The Man Who Killed Antitrust

0:00In a world where the word monopoly has lost our meaning. See him, Mack, I'm the only outfit in town. You want to buy a Clyde's Dail-In Manhattan. You got to play by my rules and pay my prices. A monopoly is a large corporation I don't like, and I don't like corporations or horses. One man is on a mission to find the truth. You fellas know under what circumstances vertical integration is permitted? No? Okay, thanks anyway. Get it up! What if I'm your dad? Come on, Brittany. Let's hook up inside of this old sarcophagus. Talk about vertical integration.

1:00What if I'm your horse? Sydney Sweeney as the mummy. The political orphanage presents. Trust or don't trust the antitrust. The monopoly mummy episode. How big does a corporation have to get before it's too big? Mom and pop store. Adorable, we're rooting for them. Even though we don't shop there anymore because we go to the big box store that we hate, we are nonetheless rooting for the most important person in the world. It's important to have a lot of people in the world who don't know what to do. It's important to have a lot of people in the world who don't know what to do. Make sure to win, for the mom and pop, mid-sized company, but then at some point, they get all bleed runner, right?

2:00Big scary corporation, private tyranny. When is that? When is the threshold? For example, the DOJ has just cleared Paramount Studios acquisition of Warner Brothers over antitrust objections from various attorneys general. a behemoth is now gobbling up a giant. The result, film Leviathan. Film Leviathan sounds like a studio. Is that already a studio? I don't know. The DOJ determined that even though Paramount now has access to the entirety of Warner Brothers film arsenal, the Hollywood landscape is not substantially less competitive. So the merger will be allowed to proceed. Because competition is the God of market discipline, arguably better and stronger than Congress or regulatory law. Because a company can weasel around the intention of a law. It might

3:02even evade the law if it can get away with it. But when subject to external competition, companies simply have to fight or die. Preserving competition, then, is the crocs of antitrust law. Ideally, in a market economy, corporations all knife fight each other for the benefit of the end point users, us, consumers. Companies are all in a life or death Darwinian struggle with each other to get us to buy their stuff. And then an open and competitive market, customers go for the best deal. And companies make a profit by fighting for market share. They won up their competitors by improving quality or reducing costs or innovating new goods and services. cheaper pianos, larger pianos, pianos the size of dump trucks. When competition gets suspended, though, that healthy puzzle breaks down. Because

4:10then monopolies and cartels don't compete on prices. They don't have to. And as a result, they get sluggish and fat. There is no financial paranoia to compel innovation. They can just kick back and siphon off profits from us, the bovine clientele. Even worse, monopolies can slap consumers around. If there are six airlines, and one of them decides to get rid of bathrooms, presumably spirit airlines, we can refuse to fly on spirit. We could roll the dice with frontier. But if, in some love, crafty and corporate hell, spirit airlines becomes the only airline, then we're out of luck. We can either hold it or not fly. Or very likely, spirit airlines will keep the bathrooms, but absent competition, they will just double or triple the airfare. Why not? Competition ceases to exist as a restraining principle when they set prices.

5:11Today, everybody agrees. Coercive monopolies are bad. Competition? Good. We all like competent over the course of today's episode. The various viewpoints you are going to hear. Everybody agrees. Monopoles are bad. And competition is good. If a single company is able to throttle the market and go all blade runner on consumers, or a handful of corporations, former cartel and refused to compete, that is destructive to the market economy. We all know and love. And the government needs to step in and rough everybody up to reintroduced competition. So from blue here, progressives to cigar smoking raganites, everybody agrees. Coercive monopolies suck. And when they form, the DOJ needs to jump in with a hatchet and ensure that there is an open free and competitive market environment. So if we agree on that, monopolies are bad. Competition is good. Where are the

6:13arguments coming from? Why was the Paramount Warner Brothers merger disputed in the first place? Why does Matt Stowler keep saying we don't enforce antitrust laws anymore? Which laws? What does that even mean? Today, we are going to explore two primordial schools of thought when it comes to identifying and stopping monopolies to competing worldviews, which gradually co-heared over the course of American history before fighting each other for the soul of the DOJ. One school of thought says if economic power becomes too concentrated, competition becomes fragile, and we should be proactive in outlawing the capacity for monopolistic abuse. The other school of thought says, yeah, but sometimes companies just get big because they're really, really good, and they kick the living shit out of their competitors. Which is also good.

7:15Kick hard. Let's focus on the harm, not the potential, but the harm. That's what all this is about. And these two sides hate each other. Hello and welcome to the Political Orphanage, a home for Pocky, Misfits, and Problem Solvers. I am your host Andrew Heaton and you are in the year 1887, where we have a problem, railroads. Trains have opened up the West. Used to be, you could move out here to the middle of nowhere and eat out an existence, doing some existing farming, fight some Osoapa ha, Marion elk, and kind of keep to yourself, because even if you wanted to, way out here, and the Western Frontier, you can't build or grow much to sell, and how would you even get it to market? Nobody lives out here,

8:19only Jack rabbits. Loading up a stagecoach with tomatoes just won't work. They're going to rot by the time they reach Cleveland. But Trains, now the entire country is becoming interconnected by bands of steel. The economy is growing a new and powerful circulatory system right before our eyes. Suddenly the West is not the unpopulated backwater periphery of America. It's boom towns, cheap land, and opportunity. Now of course, if the B&H Railroad Company is the only train in the Tri-County area, that gives a lot of power to that train company over the local farmers, settlers, and Jack rabbits, who need to ship goods back east. Only one train in the area means it has a monopoly. A monopoly is by nature, have you over a barrel.

9:22Until the Industrial Revolution, monopolies and the United States didn't really exist in the sense that we argue about them today. A monopoly back then was a charter of exclusivity awarded by some government entity. Massachusetts awards your bridge company a monopoly over the Cargill River. Michigan awards a clam digging monopoly to your weird uncle. No other companies are allowed to dig clams at Lake Superior or whatever. I'll argue that the patent system is a relic from this era and what monopolies used to mean. Patents are temporary government monopolies awarded by the federal government to a private company for the copyright use of a particular product. It's under the presumption that the government needs to restrict competition for companies to recoup their funds for research and development. The idea is that if the government does not award these temporary

10:22monopolies to innovators, they won't have the incentive to innovate. That's where that comes from. That's what monopolies used to be. Trains present a new phenomenon, natural monopolies. It's not that the government has outlawed competition for a single company against other companies. It's simply that the economic circumstances have resulted in a monopoly, a natural monopoly. Let's say there's a small market town way out in Gamora, Oklahoma, and Leopold rail code determines that if they build a line out there, they can just barely make money off handful of farmers growing wheat. If another rail company, likewise decides to build a line to Gamora, the ensuing competition means they split the market and neither of them makes enough money to recoup building costs or maintenance. So either the two railroad companies decide it's not worth going to Gamora at all or one of the companies drops out and leaves behind a monopoly.

11:26For underpopulated Gamora, there are only two options then. You either don't get a railroad or you get a railroad monopoly. Other examples of natural monopolies are rural power lines or water systems when the population is just too thin or diffuse for more than one competitor to functionally operate. So like it or not, we end up with a natural monopoly. I would argue it's better to have a monopoly than nothing, better to have the access, the no access at all, because you can still choose not to use it, but at the same time nobody likes that. That railroad has Gamora in a very delicate position. If the options are take it or leave it, the railroad can charge one cent less than the leave it option and extort incredible fares from the folks who have no alternatives. And that is the essence of the problem with monopolies. When one company is able to command all of the options

12:26in a market, it can do whatever it wants. And it's not subject to the discipline of competitors. One train ticket to Tuscaloosa, please, and the first class ticket for my horse. That'll be three dozen shillings, sir. Three dozen shillings. Watch the bigger at the... You don't like it. You're welcome to walk. Why you gotta be a dick about a Peter, you used to be cool. Throughout the United States, but particularly the frontier and the west, farmers began to demand protections from Congress against the disproportionate power that railroad monopolies had over them economically. And the solution that Congress came up with was actually a very old one just to apply old English common law to the current system, what is called common carrier laws. The idea is if your business is essential to transportation or communication, you are by nature a

13:27kind of public infrastructure. And those unique functions make you subject to special duties. Stage coaches, warves, inns, fairies, and so forth. Because you're not just providing a consumer good like a chair or a piano or a service like a haircut or a harlot, but rather the lifeblood of the nation's trade and commerce, the state enforces restraints on the latitude with which you can operate your business. Your stage coach cannot arbitrarily refuse customers. Your fairy can't charge exorbitant prices. The local government is going to cap what you can do because you are not subject to competition. Charge whatever you want for spittoons and harpsichords and harlots, but logistical bottlenecks are constrained. They are subject to common carrier laws. In 1887, Congress passes the Interstate Commerce Act to formalize common carrier laws for railroads. Moving forward, these natural monopolies are regulated monopolies.

14:29They have to charge just and reasonable fairs and are forbidden to engage in discriminatory rebates or undue preferences. They have to publicize their rates and there are restrictions placed on who they can discount and for what. In effect, Congress says, you know what, there's just going to be some things in life which are going to have to have monopolies. We're going to allow private monopolies to operate in these instances as railroad companies, natural monopolies, but we're going to restrict their ability to take advantage of the little guy because there's no competition to restrain them. This is a unique situation where we are going to have common carrier laws restrain them instead. So Congress deals with the train monopolies, but the trains are also enabling other forms of monopolies on top of that by linking small regional markets into bigger-ass national markets. Before the Industrial Revolution, you couldn't

15:31really have monopolies as we know them today, absent direct government intervention, what we talked about earlier. But the reason for that was not because of the law, it was because of the scale of the economy. The scale of the economy just wasn't big enough for anybody to dominate an entire market. No company could get that big. Let's say you run the biggest coffin company in Moose Port Mang. Good for you. How could you possibly compete with casket makers in Caligula, Ohio in the year 1800? It's too expensive to ship coffins by stagecoach. Why would somebody pay for a guy in a horse to lug a body box across the country when they can just walk across town to the local carpenter, shoot him, and kick him into their own local coffin? Now maybe your coffin's really good. It's so good. People are willing to pay some hay seed to schlep it across the Alligainys to be buried in it. Even so, how many of these high-quality luxury coffins can you and your kids hand-build in a

16:35week? A dozen? Even if everyone in the entire country agrees, Moose Port Coffin Co makes the best coffins. If you're going to die, call up Moose Port. It's like a mahogany bed with a roof. It's just a pleasure to be dead in them. Still not physically possible for you to dominate the casket market even then because no one could whittle enough corpse baskets to predominate. But now, with trains linking up the nation and vast commercial networks, you can ship coffins from Moose Port main to Leach Port Mississippi. And you combine that with factories and mass production, and suddenly companies can crank out products at unfathomable scale. They can just keep growing and growing. Technology and infrastructure have altered the ecosystem. Instead of a thousand puddles, there is a sea. And what were once isolated goldfish are growing into gold sharks.

17:36Big old gold sharks. The commercial networks are linking and the size of the companies is growing. And that means that they can all finally compete in one big old gold shark pond. Now these new large national corporations, they come with more muscle. When they flex it, they can dominate the pond. They can buy up competitors in order to eliminate them to preclude competition so they don't have to fight on lowering prices. They can conclude with survivors to keep prices artificially high. Or they can carve up territories so that nobody ever has to compete that hard. You get Cleveland? I get Cincinnati, but nobody in Cleveland or Cincinnati actually is going to have the ability to choose between us. There are accusations that companies pressure suppliers and railroads to deny rivals favorable terms. Fiers that they are temporarily slashing prices in one town until the local competition goes bankrupt, can't keep up. Then

18:40when they're dead and they can't find them, jack the prices up. The problem isn't simply that these corporations are big. It's it for the first time. Private companies are big enough to deliberately reshape the market around themselves and by doing so, suppress competition. They are engaging in anti-competitive behavior, forming monopolies and cartels, getting rich by flouting competition rather than engaging in it. And so in 1890, the United States Congress passes the Sherman Antitrust Act, Section 1, bans any contract, combination or conspiracy that restrains interstate or foreign trade. The stops price fixing, bid rigging and market division. Section 2, outlaws monopolization attempts to monopolize or conspiracies to monopolize any part of trade. And this Sherman Antitrust Act becomes the bedrock of all American monopoly law,

19:46prohibiting companies from suppressing competition. Cartels could agree to suspend competition geographically or on price, as I said, to carve up territories instead of each other's zones of influence or by setting minimum benchmarks on price. Look, we can all compete on price and get sweaty and wear ourselves out. Or we can all agree we're not going to go lower than $20 a widget. Okay, everybody agree on that? Sherman Antitrust law attempts to stop these practices. Also, tries to stop trusts. Trusts could eliminate competition more directly by placing supposed rival companies under common control. So instead of five oil companies forming a cartel and agreeing not to compete, a trust forms when those same companies are controlled by five different directors, different companies, same directors running the board on all the different companies. And thereby creating a decision not to act against each other. A kind of weird shadowy way of

20:52running a monopoly. The Sherman Antitrust Act said companies cannot establish price data. They are required to knife fight each other. We're not companies aren't allowed to quit competing. We're going to make you compete and listen corporations. You can't get sneaky by buying up controlling stakes and all of the competitors in order to make them surrender. That is consolidation. And we're going to put a stop to that. You can't buy stock and competing companies and then use your leverage in their board of directors to neutralize them. If you do that, we're going to split up your company and force the twitching severed limbs to fight each other. Thanks. Keep accelerating throughout the 20th century. In 1914, Congress passes the Clayton Act forbidding the creation of monopolies, stopping them in their insipiency. And that same year, Congress creates the FTC to enforce those preventions of monopoly. Moving forward, the Federal Trade Commission shall block mergers and acquisitions whose effect may be substantially to lessen

21:57competition or to tend to create a monopoly. And that law is still on the books. It's the regulatory hurdle paramount had to overcome to eat Warner Brothers. If you're going to merge two very big companies, the Clayton Act says you need to prove to the FTC that the creation of your new entity will not significantly lessen the competition. The progressive era and really the entirety of the mid 20th century is when antitrust regulation is at its most robust or you want to put it in another way, it's most trigger happy. In 1911, standard oil, the giant tycoon of the oil industry is split up under the Sherman antitrust law. By the end of his presidency, Teddy Roosevelt had filed 40 antitrust lawsuits more than every preceding president combined. They say that in the history books, but since the law was only there in 1890, it's like two presidents still, vigorous antitrust guy. And the antitrust movement found its most articulate thinker. Lewis Brandeis, the progressive

23:05lawyer who helped shape Woodrow Wilson's economic program and who Wilson later appointed to the Supreme Court. Lewis Brandeis is the patron saint of structuralism. The School of Thought on Monopolys and antitrust law concerned foremost with market concentration. The relevant focus for structuralists is does a corporation have enough market share to suppress competition? Does it have enough dominance in the market that when it flexes its muscle, it can suspend competition because market structure affects market behavior? Let's say there are a hundred firms making canoes with a hundred competing firms. Very difficult for price collusion or price fixing because even if a bunch of these wealthy canoe makers meet up in some smoky backroom cabin to conspire

24:08on paddle prices and evade the Sherman antitrust law, there's a hundred of these firms. One or two of them are going to defect and refuse to play ball. And once they do it, they can undercut all of the conspirators. And the anti-competitive canoe cabal will be forced to lower their prices to stay in business. Just the more companies there are competing in a given field, the harder it will be for them to collude. But if there are three canoe makers, there are three canoe makers still nominally competitive, but sure is a lot easier to get away with anti-competitive behavior. Maybe they don't need to coordinate anything. Maybe they never meet up the smoky backroom cabin at all. Maybe they all just quietly raise prices a little bit, see how the other guy responds. And if he doesn't undercut him, raise it up a little bit more. And that market concentration that they have enables them to turn down the volume on competition. And if there's one canoe company,

25:13dominating 90% of the canoe market. And then just a handful of shitty boutique slupe firms that get the other 10%, but no one really buys them. That's a very dominant player, right? Yeah, there's technically competition. But with 90% of the canoe market, that guy kind of sets the terms, right? If he wants to lower or raise prices, the other competitors can't even keep up. They can lower prices if they want, but they just don't have the capacity to fill the demand. So even if they get the low-hanging fruit, there's going to be all these other canoes that the 90% canoe maker is able to make and they can charge whatever price they want. That's the idea of market concentration. There's no magical number on the ideal number of canoe companies. There's no threshold point where structuralists or anybody else for that matter says you got to have a minimum of five competitors in the industry. Brandice acknowledged that there are differing scales of

26:15economy, capital intensity, and so forth, and they differ from industry to industry. So we can't just say you got to have five companies minimum to constitute a competitive market. What Brandice would look at instead in a given market is are there enough genuinely independent centers of economic power that market competition is probable? Do consumers have meaningful alternatives? Yes, there are five canoe companies, but again, there's small mom and pop operations they can only produce 400 canoes a year. So if this 90% Acme canoe company starts jacking up prices, consumers really do something alternative. And crucially, if a given market takes a lot of money to get into, doesn't incumbent have the ability to deprive potential rivals of needed investment capital or buy up startups and absorb them. In other words, is the market open? Can the competition

27:19actually enter the field and importantly can exist in competition function in it? Today we talk about tech companies. That would be where most of the thought process on this kind of thing is, I suppose films as well back then it would have been railroads and large industrial machinery. Railroads take up a lot of money. You can't just start a mom and pop railroad company that goes from your house to your neighbor's house and then keep expanding as you get ticket sales. You got to start with a lot of investment capital. So Brandice would look at a given situation and say, are you able to get that money or are the railroad companies going to suck up all the capital to stop potential competitors from being able to compete against them? Brandice was predominantly concerned with how big a company is relative to the competitors and to its field. It is a philosophy that is focused on the proportion of a company in the market. If a company gets proportionally too big,

28:22it can inflict coercive action on consumers and competitors. And then we get all those nasty lazy anti-competitive elements that anti-trust law is designed to root out. Company gets 90% of a market? Probably too big. Brandice and structuralists would not necessarily break up a company that has 90% of market share, but it would definitely set off alarms in their head and very likely they would look at it, look at the actual command it has over the economy and go, this is too much. You can't have one canoe maker dominate 90% of the canoe market. That is anti-competitive. We're going to split that canoe maker up into three different companies. There's going to be Mississippi canoes, New Hampshire canoes, and Portland canoes. And we're going to force them to compete against each other nationally and restore competition to the field to ensure they can't jack up canoe prices. That's the essence of structuralism. That's the main way structuralists look at it. But I will add, Brandice who is the patron saint and is invoked by luminaries like Lena Kahn and

29:28Tim Wu, he did go a step further. He was an idealog and I use that in a neutral sense. He was a very passionate philosophical guy. And he was concerned not just with the proportionality of companies, but their bigness in general. Teddy Roosevelt, who was no slouch when it came to antitrust law, regarded monopolies as inevitable. The country is growing, industrialism is happening, the industrial revolution is making companies get big, there's going to be monopolies. There's no way around that. They're basically natural monopolies. So in Teddy Roosevelt's mind, the trick is break them up if we have to use it as a threat to incentivize good behavior. But for the most part, we're just going to have the federal government regulate big monopolies to police anti-competitive behavior. We will allow the monopolies to exist because you can't get around that, but we're going to police their behavior. We won't police their size, but we'll police what they do if they abuse

30:31their size. Brandice would agree with that, but he would go a step further. He was concerned not just with policing behavior. He was concerned with the structure of the market. It's not just if they do bad things, it's they themselves. It's the concentration of power, not how they use the powers both in the mind of Brandice. So he had a problem with the relative size of a corporation, but he also had a problem with the actual size of a corporation in general. Too big was too big. Even if there are plenty of other corporations and the environment is competitive, if the banking sector, for example, has five or six large national firms and they hate each other, and they're constantly competing with each other, and it's a very competitive environment. Even then, Brandice would say, that's still too few decision makers allocating capital. Even if

31:32it's competitive and they're not engaging in anti-competitive monopolistic behavior, it would be better for society to have more banks and more competitors to ensure that there are more decision makers. It's bad to have concentrations of power in general. Quote, Luis Brandice, we may have democracy or we may have wealth concentrated in the hands of a few, but we can't have both in quote. Large corporations controlling banking, transportation, communications, or enormous pools of capital in his view might acquire political influence, commiserate with their economic power, and that posed a threat to robust industrial liberty, his phrase. Competition was the most important thing, proportionality to the market itself, and therefore your ability to wield that market concentration. Those are the most important things to look for, but even so when those conditions are met, it's better to have more corporations than less because corporations are suspect, power concentration is suspect,

32:36and we want to diffuse the landscape as much as we can to ensure that no one company is particularly potent, even if they're already competitive. We just don't want them to be too big. Brandice did acknowledge that scale of economy is a thing. This is something that comes up in economics a lot. You can grow a company much larger and it might be cheaper than if it was small. So, for example, every few years there'll be an article that makes the rounds that large agribusiness is less carbon intensive per pound of food than small farmers, and that tends to surprise people. You think if a small farmer is being just a dude with a pickup truck, whereas the large agribusiness, you picture smoke stacks and villains from a captain planet and whatnot. But when you start thinking about it, it actually makes a lot of sense that farmer has one pickup truck that he's going back and forth with between his farm and the farmer's market, whereas the large agribusiness has a gigantic truck that's able to take way more food per trip. It is more efficient in the

33:41things it is doing. The bigness that accompanies the large company allows it to operate more efficiently in its actions and make things cheaper in the process. So, Brandeis is aware of this. He doesn't contest that scale of economy is a thing. Lots of fields operate more efficiently and productively at a large level with vertical integration. But he proposed that even so, there's a point of dwindling efficiency as corporations get bigger, a kind of marginal utility to economies of scale. Yes, a bigger company is more efficient, but at some point the corporation becomes so huge that it becomes too bureaucratic, badly supervised, remote from its customers, and just so gargantuan that the executives at the top have trouble understanding what the company itself does and what it's up to. Basically, the libertarian argument against stupid, bloated, uncaring, remote, idiotic,

34:44bureaucratic government, Brandeis felt that way about corporations, large corporations, large corporations became out of touch. I'm pretty free market myself, but you know when like you get screwed over by an airline, that's Brandeis in a nutshell, that just big corporations are suspect. In discussing life insurance companies, Brandeis explicitly advocated for limits on company size. He said a firm could be too small to operate efficiently, but on the other end, it should not be allowed to expand beyond the points of either one its greatest efficiency or when its concentration of capital becomes socially dangerous. He proposed that certain companies should be capped at the point that I suppose the government determines they've reached their maximum efficient gains or the point at which society says that companies just too large in general and it now poses

35:47a threat to democracy by virtue of the concentration of money. In short, the Brandeis school worries about bigness in two different ways. Relative bigness can destroy competition. If one firm controls too much of the market, it has a disproportionate effect to squelch the market. It can flex its muscle to do anti-competitive behavior. And to a lesser extent, and this is the more philosophical side, absolute bigness concentrates so much economic and political power in one institution that it becomes dangerous even if there are other giant institutions competing with it. In 1945, six years after Brandeis retired, the Supreme Court took on the antitrust case of the United States versus Alcoa. Although it then kicked it down to the circuit court. I don't remember quite how this works. They didn't have quorum. So I don't know whether they just hadn't like

36:48appointed Brandeis's replacement or whether somebody was getting a vasectomy or something. And any minute, they kicked it down to a inferior court. I think to the circuit court, but that we're going to say Supreme Court, it's part of jurisprudential law now. At that time, the aluminum company of America controlled roughly 90% of the US market for virgin aluminum. And the government had filed suit against it on antitrust grounds. The government's position was Alcoa is a monopoly. It controls 90% of the country's raw aluminum. The market concentration is so high that Alcoa is able to dictate terms. That means it's a monopoly. We need to split it up. Alcoa, the defendant took an interesting position. It told the court, you know what? We are a monopoly. But we're a good monopoly. Here's the thing. We didn't get 90% of market share in the sexy field of virgin aluminum by suppressing competition. Oh no, no, no,

37:55we got it by out competing everybody. It's not that we're anti-competitive. We're so goddamn competitive that we run everybody else out of town. You shouldn't have a problem with us. We keep lowering prices. We keep making better, more high quality, delicious aluminum. That's why we're so big. It's not because we're engaging in all the shit you're worried about. It's because we're so good nobody else wants to buy aluminum from all of our shitty competitors. Let's say theoretically, heat and cowboy boots company makes boots which are so unfathomably fashionable and comfortable that everyone in the country buys them even Sydney's sweetie. Feel like you're walking on clouds. Look like you're walking on stilts. Heat and cowboy boots code. Every heat and cowboy boot is made out of 100% certifiable dead ostrich and we won't stop making those boots until every ostrich on the planet

38:58is dead. That's the heat and boots promise. Great footwear, a lot of dead birds. It's not that my boot company doesn't have competition. It's just that it's winning anyway. In spite of it, should the DOJ then come in and split up my boot company into multiple competing foot apparel firms because we're so good at making boots, that's stupid. In the point of all of this to stop that kind of thing, other boot companies can step up and NAB, my disaffected consumers, if I start lowering quality, were increasing prices, were using counterfeit artificial ostrich leather. There's nothing to stop them from doing that and I in turn and stop from lowering my quality because these companies still exist. Right? So am I a good monopoly? In the United States via alcoa, the court rules the following. Alcoa is right about good monopolies.

40:01Bigness is not inherently illegal. If a company becomes dominant in a field because it out competes everybody, that's great. Judge Lernenhand, great name by the way, who wrote the majority opinion, opined that the successful competitor having been urged to compete must not be turned upon when he wins, particularly if that winning is on account of superior skill for sight and industry. But then, in that same decision, the court says all the same, alcoa has engaged an anti-competitive behavior. It's not charging extortionary prices for aluminum. It's not gouging customers. But it is such an aggressive competitor that it keeps expanding capacity ahead of demand, very sneaky, to predict demand and build capacity in advance to meet it.

41:01Alcoa has a proven and troublesome track record of making their prices too low for new competitors to enter the field. They simply can't compete with them on price. And on top of that, they keep expanding output whenever demand rises, building factories sooner than their competition can get factories up. So they can't properly compete because they're too fast for them. So I, judge, learned in hand, am not saying they're a monopoly because they're successful, but I am saying that they are so frightfully competitive that they're hurting competition. Listen, you can't be so competitive that you get rid of competition, okay? That would be anti-competitive. It's a somewhat convoluted opinion. And I suppose it's sort of the Batman origin story for Robert Bork and a lot of these other people. A lot of the thinkers at the Chicago School hear the gymnastics of this particular jurisprudence

42:04predicated on structuralism and go, wait, so the prices are low, but there's not enough competitors. And the issue is that the company is so competitive that it's gotten rid of competition, and that's anti-competitive. Can you hear yourselves? But the decision doesn't try any precept in American monopoly jurisprudence moving forward. Monopoly's created through superior performance are not inherently bad. If you are dominating a market because you're efficient and not because you're suppressing competition or buying up capital to keep other competitors from coming into the field or any of the other tricks that we tried to rule out through Sherman or Clayton, if you're just really, really good, that's not illegal. Three years later, in 1948, the Supreme Court finally rules in the government's long-running case against Hollywood. By the 1930s, Hollywood had blundered its way through silent films,

43:07through the talkies, and finally to the golden age of cinema, all operating under the now defunct studio system. At that time, under the studio system, major film studios like Paramount also owned their own theaters. Now, there's nothing inherently wrong with vertical integration, but the big five eventually started cluding around prices and dicking around small independent theaters, which isn't really monopoly action per se, but it irritated everybody. They were doing things like block booking. You want to show our awesome film, Casa Blanca, in your rinky, dink, little independent movie theater? Okay. But if you want to lease it from us, you're also going to have to lease the six duds we made earlier this year, including Queen Kong. My God, a giant female gorilla has scaled the tallest building in Chicago. Is she doing anything? No, not really. She's just sitting there. I mean, it's sort of ominous, I guess, but she's not swallowing down planes or ripping heads off

44:10and non-serthing? No, no, she's just looking at stuff. All right, we got the howitzer fire. In response, the court issued the Paramount Decrees. Hollywood studios could not be trusted to operate both production and distribution, or more specifically distribution and exhibition. Studios and theater companies would have to operate as separate companies moving forward. Although weirdly, the court confirmed, and has since confirmed on multiple occasions, that there's nothing wrong with vertical integration. That is to say, when a company owns multiple components of the supply chain, production, distribution, transportation. If the good people of Mooseport, Coffin Coe make caskets and own a funeral parlor, that is vertical integration. Maybe they also own their own shipping company. Maybe it's a cool semi-truck kind of shaped like a coffin with wheels. And rather than outsourcing their coffin marketing to some ad company, they have a division of

45:15booze soaked smoke-filled admin who bang out ad copy about Mooseport coffins in between banging their secretaries. Now, each of those things could be done by other companies. Mooseport could contract salesmen to sell the coffins for them. They could contract a shipping company for distribution. They could contract out the adultery. Of course, each of those independent companies would want to make a profit. And by having all of them take a cut of the supply chain process, it would cost them more money. Whereas integrating all of these actions into a single corporation allows good ol Mooseport to save a lot of money, which if there is an open-free and competitive economy means that they can then sell coffins cheaper than all of the other companies that have not figured this out. Their Amish competition, the other carpenters in town. So Mooseport ends up selling its coffins cheaper, but it sells much more of them and it makes the money back

46:17and then some on volume. Meanwhile, grieving families get cheaper coffins. And everybody wins except for the Amish who are bad at vertical integration and chain-smoking adultery. But let's say Mooseport coffins become so huge that it buys up all the timber in the country. There is still plenty of independent casket firms around, but Mooseport controls all the wood. It's purchased this one element of the supply chain and it has all of it. That presents a problem because chances are it's going to engage in any competitive behavior. It's going to sell wood to competitors at exorbitant costs or it's going to sell them crappy scrub oak. You'd be embarrassed to be buried in instead of a proper teak wood befitting a man like me. The court says vertical integration itself is fine. What we're concerned with is the horizontal consolidation are use-suppressing competition. Do you control the market at that particular run?

47:21So to switch metaphors here, there's nothing to stop a farmer from taking his own produce to the farmer's market or even owning the farmer's market. What the farmer can't do is only only farmer's market and then refuse to let other farmers use it. That would be anti-competitive. So Hollywood's studio system gets broken up separating the film distribution from the exhibition. And the courts affirm that vertical integration is not inherently illegal. The question is whether owning multiple stages of production lets you foreclose rivals or monopolize a level of the market. By the mid-20th century structuralism and the acolytes of Lewis Brandeis are at high tide. Congress strengthens merger laws with seller Kevver. I don't know how to pronounce that. If you do, congratulations. Why are you listening to this episode? Anyway, the Supreme Court blocks a fairly innocuous merger between a shoe manufacturer and a shoe store chain in the Brown-Shoe decision. They use the Clayton Law and the structural analysis

48:29to say that's too much market share potency for one shoe company to have. Even though we acknowledge that it would save money on shoes due to the vertical integration, the evidence would appear that it would actually lower the price of shoes because them snapping up this particular part of the supply process would allow them to be more efficient, lower prices. Even though we think it would lower prices, it would mean there's less competition and we are structuralists and so we're not going to allow that. It's better to stop concentration in its insipiency than wait until some shoe giant dominates the industry. Maybe combining manufacturing and retail would make the shoes cheaper, but preserving independent manufacturers and stores that is more valuable to society than maintaining a competitive market structure. We're structuralists, baby. We'd rather have high prices and more competitors than lower prices and fewer competitors. We care about

49:33structure. Throughout the 1950s, an intellectual undercurrent, a dark web, if you will, starts fomenting against some of these corkier decisions brought about by structuralism and they're meeting at the Chicago School of Economics. And finally, after a lot of grumbling and the 1980s, this new school gets institutional power and the rise of the consumer welfare standard led by Robert Bork, who we will meet right after this. All right, let me make a pitch on why you should give me money. Why you should become a patron by going to www.jointheorf.com and supporting the show via Patreon or Substack. I want you to think about all the people you currently give money to that you hate.

50:39The IRS, the bank, the homeowners association, Alamone, all these people you've got to give money to that you don't even like. So let me ask you something. Wouldn't it be nice to finally give money to somebody you do like me? Just think about it for a moment, sit with it. Wouldn't it feel good one time to give money to somebody you actually like? Instead of all those people you hate, wouldn't that feel good? Think about that. Signing up and telling yourself, this time I'm not giving the money to the Dallas Parking Finds, whatever. This time I feel good about this. And friend, you will feel good because this program, the political orphanage only exists due to the patrons who funded. You would be a part of that. You would be the wind in my sales. If you went to join the orf.com and became a patron. And not only will you finally give money to

51:42somebody that you like for once, you'll also get cool bonus content. Last week admittedly, a weird conversation about Neanderthals and mammoths. But I think it was a very fun one. This week even weirder, a lot funnier and very different. Actually, it's very different than what we normally do. But I have been upping my game on bonus episodes lately. And this week I am inviting on a contributor to do an explainer about a newsy culture war story. I don't normally do a lot of culture war stuff. But I've brought on somebody to explain this. Have you heard about this K995 mass controversy regarding a lesbian bar in Massachusetts? It's all over substack. Well, if you're unfamiliar with it, don't worry because this week's bonus episode, the masking lesbian bar controversy, as explained by Richard Nixon. That's right. This week's bonus episode is former president Richard

52:44Millhouse Nixon, explaining to you a very, very stupid culture war story. If you saw this in your newsletters or on the news or on Twitter or whatever and you were like, what the hell is this? What fresh hell is this thing? There's a lesbian bar mad about masks and what is that about? I'm going to have Richard Nixon explain it to you. I pulled some strings. You can hear that bonus episode by going to www.jointheorf.com. That's www.jointheorph.com. Thanks! Starting in the 1950s, free market thinkers become skeptical of the structuralists. And over at the Chicago School, these guys start screaming, you structuralists

53:45are just using antitrust law as an excuse to bludgeon corporations you don't like because you hate corporations, you commies. Can we talk about Alcoa? You pinkos convicted an aluminum company for doing exactly what competition is supposed to make firms do anticipate demand, invest, expand output, and beat potential entrants. Made this big speech about how he shouldn't punish success and then you immediately defied successful business practices as monopolistic. One of these Chicago School guys, John McGee, he starts rifling through the history books. Hey now, you remember that huge antitrust victory when the federal government split up standard oil? How everybody viewed that as a progressive triumph of the government taking on big scary evil business? Does it matter that standard oil kept lowering its prices and increasing output?

54:47The fact that caracene prices fell and fell all while output increased during the rise of the so-called monopoly. Should that not have been taken into account rather than just the number of competitors? Alan Greenspan, the then future head of the Federal Reserve, started looking back into the early days, the primordial days of antitrust law, and the original boogie-mid of monopolies, the railroad companies. Here's the lost western film, dances with derivatives by Alan Greenspan. Oh Jack, thank God Congress finally stepped in to stop the evil railroads. How I abhor unregulated Lausay Fair Capitalism. That dog won't hunt Turkey's sweetheart. Why Jack, what do you mean? Honey, this isn't Lausay Fair Capitalism. The federal government awarded huge subsidies of cash

55:48and land to railroads trying to link up those coasts. You know as well as I do, then under the Pacific Railway Act of 1862, the Union Pacific and Central Pacific got railroad right away of 400 feet wide, 200 feet on other side of the line, plus land needed for stations, workshops, depots, signing, etc. Well, it doesn't take a wagon scientist to calculate that a 400 foot wide strip along one mile is damn near 50 acres. Oh Jack, I'm just a girl. I can't do math or shoot a gun or vote, but wouldn't that total 10 square miles of land per mile of track? All three care of the federal government? A massive giveaway roughly the size of the state of Texas? Plus, timber along the way and payment for tracks laid. Those federal subsidies rewarded mileage and construction, rather than simply responding to consumer demand. Consequently, too much capacity was built in some places and railroads popped up in areas where there was no justifiable use for them.

56:51The Union Pacific and Central Pacific kept grading railroad beds past each other for 250 miles. All that stuff about the golden spike and leaking the east of the West via railroad, that only happened because Congress finally ordered them to. They'd have kept going. Why, like my daddy always said, you pay a cowboy by the steer, he brings your steers. You pay a railroad man by the mile, eventually he'll attract to the moon. Jack, could they sell this federally provided land later to make a profit and real estate speculation? Suppose they could miss a. Then by throwing such colossal amounts of mula at the problem, shitty railroad companies could fan out across nowhere America to underpopulated locations, no sane businessmen or bureaucrat would otherwise devote resources to. And when the federal gravy train ran out, those ridiculous land grab excuses for companies were remotely sustainable as transit companies and they stayed in business by resorting to brutal price

57:52extortion and cartel behavior. Right, you are, missy. You can call that private unregulated enterprise if you like. But when Uncle Sam buys the cow, feeds the cow, gives you the ranch and pays you to ride the cow. Well, I reckon Uncle Sam's in the cow business then. Oh Jack, kiss me so hard our teeth clink together. It's a very racist film. Weirdly racist towards Puerto Ricans, even though almost the entire thing takes place in Montana. Anyway, everybody agrees that stifling competition is bad. The Chicago school and the structuralists, they both agree on this. If a company buys up competitors to consolidate an industry or purchases and absorbs any startups which might one day rival it or they form a gentleman's agreement with other companies to avoid competing on price or location, that is bad. Everybody agrees that is bad. That is why we need anti-trust law.

58:57The Chicago school takes the position that while suppressing competition is bad, it's not axiomatic that more competitors are inherently good. Structuralists might think so because they don't want concentrated nodes of power. The Chicago school does not take advanced semiconductor fabrication. One of those things I can't explain but I'm pretty sure my entire life depends on it. I think maybe it's microchips. I don't know. Advanced semiconductor fabrication is a highly concentrated industry. One company, TSMC, accounts for about three quarters of sales. And there are only four other major players. That's very high market concentration, something that would alarm structuralists. But ship fabrication is a highly capital-intensive industry which necessitates scale. If we broke TSMC into 12 equal companies tomorrow,

59:57we would have more competitors, but each one of them would have less volume over which to spread the astronomical cost of building fabs and developing new process nodes. Whatever that means. In effect, you have to have that very large company in order to have the scale of economy to make cheap microchips. You can break up that company, but the microchips are then going to cost more. So the Chicago school says you need some competition. But if you just keep splitting up companies for the sake of creating more competitors, you're going to lose out on scales of economy. You're going to make the economy less efficient, less productive, and it's going to wind up making everything more expensive. There are, for example, what, 10 major car companies in America, I feel like I'm on firmer footing here if we're talking about cars. Ford and Tesla, I heard of those. Let's say we split up these 10 major car companies into 60 different competing companies.

1:00:59The result would almost certainly not be cheaper high-quality cars. Scale of economy would be lost. Your truck would be hand-built in Mitch's garage, and that would be very expensive. Now, the structure was to be fair, are not saying you should always just atomize everything as long as you possibly can, but because they're concerned about the proportionality of a corporation and a market and the market concentration, they are by definition also concerned with the amount of competitors. The Chicago school is concerned with something else, and it finds its most vociferous proponent, and the man who would be a Supreme Court justice were it not for an entirely different chapter of American political history, Robert Bork. Robert Bork is the patron saint of the consumer welfare standard. Whereas Lewis Brandeis is concerned with proportion and procedure, Robert Bork is concerned with impact. Bork and his buddies at the Chicago school

1:02:02look at structuralist ideas of ominous proportion and go, so what? We shouldn't look at a pie chart of the market and just carve it into smaller slices if we don't think there are enough slices, because ultimately it's the threat of competition. That's the disciplinary factor of the market. It's not competition itself, it's the threat of competition. The threat of competition is just as good. So for example, there are only two major US glitter manufacturers, both in New Jersey, Meadowbrook inventions and GlitterX. New Jersey, why aren't you bragging about this? If you're on New, did you know this? If you're on New Jersey, you're in the literal glitter capital of America. Why do you call yourselves the garden state? Call yourselves the glitter capital. Anyway, there are two glitter firms in America, both in New Jersey, and that is an incredibly concentrated market, very, very concentrated market share. It's a duopoly.

1:03:07They are in competition with each other, but two is not very much. With just two competitors, they wouldn't even have to coordinate. They could probably get away with raising prices and acting like a monopoly, acting like a cartel, except apparently it's very easy to get into the glitter business. It's like the exact opposite of high fructose microchips or whatever the hell it was I was talking about earlier with the TSMC thing, high capital, Glitter's not low capital. It doesn't require glitter experts and glitter scientists. It doesn't require a tremendous amount of investment capital. You just need a factory, some scissors, and a bunch of sheets of shiny paper. And so the CEOs of Meadowbrook and GlitterX know that if they were to take advantage of their market share and double the price of glitter and hold the birthday industry over a barrel, were they to do that? An upstart could almost immediately take

1:04:09advantage of the situation and start a new competing discount glitter company to undersell them. And then their cushy glamorous jobs as glitter executives would be imperiled. The point of Antitrust Law is ultimately for the economy to innovate and efficiently allocate resources to goods and services which better the lives of our fellow man. So for the Chicago School, for the Robert Borks of the world, the relevant metric to look for when assessing anti-competitive tactics and monopolistic behavior is not market concentration, but impact. If we're worried about monopolies and trusts screwing people over, Robert Bork says, let's assess them based on whether or not they're screwing people over. That's the thing to look at rather than looking at heat and cowboy boot co-s market concentration look at the price trends.

1:05:14Are boot prices rising? Are they stable? Are they declining? If they're stable or declining, then what is the problem? Because ultimately we care about the effect of monopolies, not the size. Regarding the size, says Robert Bork at all, you definitely shouldn't cap company sizes for being too big in general. That's not really been on the table with progressives for a while, at least not out loud, but Brandeis said that and Lena Conn clearly thinks it. Bork would say, you don't build an affluent society by punishing success. That's how you keep Europe on the backfoot for the last 40 years. And if you start shooting down mergers and acquisitions on the basis of trying to keep companies small for the sake of keeping them small because you hate big companies, you're going to miss out on Google and Amazon. Not that you get a nicer version of Google and Amazon that you don't get them at all. Philosophically, the Chicago School says, big corporations are less scary than big government because you don't have to watch Disney if you

1:06:19don't want to, but you do have to deal with the IRS, cops and the army. Robert Bork looks at the Sherman Antitrust Act and says, this has way too much latitude for judges to punish legitimate business decisions because they just don't like a company or capitalism or advertising or whatever else. Whether itching for an excuse to make sure that a big company doesn't get too big because of the vibes. What we need says the Chicago School are clear, neutral, empirical benchmarks which courts and regulators can observe. Prices, output, quality and efficiency. Those are the things we can put on a spreadsheet and we can look at. Let's quit confusing bigness or market concentration with harm. In a nutshell, those are the two schools of thought on anti-moply law. Today, the big flashpoint between the errors of these two approaches is mostly around mergers, at least from what I can tell.

1:07:20That tends to be where the energy is. Structuralists look at big corporate acquisitions like Paramount buying up Warner Brothers and they think five big companies are going down to four. If so, facto, there are less competitors. So, probably a less competitive landscape. The Structuralist aren't necessarily going to say that that makes it less competitive but they're definitely going to look into it. They're definitely going to look at the number of competitors that's resulting from all of this. Whereas, Borkhead say, don't look at the number of competitors or at least that's not the principle concern. Look at the probable effects of the merger. The Clayton Act prohibits mergers from large companies which result in a less competitive environment. Okay, well, what is the thing we look for in determining whether or not it's competitive? Not the amount of competitors, but what they're doing. If the ensuing merger is presumed to maintain or lower prices based on what economists predict and their plans and logs and so forth, then the default should be innocent

1:08:26until proven guilty. Let's say two airline companies want to merge. The number of airline companies would go down from seven to six. The Chicago School would say, that's fine. Provided the plans that they give to the DOJ and independently corroborated economic forecasts show that there is no sign of ensuing harm to the consumer. So long as it doesn't raise prices, it doesn't matter that there's fewer entities. Whereas, acolytes of Brandeis would say, what if they lower prices for a year just to get the merger approved and then they jack up prices? What if this is a temporary ruse to convince you high exoct Borkites that it's not a problem and once they're over the hill, they take advantage of the comparative lack of competitors to jack up prices and suppress competitive behavior. At that point, we're too late. Once the antitrust division gathers enough evidence to show that actually

1:09:26fewer airlines have indeed restricted competition, which makes sense because there's fewer competitors, all of that resulted in higher prices and more layovers by that time the damage is already done. Now we can post-talk, get a DOJ lawsuit together and maybe we can split them up like we did with Mabel, but the market is going to be worse off for putting us all through this stupid dance. The merged airlines by then have already fired all of the redundant positions. And aside from the harm to those individual people, they've probably got jobs elsewhere and this new freshly fractured company that the federal government has to in effect create is now going to retrain an entire crop of people in order to populate those jobs. They already had everything they needed, but we allowed them to merge and now we're going to split them apart and that's going to cost time and money. Well, what if the maneuver that we do on the back end because you wanted to do your innocent until proven guilty thing? What if that entails a prohibitive amount of time and money?

1:10:28The court-imposed split might wind up scuttling both companies. And now we're left with five instead of six or as we wanted the original seven. All because you market fundamentalists and the Bort camp wanted to wait for the guy to pull the trigger before taking his gun away. We and the structuralist can't say as soon as he pulls out the gun, we should probably take it away. Let's have a conversation about taking away the gun. Whereas Bort and the consumer welfare standard guys say you have a backwards. You guys hate corporations so much that whenever two big companies want to merge and get married and form a family, you oppose it on principle, but a lot of the time you need consolidation to preserve competition. You actually need fewer competitors for more competition. Maybe two small airlines can't compete with United or Delta in the big leagues. They don't have the capacity to do that, but by merging they create a meaningful fourth competitor. Technically

1:11:34there are fewer competitors, but there's one competitor that is more robust and more capable of fighting them on prices. Would you rather have four robust monsters fighting each other or three robust monsters and two much smaller gremlins? We like competition so we go with the four monsters. I realize this is not a very compelling analogy and I don't think Robert Bort would have said anything like this for the record. I'm doing my best as a comedian that tells horse jokes to understand monopoly law. Anyway, what Robert Bort might have said is what if you guys, Louis Brandeis et al. the structuralists, what if you block a merger on principle? Because you don't want to have fewer competitors, you don't want a company to get too big because bigness is bad and as a result of that block, the smaller firm just goes bankrupt. It was already flailing and it could have been purchased and made a productive asset of a larger company, but instead it just goes under. In this instance, you haven't preserved competition. You've made the market less competitive.

1:12:39Out of a sheer blind hatred to big companies, congratulations. We could have had a productive viable competitive company purchase up an unviable company. You blocked it and now the one goes bankrupt and the other ones flirting with bankruptcy. That is not a better position to be in. Why? Because we should have been concerned with the welfare consumer standard and the actual impact rather than the market concentration. I think the strongest position of the two camps is as follows. Here's what I think the strongest position is for Louis Brandeis and the structuralists. Consumer harm is insufficient analysis because it doesn't take into account opportunity cost. Let's say big tech companies have been consistently lowering prices on their products for the last 20 years. That would pass the Bork test, kind of like standard oil lowering prices on kerosene. But these big tech companies, even while lowering prices, are gobbling up startups and they're

1:13:44absorbing them to ensure that they are never threatened by any new large competitors. In effect, what they are doing is lowering prices, yes, but they're pulling up the ladder behind them to suspend the possibility of additional competition. That means that they are also precluding additional innovation. We've lost out on 20 years of innovation because big tech companies squelch competitors in embryo. So yes, if we're looking at this one metric, prices have gone down. But if we had employed more aggressive antitrust laws about market concentration, prices would have dropped anyway. And we'd have more competitors to choose from innovating stuff. And maybe in this alternate timeline, instead of everybody hating Facebook and Google and these other crappy giant tech corporations, we'd have 20. And some of them wouldn't suck. That would have been a better option. The strongest position of the Robert Bork camp and the welfare consumer

1:14:48standard is the following. All right, it's a lot harder to define what constitutes the market than you might think. What market, pay this at home. What market is Coca-Cola in? Is it cola? In which case, it's not competing with Fanta. Or is it carbonated soft drinks? Which case it is? Is Red Bowl a carbonated soft drink? I tend to think of it as a weird caffeinated beverage. I almost think of it as coffee with bubbles in it. But is it in the cola market or the soft beverage market? Is it competing with Coke? Or are they all part of the non-alcoholic beverage market? Now, when I go into a gas station, they're all in the same place, along with milk and protein shakes and bottled water. For my purposes as a consumer, they are all competing with each other for my thirst and attention when I stop for gas. How about cellophane and wax paper and aluminum

1:15:50foil? Are those in the stuff I put on copperware market or are they completely separate? They're completely separate products, right? Aluminum and wax paper, but we kind of use them for the same thing. So do we look at aluminum foil? If there's one company making aluminum foil, and eight companies making wax paper, are they in competition? Do we split up the aluminum foil company? How about SUVs? Are SUVs in the truck market or the sedan market? Or is there just one big vehicle market? Amazon is, help me out here, a retailer or an online retailer. Because the word online is going to be doing a lot of heavy lifting here. In terms of whether or not it has market concentration. If it's an online retailer and it's just a digital store you access over your phone, it's not competing with Walmart and Target, which have physical locations. But

1:16:51then again, our Walmart and Target retailers or online retailers because they have websites you can access on your phone too. Also, if I go to Target, physical location, I might well look up a product on Amazon in comparison. Seems to me that they are in competition. How about Google and chat GPT? Now, I personally, Andrew Heaton, I think of these as very different products, the search engine and LLM. But I can't help but notice that my Google uses drop by about 90% over the last three years since I started using chat GPT. Does that mean the search engine market is actually much more competitive than we thought it was? Anthropic and open AI are new competitors then. Are they not? In this incredibly capital intensive market where tech companies are gobbling up everything behind them to stop competitors coming up, looks like two competitors they were able to pop up. That's pretty cool. Now, even if we can all agree on the definition of a particular

1:17:51market, which is in and of itself a tall order, their parameters change. Is the market for cameras or digital cameras? I would say cameras expansively, but either way, let's say we divide it, there's a camera market and a digital camera market. Are iPhones part of the digital camera market? I don't really think of Apple as a camera company, but there too, I've not purchased a physical camera since 2008. Cola and online retail versus retail and SUVs and cameras, these are ambiguous categories if we're trying to do a good job. If we're in good faith, really trying to determine the contours of the market in order to assess market concentration, still difficult. Imagine if a bad faith regulator steps up with an agenda. And for lack of a better term, they gerrymander the definition of a market in order to arrive at a predetermined ideological position. Markets for monopoly purposes are just

1:18:57dotted lines we draw with a crown around a big, soupy, ever-evolving mess of goods and services. And so for this reason, the Chicago School says market concentration. The proportionality of how big your company is compared to the market is illusory if the market itself is not self-evident. And that is why we in the Chicago School favor consumer harm as the better metric to determine anti-competitive behavior, things that we can actually empirically verify, rising prices, smaller output, lower efficiency, and somewhat subjectively quality. Those are all neutral empirical data points that regulators can actually observe, as opposed to having a philosophical late-night conversation over the table over whether or not SUVs are trucks sedans or they're all vehicles. Folks like Lena Conn and Matt Stoller, the heirs to Brandeis and the

1:20:01structuralists, they look at Robert Bork and say, you market fundamentalists are pulling punches. In the Clayton Act, Congress deliberately said in codified in law, you can't have a merger that may substantially lessen competition. That's the wording, substantially lessen competition. Because it wanted enforcement before the smoking crater appeared in the market. And you people, you Reaganites converted an insipiency law into an 18-point econometrics exam that's going to be a lot harder to pass. And by doing so, you have defanged the law and warped its intention if not its actual literal meaning. Meanwhile, the consumer welfare standard people go, okay, the law says competition. We are using consumer welfare standards to assess competition. But let's flip it around. When Lena Conn was FDC chair, she flat out and invented new

1:21:06definitions for markets. So she could ideologically jerrymandor industries to suit her ideological agenda, which is fight corporations. Because she hates corporations. All of you just hate corporations. And you're groping for excuses to bludgeon them. Now it's for me. I'm going to be honest with you. I'm turned off by the fairly obvious big corporations are evil position, latent to the Brandeis camp. I agree with the Chicago School that you don't build an economy by punishing success. But at the same time, I do appreciate that the Bork camp might be overly permissive. And I actually kind of like the market concentration approach. If you can get it right, if we're all in agreement in what the definition of the market is, I think market concentration, market share and dominance, which is what the structuralist are concerned with. It's actually a very good thing to look at. I would look at two things. I would look at the market concentration and I would look at the profit margin. This is my reasoning. If the DOJ claims that there's dense

1:22:11market concentration, there's two or three firms that dominate the industry. And profit margins are high. There aren't very many competitors. I would infer from that. There's a very good chance that there are insufficient competitors to enforce discipline on each other. And they are raking in those high profits instead of fighting each other for a benefit. On the other hand, if there is intense market concentration, but profit margins are low, it's not guaranteed. But I would take that as pretty good evidence. The thing market is already pretty tight and competitive and is operating at full throttle. Not perfect. I imagine there'd be more analysis than looking at just these two things over a five minute period. But if you ever corner me in a bar and ask me to weigh in on whether or not Mooseport Coffins constitutes a monopoly, those are probably the two things I would want to look at. Again, assuming that we could actually agree on the definition of the market. That's me. That's me for our purposes. The two big schools of thought on monopoly, the titans of American

1:23:12antitrust thought really boiled down to just a handful of basic diagnostic questions. Do you intervene before a monopoly forms and risk killing innovative, efficient large companies or do you err on the side of caution and lean towards innocent until proven guilty, but risk monopolies forming and entrenching themselves. And what is the most relevant factor when looking for anti-competitive behavior? Is it market concentration? Or is it consumer welfare? And that after 180 or so years of American economic history, I think, is pretty much it. Congratulations. You are now qualified to serve on the FTC. Good luck. That's the show. Thanks for listening. Until next time, I've been Andrew Heat. And so have you.