking to break into the color TV market. The demise of the U.S. consumer electronics business was underway. Today, RCA exists only as a brand name owned by Sony.
In 1972, the Federal Trade Commission (FTC) filed suit against Xerox, accusing it of monopolizing the office copier business, with the head of FTC’s Bureau of Competition stating that he would be “dissatisfied if Xerox’s market share isn’t significantly diminished in several years.” And indeed, Xerox did lose half its market share, but mostly to Japanese firms, in large part because in a 1975 Consent Decree, Xerox was forced to provide its competitors with “written know-how, including drawings, specifications and blueprints for existing and subsequent machines.” In 2018, Xerox was acquired by Fujifilm.
In January of 1982, the Reagan administration dropped the DOJ’s 13-year-long antitrust suit vs IBM, deeming it “without merit.” Supporters of the case believed that IBM was too powerful for others to compete with. But by the early 1980s, personal computers, local area networks, and microprocessor-based systems were already disrupting the market for IBM-style mainframes. Additionally, IBM management’s concerns about the suit drained much of the company’s competitive vitality. Today, IBM is a shadow of its once mighty self, focused on IT services, having sold its PC business to the Chinese firm, Lenovo, in 2005.
Also in January 1982, DOJ settled its eight-year antitrust case against AT&T. The Consent Decree created a single long-distance company and separate regional phone companies. In retrospect, the impact of this divestiture pales in comparison to the three big technology shifts that would soon transform the global telecom business: 1) the rise of the Internet for voice and data services; 2) the shift to wireless communications; and 3) the use of cable tv networks for broadband consumer services. However, once again there were serious unintended consequences. This time it was the demise of Lucent, formerly AT&T’s Western Electric, as well as Bell Labs, once the world’s most important research organization. Their remains are now owned by the Finnish firm, Nokia, while Asian and European firms dominate the global telecom equipment business.
DOJ officially launched its antitrust suit against Microsoft in May of 1998, once again because of the concern that the software giant was too strong for others to compete with. Looking back, this is amusing because by 1998 the Internet was already a transformative force, with other firms clearly in the lead. Microsoft was also lagging in the nascent smartphone market then led by RIM’s Blackberry. In November 2001, DOJ dropped its efforts to break up Microsoft into separate operating systems and applications companies. The financial strength of these two businesses gave Microsoft time to weather its strategic mistakes and become the essential provider it is today. After breathless debates about the high-stakes browser war between Microsoft and Netscape, that market is now dominated by Google and Apple, and of little strategic concern.
While efforts to break up these firms or dictate their tactics have often proved unwise and unnecessary, this doesn’t mean that no actions were ever needed. For example, over the years IBM agreed to unbundle its hardware and software pricing and make it easier for firms to build and sell IBM-compatible products. AT&T was forced to allow providers of third-party phones, faxes, and long-distance services (such as MCI) to connect to its national network. Microsoft and Intel both modified specific business practices to treat PC suppliers more even-handedly. These were all significant improvements, with few serious downsides.
The cases against Google and Amazon should be seen in this light. Once again, the need for sweeping antitrust intervention is dubious. Today’s claims that five companies—Alphabet, Amazon, Apple, Meta, and Microsoft—are all unassailable monopolies seem almost self-refuting, especially as these firms increasingly compete with each other and face fierce competition from China and others, and with numerous disruptive technologies such as AI and RISC-V chips now emerging. Once again, antitrust cases are being launched after the power of the targeted firms has already peaked.
While it might be tempting to separate Amazon’s retail and cloud computing businesses, the notion of breaking up Alphabet into search, email, Android, YouTube, and other businesses, or the demand that Meta divest Instagram and/or WhatsApp, is the type of armchair chess-playing that has historically proved to be unnecessary, and often with serious unintended consequences. It has mostly benefitted foreign competitors and U.S. lawyers.
Rather than sweeping breakups and/or divestments, government oversight should focus on particular business practices and complaints, and as in the past, plaintiffs will sometimes have a compelling case. Companies are not saints, and they inevitably push hard to maximize their interests. It’s certainly fair game to scrutinize Amazon’s retail pricing strategies, Apple’s app store policies, Google’s ad auction dynamics, Facebook’s data usage practices, and similar areas. Such inquiries are analogous to the targeted actions that proved helpful in previous eras.
The bottom line is that targeted actions are sometimes justified, and if done well they can result in increased competition. However, as in the past, the biggest transformations will come, not from antitrust interventions, but from shifts in technology and the marketplace. Policymakers need to be humble about how much they should do and very smart about how to do it. This has never been an easy task, and it won’t get any easier going forward. Faced with a rising China and the massive technology investments needed for the future, America’s digital economy needs to be nudged forward, not dismantled just because some people think its leading firms seem “too powerful.” History clearly shows that doing too much is riskier than doing too little. Believing that the antitrust actions of the past have been both necessary and highly successful pushes the debate in the wrong direction.
