From Economist.com, Standard Ogre, Dec 23, 1999
Transcribed June 23, 06 using Dragon Naturally Speaking by Tom Meyer for use at Bainbridge College. Errors belong to Mr. Meyer and to his "Dragon."
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A Stock Tip
On May 15, 1911, Rockefeller again on the golf course, was told that the Supreme Court had found the firm guilty of antitrust violations, and ordered it to be broken up. He advised his playing partner, "buy Standard Oil." It was a good tip: its pieces proved to be worth far more apart than together.
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Sherman Act Applied Against Standard Oil, American Tobacco, Alcoa, AT&T, and Microsoft
The breakup of Standard Oil into 34 companies, among them those that became a sound, Amoco, mobile and Chevron, marked the birth of strong antitrust policy, in the United States and beyond. The Sherman Antitrust Act dated from 1890, had so far proved largely toothless against America's, robber barons Rockefeller, Andrew Carnegie, Cornelius Vanderbilt and the like. In the 1890s, the law had forced standard oil to alter some of its worst practices, and to move many operations from Ohio to New Jersey; but this had little real impact on the oil giant. By 1900 it controlled over 90% of the refined oil in United States. The Sherman Act came of age with that victory over standard oil in 1911. Notable wins followed: against American tobacco, against Alcoa, and against a AT&T before the challenge to Microsoft during the 1990s.
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The Sherman Act
What gave the Sherman Act, the power to blow standard oil apart was an explosive mixture of economics and politics that has accompanied antitrust policy ever sense. The laws sounds decisive, making it illegal to monopolize, or attempt to monopolize, any part of the trade or commerce, among American states or with foreign countries. Yet on how to apply that in practice, the Sherman Act let it to the courts to decide. The same is true of antitrust law elsewhere. European Union law bars abuse of a dominant position, and forbids acts contrary to public interest. In each case it is left to the courts and policymakers to decide what action, if any, these words require.
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Politics and Economics
Politics weighed more than economics in the Standard Oil case. The company might have escaped as others with more political savvy, like U. S. steel did, had it played its cards better. President Theodore Roosevelt had launched the antitrust suit. It was not smart. Later moguls -- ask Bill Gates -- have paid a price for underestimating the politics of antitrust.
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Want a Job as an Economist?
The economic case against Standard Oil was far from proven. Economists still argue whether it's aggressive buying of rivals and cutthroat pricing accelerated or retarded the growth of the industry and the ready availability of cheap fuel. It was already being challenged by all from Texas and Persia. Economic issues are often even trickier today: it is usually easy, with the aid of modern developments in economic theory, to make a plausible case both for and against any alleged monopoly. Little wonder that antitrust has become a lucrative job -- a job creation scheme for economists, as each side hires an army of dismal scientist to prove its point.
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Theory of Creative Destruction
Joseph Schilling caters to his theory of "creative destruction", now back in vogue, and suggests that in some circumstances, monopoly may stimulate innovation and thus boost economic growth. This notion is that an innovative firm that wins a monopoly, then becomes complacent, and is displaced by a sharper arrival, and so on. That, broadly, is what happened to IBM. Today, Microsoft argues that its dominance in PC operating systems could be wiped out fast my a rival with a better technology. Another theory allows some rather extreme economists to claim that even a firm with 100% market share is not a nasty monopolist: if it is the least bit inefficient or over-pricing, a more efficient rival will contest the market and may drive it out.
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How Broad is the Market? Can We Regulate Across International Borders?
And then what is "the market" at issue? Is Coca-Cola and say, in the market for cold soda, for carbonated soft drinks, or for all liquid refreshments? In Europe, Formula One has a 100% monopoly of its kind of motor racing; but viewers can always watch some other kind, or race greyhounds. There can be no clear answer to that sort of argument. One thing though is clear. Many markets now stretch outside any one country. Increasingly, global antitrust regulation would make sense. Yet that may be far away. Witness even the EU, in theory a single market: it has an antitrust arm -- but so do its member states. How many national politicians will readily hand over to some international body the chance to cut the local Rockefeller down to size?