New Economy

Created: 2000-04-26
Last Modified: 2000-5-04
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New Economy Forum Briefing

J. Bradford DeLong

May 2000


The New Economy and Antitrust II: Principles

  • America, as Thomas Jefferson or Abraham Lincoln imagined it, had no place for monopolies. For both, competition was an essential piece of individual liberty.
    • If you didn't like the deal someone was offering, you could walk down the street and find an alternative trading partner.
    • Monopoly--someone who made you poor, limited your freedom by telling you to "take it or leave it" and made that stick--was not something America could afford.
  • But steam power and industrial machinery changed things, promising huge efficiencies through economies of scale.
    • But would the efficiency gains be worth the loss of individual choice?
    • Without competition, lower costs produce not lower prices but great concentrated fortunes.
  • Ohio Sen. John Sherman, younger brother of Civil War Gen. William Tecumsah Sherman.
    • When the dust of the first generation of antitrust litigation settled, the United States found itself...
      • ...tolerating oligopoly
      • ...curbing monopoly.
    • The hope was that this would get us
      • most of the efficiency benefits from economies of scale
      • most of the benefits of market competition as well.
  • During the Great Depression, another principle was added to the mix.
    • Government should put its thumb on the scale on the side of small producers.
  • Thus antitrust became a tangled web of different laws pursuing contradictory purposes.
  • Over the past 50 years, lawyers, judges and analysts have gradually picked that web apart.
    • The Chicago school: Bork's view focus antitrust law solely on consumer welfare.
      • (Never mind that Bork's view entails the judicial repeal of the Robinson-Patman Act, while in other areas (civil-rights law, say) Bork exalts the original intent of legislatures and decries judge-made law.)
    • As an economist, however, I have to by and large approve of the Chicago School on antitrust.
  • Now, however, new technology has once again ripped open the seams.
  • The program has to be written and debugged only once, no matter how many copies are sold.
    • To be twice the size means your per-unit costs are little more than half as much.
    • It seems to be easier to get Microsoft FrontPage working well when the Web server it uploads files to is running Microsoft Internet Information Server rather than when it is running open-source Apache.
    • Software for minicomputers stagnated in the 1980s because each brand's version of the Unix operating system was incompatible with the others.
    • The World Wide Web has boomed in the 1990s because its inventor, Tim Berners-Lee, made the software protocols available to everyone for free.
    • Our new technologies have far larger and stronger economies of scale
      • As economists Hal R. Varian and Carl Shapiro have written, markets will not and cannot look like the competitive markets of ideal economic theory.
      • And given the size of the economies of scale, it is not clear we want them to.
  • What does this mean for antitrust?
    • Technology moves rapidly to make antitrust remedies of doubtful relevance
    • Perhaps courts and prosecutors will try to maintain the standard pattern: Tolerate oligopoly, break up monopoly.
    • Perhaps courts and prosecutors will have greater tolerance for monopolies that "play fair."
      • But can such a code of standard-setting friendliness be specified and enforced?


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Professor of Economics J. Bradford DeLong, 601 Evans Hall, #3880
University of California at Berkeley
Berkeley, CA 94720-3880
(510) 643-4027 phone (510) 642-6615 fax

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