Once upon a time, antitrust was easy. The original "trusts"-monopolies created by merger, such as the Standard Oil trust, or its emulators in the sugar, whiskey, lead, and linseed oil industries, to name a fewwere frankly designed to eliminate competition, so that prices could be increased to whatever the traffic would bear. It didn't take a rocket scientist to figure out that this was bad for consumers and the economy as a whole. (And a good thing, too, because there weren't any rocket scientists at the time.) Despite the efforts of armies of lawyers and lobbyists, Congress and the courts eventually declared trusts and anything that looked like them illegal. And for most of this century there were clear rules that told corporate empire builders what they could and couldn't do. (For a different take, see "The Case Against Antitrust," April 27, in the fortune.com archive.)
But now nobody seems to know what the rules are. On one side, companies clearly expect to be allowed to engage in mergers on an unprecedented scale-even, in the case of Travelers-Citicorp, to see laws changed to make their merger legal after the fact. On the other side, high-tech companies like Microsoft and Intel, which seem at first sight to have acquired their near monopolies fair and square, now face growing pressure from an activist Justice Department. How did things get so confusing?
One reason the rules seem to have broken down is that technological change has been blurring the definition of what an industry is, making it hard to draw a distinction between mergers that increase efficiency through productive synergies (good) and those merely intended to create monopoly power (bad). John D. Rockefeller, as far as I know, never tried to buy into the electricity industry to create a full-service energy company. But the hallmark of many recent mergers has been the claim, right or wrong, that old industry definitions are irrelevant-that, say, banking and other financial services are now part of a continuum, and that consumers want the company that offers it all. A valid claim, or a cover for creating market power? Who knows, but the architects of these mergers are guessing this uncertainty will stay the Justice Department's hand.
But the really big reason for out current confusion is that whereas good old-fashioned trusts were gratuitous-there was no good economic reason for a monopoly in sugar or lead-there are very good reasons why there should, even must, be monopolies in a technologically dynamic economy. As the Austrian economist Joseph Schumpeter pointed out, monopoly is actually necessary to technological progress: Tales of geeks and garages notwithstanding, it usually takes a lot of money and time to come up with a good idea, and unless an innovator can hope to have a temporary monopoly in the application of that idea, there's no incentive to innovate in the first place. In some cases the law actually promotes monopoly power for innovators-that is what patents are all about. But most good ideas cannot be patented; innovators must therefore hope that they can translate a head start into enough of a monopoly, for a long enough time, to make the effort worthwhile. And in general they do-or to be more accurate, although most attempts at innovation don't pay off, enough Gateses and Groveses hit the jackpot to keep 'em trying.
So the case against the winners in the technology derby is not that they are monopoliesthat comes with the territory. Nor is it that they became rich-without big prizes the game wouldn't be worth playing. It is the claim that these particular winners have won so big that the game is no longer fair, that they can use their position to win ad infinitum-and that even though they haven't acted like old-fashioned, price-raising trusts so far, someday consumers will regret having accepted all those free browsers and such.
Economist George Stigler once remarked that calling for government intervention because you've discovered that markets are imperfect is like giving a prize in a singing competition to the second entrant because you've just finished hearing the first. Of course Microsoft tries to leverage its power into dominance of new technologies. And if it used that power crudely-if Netscape didn't work on Windows 98-Justice would and should come down on them like a ton of bricks. But we are talking about fine points; an antitrust policy is a blunt instrument wielded by people all too easily driven by the desire to make headlines (and to please lobbyists like Robert Bork, the former justice who never saw a monopoly he thought was a problem-until he began working for the anti-MS forces). Are you sure you wouldn't rather trust the market, with all its flaws?
Originally published, 6.8.98