Abolish Antitrust

“U.S. appeals court revives antitrust lawsuit against Apple,” goes the headline of a recent Reuters story. This is just the most recent example of a long line of government acts of persecution of businesses for the “crime” of trading with consenting customers on mutually agreed terms.

The United States Congress authorizes not only the Department of Justice and the Federal Communications Commission but independent lawyers to act under these inherently ambiguous—and inherently unjust—laws. State governments similarly authorize parties to pursue antitrust actions against businesses.

Although (obviously) antitrust law still has the support of most policy makers and even many economists (based on nonsense theories of “perfect” competition), the injustices and absurdities of antitrust law have been known to those who care to look for many decades. Key works on the matter include The Causes and Consequences of Antitrust, which examines the issue from the perspective of public-choice economics, and the Abolition of Antitrust, which critiques the laws on moral, historical, and economic grounds.

If anyone works routinely in the area of antitrust from the perspective of free markets and individual rights, I am not aware of that person. I’m a generalist, and, although I’ve spent scores if not hundreds of hours researching antitrust laws over the years, I hardly have a thorough grasp of the extensive literature on the topic. So here I issue a plea: If some young scholar at a university or think tank is looking for a fascinating interdisciplinary issue, antitrust would be a good one to tackle. And, if you have any control over the purse strings of a rights-oriented organization, I implore you to seek out and hire such a scholar. Alternately, someone could start a smaller, independent group devoted to the issue, on the model of what Alex Epstein has done with energy.

Yet one need not master thousands of pages of dense academic work to draw some general and firm conclusions about the evils of antitrust laws.

In the name of promoting competition, antitrust laws stifle competition. In the name of promoting open markets, antitrust laws forcibly restrain markets. In the name of “helping” consumers, antitrust laws throttle the very businesses that offer consumers the greatest values.

In theory, antitrust laws substitute the force of government for “capitalist acts between consenting adults.” In practice, those laws enable bureaucrats to capriciously lord it over private industry, enable some businesses to throttle their competitors, and enable predatory lawyers to extort businesses under the ambiguous and arbitrary statutes.

Before turning to some of the details of the recent Apple decision, let’s consider the meaning of two key terms, competition and monopoly.

“Competition” can refer to many things outside an economic context, such as the competition of different species for resources—a key driver of evolution. We can also talk about competition for government handouts and other favors in any socialist or mixed economy.

In the context of a free market, competition typically refers to individuals making choices about whom to cooperate with and on what terms. Individuals have a fundamental moral right to freedom of association, and competition refers to the fact that individuals choose to associate with some people for certain aims and not with others.

In the realm of the production and consumption of goods and services, business owners compete for supplies, employees, and customers, and consumers compete to secure goods and services. (Outside that realm, people also compete for mates, friends, status, and so on.)

A market is “free” insofar as individuals acting within in are free from coercion of private and governmental parties. Within this context, people can compete only by persuasion, not by force. If a producer of bread or computers or phones cannot persuade consumers to buy those items, the business will fail. Companies that excel at persuading people to buy their products prosper.

In free-market competition, then, people enter into business relationships by mutual consent, generally implying that each party reasonably expects to profit from the transaction. A person who buys a phone or a book or a pet fish expects that item to be worth more than the money spent; the seller wants to earn the money rather than keep the item.

Government properly intervenes if an exchange is based on fraud rather than genuine consent. If someone knowingly sells you a phone that doesn’t work, a book with missing pages, or a sickly fish, without informing you, that’s fraud, and if necessary government properly helps you get your money back. Government also properly intervenes in certain cases of reckless endangerment of consumers (the details here are complicated).

Absent force or fraud or the like, a consenting adult who buys a product agrees to the exchange and has no further moral or legal claims on the business—unless of course such terms were mutually accepted at the point of sale (as with return policies). Even if the customer regrets his purchase later, no one forced him into it, and the business bears no moral fault. So, for example, if you buy and read a book, subjecting it to wear in the process, then decide you really wanted a different sort of book, you cannot rightly hold the bookseller blameworthy or liable (although you can take advantage of whatever return policies the seller offered if relevant).

If you consent to purchase an item, and get precisely the item advertised, you have no moral right to then try to collect “damages” from the seller on the grounds that you wish the item had been something different. If you seek to do so, you become (morally if not legally) guilty of extortion. Extortion precisely describes the current court proceedings against Apple. The essential complaint against Apple is that its phones do not do things that Apple never said they’d do (specifically, provide access to apps not within Apple’s store). And no amount of pseudoscientific rationalizations, which litter much of the economic literature on the subject, can change those basic facts.

What about monopoly? Historically, the term was understood to mean government forcibly preventing competition against a favored business. For example, today the U.S. Postal Service continues to hold a legal monopoly over the distribution of first-class mail. A monopoly, in this sense, is a result of government force, not free-market competition.

Today “monopoly” is a package deal glomming together the fundamentally different things of government force to restrict a business’s competitors and success earned by a business operating strictly by mutual consent.

Strictly (on the modern view), monopoly refers to a single provider of a good or service—which, when considering relevant substitutes (and leaving Marxist fantasies aside) has occurred only by government force. Not even John D. Rockefeller could corner the entire oil market—and he achieved the market success he did only by continually lowering prices, increasing his efficiency, and creating new uses for oil. Similarly, Alcoa did not totally control the primary aluminum market in the 1940s even though it relentlessly drove down prices—never mind the secondary market—yet Judge Learned Hand condemned the company precisely because of its “skill, energy, and initiative” that led to its success. Google doesn’t facilitate 100 percent of internet searches despite the fact that it offers an excellent product for free to anyone in the world (damned rapacious capitalists).

Today, of course, most people use “monopolist” to condemn successful businesses who “control” a substantial fraction of the total market solely by selling goods and services to consenting customers on mutually agreed terms.

For what it’s worth, Apple has about a 40 percent share of smart phone sales—and this is an industry that Apple pioneered. That predatory lawyers can tie up companies in court under antitrust laws, when the companies do less than half of the business in an industry, illustrates the absurdities of those laws.

Let’s take a closer look at the claims against Apple, from the Reuters story:

iPhone app purchasers may sue Apple Inc over allegations that the company monopolized the market for iPhone apps by not allowing users to purchase them outside the App Store, leading to higher prices, a U.S. appeals court ruled. . . .

A lower court sided with Apple, but Judge William A. Fletcher ruled that iPhone users purchase apps directly from Apple, which gives iPhone users the right to bring a legal challenge against Apple. . . .

[I]f the challenge ultimately succeeds, “the obvious solution is to compel Apple to let people shop for applications wherever they want, which would open the market and help lower prices,” Mark C. Rifkin, an attorney with Wolf Haldenstein Adler Freeman & Herz representing the group of iPhone users, told Reuters in an interview. “The other alternative is for Apple to pay people damages for the higher than competitive prices they’ve had to pay historically because Apple has utilized its monopoly.”

How convenient for Rifkin that among the “obvious solutions” to Apple’s alleged wrongdoing is for the company to offer Rifkin a huge slice of a payoff to Apple’s customers.

The idea that Apple “damaged” its customers by selling them phones that they wanted to buy, under terms that they knew (or easily could have known) in advance, is ludicrous. What is really going on here is that Apple enormously benefited its customers—but it did not benefit certain customers in the way or to the degree that those customers, in retrospect, wish that Apple had done.

As to whether Apple “should” let iPhone purchasers buy apps directly from third-party sellers, that is properly up to Apple. If customers don’t like the way Apple does business, they’ll stop buying Apple products.

In fact, Apple had very good reason to restrict iPhone apps to its own store. Apple explicitly wanted to serve as a gatekeeper, to try to keep shoddy products and malware at bay. (I’m an iPhone user, and I’ve not minded the way the app store works.)

Even if (counterfactually) Apple had said, “We don’t have any reason to restrict apps to our store except we want to earn a cut of each app sale,” that would have provided no sound basis for government action. Still customers would have been free to choose whether to buy Apple products on the terms offered, and app makers would have been free to choose whether to develop apps for Apple customers. Neither in reality as it played out nor in our counterfactual example is any force involved.

Government properly intervenes in market transactions only to maintain a free market—that is, one free of force, fraud, and rights violations generally. Antitrust laws involve the use of government force to violate the rights of business owners and their customers to freely associate. Antitrust laws are inherently arbitrary and inherently immoral—and they should be abolished.

Image: Matt Yohe