There’s a current argument that the antitrust enforcers at the US Department of Justice and the Federal Trade Commission used to be really tough on big business, at least from the 1940s into maybe the 1970s. But then there was a counterrevolution, often referred to as “Chicago school,” which provided a justification for the legal system to retreat from tough antitrust enforcement, and since then corporate power has run unchecked. This pocket history is far too glib. Brian R. Cheffins provides some relevant background about those supposed good old days of tough antitrust in “History and Turning the Antitrust Page” (Business History Review, Winter 2021, 95:4, pp. 805-821). Here are a few points that occur to me in reading it.

1) As a matter of history, it’s not clear that antitrust enforcement was exceptionally active from the 1940s into the 1970s. Think of some of the giant US companies back around 1970: General Motors, Standard Oil of New Jersey (which was later renamed as Exxon), General Electric, IT&T, US Steel, Dupont, and others. Those firms had been around for a long time, and the antitrust authorities had not broken them up. When I was first learning some economics in high school in the late 1970s, one of the best-selling books was Global Reach: The Power of Multinational Corporations.

In the Business History Review essay, Cheffins points out that back in the 1960s in particular, there were plenty of complaints that antitrust wasn’t nearly strong enough. One prominent example was “Richard Hofstadter’s well-known 1964 essay “What Happened to the Antitrust Movement?” Hofstadter argued that because of `growing public acceptance of the large corporation,’ antitrust was `a faded passion’ that had become `specialized, and bureaucratized.'” The Kennedy and Johnson presidential administrations sometimes talked a big game on antitrust, but didn’t actually do much. Cheffins continues:

Humorist Art Buchwald speculated in a 1966 Washington Post column that by 1978 all corporations west of the Mississippi River would have merged into a single corporation, that the same would have happened east of the Mississippi, and that the two companies wouldsoon be looking to merge so there would be only one corporation in the United States. Those responsible for administering and applying America’s antitrust laws were far from sanguine themselves. Victor Hansen, head of the Antitrust Division from 1956 to 1959, said while in office, “Economic concentration is increasing.” The Wall Street Journal reported in 1961 that “trust-busters are convinced many industries set prices by follow-the-leader techniques.”

2) Much of the active antitrust enforcement of the 1950s and 1960s was focused on “horizontal mergers,” which refers to when two companies in the same industry seek to merge. This is different from “vertical mergers,” where a company buys one of its suppliers; it’s different from conglomerate mergers, where two firms in different industries combine; and it’s also different from when a dominant firm uses anticompetitive behavior to ward off actual or potential competitors. The antitrust authorities did win a lot of horizontal merger cases, but on grounds that look a little silly today.

One of the prominent cases of the time was the 1966 Supreme Court case of United States v. Von’s Grocery Co. (384 U.S. 270). The Supreme Court described the fact pattern in this way:

The market involved here is the retail grocery market in the Los Angeles area. In 1958, Von’s retail sales ranked third in the area, and Shopping Bag’s ranked sixth. In 1960, their sales together were 7.5% of the total two and one-half billion dollars of retail groceries sold in the Los Angeles market each year. For many years before the merger, both companies had enjoyed great success as rapidly growing companies. From 1948 to 1958, the number of Von’s stores in the Los Angeles area practically doubled from 14 to 27, while at the same time, the number of Shopping Bag’s stores jumped from 15 to 34. During that same decade, Von’s sales increased four-fold and its share of the market almost doubled, while Shopping Bag’s sales multiplied seven times and its share of the market tripled. The merger of these two highly successful, expanding and aggressive competitors created the second largest grocery chain in Los Angeles … In addition, the findings of the District Court show that the number of owners operating single stores in the Los Angeles retail grocery market decreased from 5,365 in 1950 to 3,818 in 1961. By 1963, three years after the merger, the number of single store owners had dropped still further to 3,590. During roughly the same period, from 1953 to 1962, the number of chains with two or more grocery stores increased from 96 to 150.

The US District Court had held that when the two firms combined were 7.5% of the market, the merger did not pose an anticompetitive risk. The US Supreme Court overturned this verdict, essentially saying that antitrust law should focus on preserving single-owner grocery stores and that if there was a trend to more concentration, it should be stopped. The possible benefits to consumers of letting popular (and efficient) grocery store chains expand in a modest way barely gets mentioned.

Antitrust enforcement against these kinds of small mergers was highly uneven, and often seemed to depend on underlying political pressures. Moreover, while the antitrust authorities were focusing on small grocery store mergers, the giant firms mentioned earlier mostly went along their merry way. Cheffins writes: “As George David Smith and Davis Dyer maintain in a 1996 essay on the history of the American corporation, `During the 1950s and ’60s, most leading U.S. industrials held their dominant positions in domestic markets without substantial price competition.’ Historian Gabriel Winant agrees, saying, `The postwar years of the 1950s and ’60s were the age of ‘monopoly capitalism,’ as the Marxists then called it, or, less polemically, an era of ‘administered prices.’”

3) The shift in antitrust doctrine in the 1970s had other major causes. For example, the late 1970s under the Carter administration were a time of industry deregulation, often led by such congressional Democrats like Ted Kennedy. The 1970s are also a time when the US economy comes under dramatically more pressure from international competition. Cheffins writes:

In 1991, the Economist focused on foreign competition to explain why America’s trustbusters had become “timid”: “America’s economy is more open today, exposing many big firms to foreign competition. This does not make it impossible for a domestic market to be dominated and then abused, but it is far less likely to happen. If General Motors, Ford and Chrysler were foolish enough to conspire to fix prices, they would quickly lose market share to Toyota, Volkswagen and Hyundai, at home as well as abroad.” The rise of foreign competition dovetailed with the intellectual trends in operation to reshape thinking about antitrust. … The percentage of goods that Americans used that were imported increased from 8 percent in 1969 to 21.2 percent in 1979. By the end of the 1970s, over 70 percent of goods produced in the United States were actively competing with foreign-made goods. As the 1980s got underway, foreign competition had sideswiped various major industries, including apparel, automobiles, footwear, shipbuilding, steel, and televisions. Moreover, concerns were growing that American business was stumbling in response to the challenge foreign firms were posing.

As foreign competition rose, the idea that US firms lacked competition in a way that called for aggressive antitrust enforcement diminished.

4) It’s not obvious that concentration is in fact substantially higher in most industries today than it used to be. It is quite possible to argue that greater antitrust activity might be warranted for some companies like Amazon, Alphabet (formerly Google) Microsoft, Apple, or Facebook (now Meta), or for specific situations like certain mergers between local hospitals, but not to believe that the US economy is dramatically more concentrated than in the past. As one example, Berkeley economics professor Carl Shapiro (who was a member of Council of Economic Advisers and also a Deputy Assistant Attorney General in the Antitrust Division of the US Department of Justice during the Obama administration) has taken a skeptical view of the idea that US industry concentration is up overall, while still advocating for targeted antitrust interventions for certain companies and situations.

5) My own view is that some of the most interesting antitrust actions of the earlier era were not about breaking up large companies, which didn’t much happen, and not about the many efforts to prevent small-scale horizontal mergers. Instead, the antitrust efforts more perhaps more applicable to today were to take a close look at how companies may use intellectual property protection to constrain competition.

As one example, it was fairly common practice in the 1940s and 1950s for the antitrust authorities to require firms to offer “compulsory licenses” to their intellectual property: that is, a firm could not use its intellectual property to shut off potential competitors. Perhaps the best-known case happened in 1956, when Bell Labs signed a consent decree that required it to put all of its patents in the public domain–a step that many industry insiders credit with allowing the birth of the US semiconductor industry. In another prominent case in 1973, antitrust authorities found that the Xerox corporation was using an ever-evolving and ever-expanding array of patents to block entry into the photocopier market. In the context of the giant modern tech companies, a related proposal is that antitrust authorities should beware when large companies buy smaller ones that could have grown into viable competitors.

Just to be clear, there’s no question in my mind that prevailing antitrust doctrine did shift in the 1970s in a direction that was less aggressive. But the ideas that antitrust enforcement of the 1960s was especially active, or that it mostly focused on breaking up big companies, just don’t seem correct. In addition, the shift to less active antitrust was not just an ideological/political lighting bolt from a blue sky, but happened in response to factors like the previous antitrust focus on smallish horizontal mergers and the rise in international competition in the 1970s. The lessons of that earlier time of antitrust regulation are more nuanced, and at least in my view, the most useful lessons for our time are focused on issues related to how competition and mergers interact with intellectual property and potential future competitors.