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Fan favorite, Peter Van Doren, comes back to the show to discuss how the concept of a monopoly has changed throughout history.

Aaron Ross Powell
Director and Editor
Trevor Burrus
Research Fellow, Constitutional Studies

Peter Van Doren is editor of the quarterly journal Regulation and an expert in the regulation of housing, land, energy, the environment, transportation, and labor. He has taught at the Woodrow Wilson School of Public and International Affairs (Princeton University), the School of Organization and Management (Yale University), and the University of North Carolina at Chapel Hill. From 1987 to 1988 he was the postdoctoral fellow in political economy at Carnegie Mellon University. His writing has been published in theWall Street Journal, the Washington Post, Journal of Commerce, and the New York Post. Van Doren has also appeared on CNN, CNBC, Fox News Channel, and Voice of America. He received his bachelor’s degree from the Massachusetts Institute of Technology and his master’s degree and doctorate from Yale University.


Fan favorite, Peter Van Doren, comes back to the show to discuss how the concept of a monopoly has changed throughout history. People certainly don’t like the idea of a monopoly, but before we claim a company as a monopoly we need to make sure we know what market they exist in. There is always competition that exists, but sometimes it’s hard to nail down.

What is a trust? What are the technical concerns of a monopoly?

Further Reading:

Searching for Monopolies, written by Julian Sanchez

Regulation Magazine Winter 2020–2021



0:00:06.7 Aaron Powell: Welcome to Free Thoughts. I’m Aaron Powell.

0:00:09.1 Trevor Burrus: And I’m Trevor Burris.

0:00:10.4 Aaron Powell: And our guest today is Peter Van Doren. Peter’s a senior fellow at the Cato Institute and editor of Regulation Magazine. Welcome back to Free Thoughts.

0:00:21.2 Peter Van Doren: Thanks for having me. It’s my home away from home.

0:00:24.4 Aaron Powell: Today we’re talking about antitrust, and I guess if we’re opposed to something, it might make sense to figure out what that thing is, so… What is a trust?

0:00:35.1 Peter Van Doren: I actually didn’t know myself until I started digging into this, and it’s fascinating, which is, the facts are the following. In 1882, the chief lawyer for Standard Oil invented this legal thing called a trust, and what the trust did is then own the stocks of other companies, and so the Standard Oil Trust or the American Sugar Trust or these things were ways to combine companies at the time without actually officially merging. And at its peak, the Standard Oil Trust owned the stock of 40 other oil companies and the… Literally through what we call today for estates and things, a trust.

0:01:35.3 Peter Van Doren: And in 1889 and 1890 the New York State courts ruled that the American Sugar Trust was illegal. So in 1892, Standard Oil actually terminated its trust arrangement and became what we now think of as just a large single corporation. But the term trust and therefore antitrust, a stock, even though the trusts actually don’t exist and haven’t existed since 1892, in some sense, for the Standard Oil Trust, at least, but any trust is now the name of a policy and the name about concerns about large firms that don’t seem to fit with the American Jeffersonian notions of yeoman‐​farmer capitalism in which you can sort of touch and see and feel everything that’s going on, and it’s not too big to imagine.

0:02:34.2 Trevor Burrus: Now, it seems like if you think about these eras, you have this… Maybe about 1890, 1880s, there was big businesses, Teddy Roosevelt trust‐​busting, that era of antitrust, but what was there before that era? Was there… There were concerns about monopolies too, I know some cases even going back to the 17th century, but a lot of those monopolies are state‐​granted, so was it really just when the emergence of large corporations post‐​war that this became a concern?

0:03:03.9 Peter Van Doren: Pretty much, but there were concerns about markets and how they worked in English law and English statutory law, and we can give people the reference to the paper that talks about them. A lot of the concerns back then, though, weren’t bigness, because we didn’t have… The Industrial Revolution had not occurred and railroads didn’t exist, and so the concerns were actually about what we now call futures markets back then, which is people with commodities could sell that couldn’t sell them in large bundles to somebody who then would distribute them and things like that. So English statutory law had prohibited things called forestalling, engrossing and regrating, and forestalling is buying goods from the farmer for resale before the goods came to market. I think we would now call that a future smart kit.

0:03:54.5 Peter Van Doren: Engrossing is buying goods from farmers for resale, we would call that middlemen, and a similar concept, regrating was buying in bulk and then selling in piecemeal. So back then, there were notions that real producers should meet real consumers and there shouldn’t be entities in the middle. We still have these concerns, and certainly in the futures markets or energy and commodities, right, we have incidents of concern about that, but antitrust and bigness certainly comes with the Industrial Revolution, primarily, rather than earlier conceptions in common law.

0:04:35.8 Aaron Powell: Trevor mentioned monopoly, and before we go too much further into the history and development of antitrust, I wanted to ask about that, like what that term means, because it gets, it’s not just a board game. It gets kicked around a lot. People apply it to a lot of things, but is it… When we talk about a monopoly existing, do we mean simply that one market player has become very large, or do we mean that one market player is really the one market player and that there aren’t other producers? Because you can imagine for certain products, there might just be a single producer, but it’s got a very… Not many people are buying its product, and so we don’t seem to worry about that kind of monopoly, so where’s the line? What do we mean when we talk about a monopoly?

0:05:22.8 Peter Van Doren: Well, you referred correctly to the two dimensions that people worry about, one is size, and one is how many of them are there. And so technically, right, from the kind of dictionary definition, monopoly is one seller, a monopsony is one buyer, no more, no less, period, full stop. Then there’s size and so in the culture, in the popular language, people don’t always stick to the technical definition of monopoly, in that when they say monopoly, they’re also… They’re basically saying, there’s this big thing out there that lots of people are buying from and it’s just swallowing up everything else, and I’m scared to death about it, right, I mean, it’s…

0:06:10.5 Peter Van Doren: So when you ask for what’s the right definition, there’s both, the squishyness that you referred to is because in popular culture it is squishy, even though if you look in the dictionary, I think technically it always means one seller and not any more than that. And then there’s a long tradition, which we usually talk about, I think we have, in prior podcasts about utility regulation, which is something called natural monopoly, which are electric utilities and water systems and things like that, where it’s both the economics and the physical nature of what’s being provided make it difficult to conceive of more than one seller, more than one electric distribution system, more than one water or sewer system. Although we used to say that about cable, we used to say that about there couldn’t be more than one provider of access to video and the internet, and yet in my neighborhood, we have two. We have both a telephone provider with a physical system and we have a cable provider with the physical system, so at least there where we thought there only could be monopoly there, in fact it’s duopoly or two sellers.

0:07:35.3 Trevor Burrus: In general, libertarians are pretty skeptical of antitrust and anti‐​monopoly litigation, but we also seem to understand that, I guess maybe informed libertarians understand the big businesses are not pro‐​market. It’s very hard to run a big business under the principles of, say, libertarianism or Ayn Rand to be for the market for the purpose of the market, big businesses tend to be for anti‐​competitive measures. So in the abstract, it seems to me that monopoly antitrust laws and anti‐​monopoly laws, they’re not a bad idea, and they might put a check on some of the expected incentive structures of big business.

0:08:17.0 Peter Van Doren: Well, certainly, when in conversations, I always say that libertarians probably ought to be and are in favor of antitrust in theory, and never seem to be in practice. And the theory relates to the concerns you have, which is libertarianism is about rights, which is what Aaron and you and others in your shop talk about a lot, but it’s also I think from an economic point of view, or if we went out in the culture and ask people, why is it okay for free markets to exist, and you run into the notion of choice. You can’t have one, if the only entity, or if there’s only one place where you can buy whatever it is you want to buy, that doesn’t strike people is a good idea.

0:09:09.5 Peter Van Doren: And so you then get into competition and you then get into market entry and choice and industrial organization, and how many sellers does it take to exist before people feel like there’s no need to worry about how many sellers there are. In other words, there’s a sufficient number so that if you don’t like what’s going on, you’re not compelled to do so. To be sure, the government’s not making you, but if you need to buy something and there’s only one place to buy it, then people say, well, how come there’s not more than one thing and, so, Trevor, I think you hit upon both those concerns and I’ll just end here with… One of the fascinating things in doing research for this podcast, I came… I’ve read a lot and I talk about it in our discussions. I came across an article I did not know about, which is by George Stigler, one of the real law and economics founders at the Chicago School of Economics.

0:10:12.7 Peter Van Doren: He wrote an article in Fortune Magazine in 1952 where he was very much opposed to big business in the way Trevor described, which I said, what? And again, his view was he was anti‐​big business, because the reaction to big business is big unions and big government. In other words, if there’s a big thing out there on the private side, you need a countervailing power on the public side or in organized labor to deal with this big thing on the private side. And I thought about what Stigler had anticipated was Galbraith’s new industrial state, written in the late ‘60s, which I had to read as an undergraduate, which was this description of corporatism, right, as sort of everyone’s organized, everyone’s in a big organization and there’s countervailing power and it all works out, and that’s very different than a Jeffersonian atomistic market, kind of everything works out.

0:11:10.2 Peter Van Doren: And so, yes, there is even in libertarian thought there, and George Stigler’s essay is fascinating, in that he too, for at least then, worried about big business, not because it was big business, but because there would be cultural forces that would lead to big unions and big government as a response.

0:11:33.1 Aaron Powell: How did antitrust emerge in the United States?

0:11:41.4 Peter Van Doren: The Sherman Antitrust Act, is that what you’re…

0:11:44.9 Trevor Burrus: That’s one of them, definitely.

0:11:48.4 Peter Van Doren: Basically, the demands for cap, in other words, the steel industry and the oil industry had needs for capital and need for everything that just, as well as the railroads, that just stunned America, it stunned markets at the time. I mean, their need for capital was… These entities were so big and employed tens of thousands of people in ways that no one had ever seen before, and that generated a cultural reaction, both in the public, which was made to fear them, and also among those industries that were very threatened by the rise of these new entities. And so we had, to use an old Cato term, the sort of bootlegger and Baptist coalition, where entities that worried about being driven out of business by these new firms, I.e., other firms, they wanted the government to side with them, and then they wanted the public to think that they were ill‐​served by these new large entities, and that they were better served by smaller, more small‐​town and yeoman farmer kinds of businesses that they could touch and feel and understand in a way that they could not about Standard Oil and US Steel, which were just mammoth organizations that people could not comprehend.

0:13:29.5 Peter Van Doren: So the Sherman Antitrust Act comes out of… In 1890 comes out of, it has two statements, it says it outlaws contracts and restraint of trade, and it outlawed combinations, and those are trusts. So again, we’re back to what were people afraid of, and the answer were these large entities whose actual form back then were trusts rather than one large corporation that we now think of as what big companies are.

0:14:01.3 Trevor Burrus: In that era, ’cause when you think about that, as I mentioned before, the robber barons, or was popularly thought of as a robber barons era, but generally speaking, Standard Oil and US Steel, were they monopolies in a harmful way? ‘Cause there’s two ways that it seems to me that you can look at this. One is you could just sort of say big is bad, which would just be a sort of assertion of maybe there’s too much political power, maybe there’s not enough localism, even if you look at prices going down, big is bad, or you could just say, hey, look, is this benefiting the consumer, and if the prices are going down, is that a good thing and it doesn’t even really matter how big it is? And from what I know, both US Steel and Standard Oil seem to be benefiting the consumer, even though they were massive on any scale, even today, for how big they were?

0:14:57.7 Peter Van Doren: Yes, yes. The irony, and I’ve read a lot on this, and what’s interesting is how little I’ve seen concern at the time about, well, let’s see if prices are lower, just a very simple kind of American notion that these may be mysterious and big and weird and I don’t understand them, but I’m not paying as much for stuff as I used to. And that was not the… Eventually, that became the reaction, mostly after the mid‐​1970s, but ironically it was not… It doesn’t seem to be part of the conversation for a very long time, and you don’t have to go to Standard Oil and US Steel. I think, again, in my reading, I think the most puzzling antitrust case of all time, and I think we should talk about it because it’s related to what people worry about now, and that is the A&P supermarket company, the Atlantic & Pacific Tea Company.

0:16:07.0 Peter Van Doren: It had economies of scale, it was vertically integrated, and so it was very disruptive to the grocery market back then, because small grocers had higher prices and mark‐​ups and they were just being driven out of business, and the A&P supermarket company was just wonderful for consumers, but it generated legislative and cultural backlash. And again, the term had not been invented by Bruce Yandle, bootleggers and Baptists, but one sees bootleggers behind this cultural reaction, and what I don’t know is the Bap… In other words, I haven’t read anything about religious leaders and other cultural leaders at the time as to what, where they stood on all of this. There’s probably writing on it, but I haven’t seen it.

0:17:08.8 Peter Van Doren: So the A&P supermarket company and then, which is the Walmart of its time, and then the Wright Patman Act of 1936, which was dedicated to dealing with A&P, and then the indictment of A&P after World War II, and then its demise because of the indictment, it’s just sort of a… You kinda scratch your head and go, what? And again, this is sort of like the reaction to Amazon now, which is, wow, it’s delivering stuff to our door and prices are lower, and I don’t have to do anything…

0:17:38.8 Trevor Burrus: But everyone’s mad.

0:17:42.2 Peter Van Doren: But everyone’s mad, and it’s like, okay, so…

0:17:46.7 Trevor Burrus: Well, A&P is one of those companies that I think I only know about by reading kind of history of antitrust, but…

0:17:53.0 Aaron Powell: I used to shop at A&P when I was a kid.

0:17:55.5 Peter Van Doren: Yes, I did. I’m older, so I…

0:17:56.0 Trevor Burrus: Oh, so they still existed in Detroit? Okay. Maybe they never existed to Denver, but it’s pretty much… God, it would have been like Amazon or Walmart for people who are 50 or 60 years old, and people would have been like, there’s no way that A&P is ever going anywhere, it’s got such market power. And that seems to be an interesting lesson ’cause we hear these stories often about how these Fortune 500 companies are constantly in flux, the ones that were there in 1935 or 1965 or 1985 are not the ones that are there today, and that competition is pretty fierce even when you’re at the top, that seems to be a lesson we can usually pull from that, right?

0:18:38.0 Peter Van Doren: Correct. I mean, I think… I’ve looked at old Fortune magazines and John Kenneth Galbraith was the editor way back in the ‘30s, before he was an academic, and there’s a cover from, I don’t know, 1930 something, I forget what year, and it just impressed me. And it was on the Pennsylvania Railroad, and said, this is the largest company in the United States and they’re at the peak of their power and blah, blah, blah, blah, blah, blah, blah, and then you go, what? By 1969, they were bankrupt.

0:19:09.7 Trevor Burrus: MySpace, Microsoft, yup.

0:19:12.3 Aaron Powell: I was struck as you were talking about A&P and the cultural attitude of this was vertically integrated and was everywhere and was potentially driving smaller businesses out, and that there was a cultural backlash against this, and yet now the hip place to shop is Trader Joe’s, which is everywhere and growing like crazy and is exactly that, right? It certainly isn’t a mom and pop, and it’s all Trader Joe’s brand products, and that’s where all of the urban cosmopolitans want to shop, it seems they just kind of forgotten that angle of it as long as it culturally aligns. But also, when we talk about like the Amazon thing, my sense is not that the major objection to Amazon and the reason that there’s people saying it should be broken up, it’s a monopoly, it’s bad, is not because there aren’t other e‐​commerce sites that are coming in, but because Amazon’s bigness, ubiquity allows it to, say, exploit its workers, that that’s been the big thing through COVID, and why people are mad is that Amazon hire all these people here, it’s that the working conditions are poor or the pay isn’t great, or Jeff Bezos’ net wealth has climbed dramatically while his workers have not seen substantial raises.

0:20:35.0 Aaron Powell: Is that part of this monopoly or antitrust conversation is not just the damage that bigness could potentially do to consumers, but that bigness allows worker exploitation?

0:20:47.8 Peter Van Doren: I suppose. I mean, certainly, it also comes up with Walmart. Walmart, I once did the math, though, I mean, what’s interesting about retail is how razor thin the margins are. So the problem with doing math in real time and winging it is I’ll get it wrong, but at one time…

0:21:08.3 Trevor Burrus: It’s okay, our listeners won’t get it right before… I mean, there’s probably some math wiz listener who we’ll get an email from, but dead reckoning is fine here.

0:21:13.4 Peter Van Doren: Well, I remember looking up, I had a quote about Walmart’s, I had the data on Walmart’s profit in one year, and then how many workers it has. See, retail is not very productive. The reason retail workers are not paid very much is because there’s hundreds of thousands of them, and so the value‐​added per worker is actually not very large, which is why they’re not paid very well. And there were calls for Walmart to pay, I forget what the wage was, and it would… I sort of did the math and said, oh, wow, that wage, that $2 an hour increase or whatever it was, would wipe out the prophets of Walmart for an entire year.

0:22:00.6 Peter Van Doren: In other words, the difference between making a lot of money and not making a lot of money, if you have a lot of employees, so it may sound like nickel and diming workers, that’s just wow, what a cheap… That’s just… That’s like the Dickens character, right, in Christmas Carol, that’s just Scrooge, right? But because there’s so many workers who aren’t very productive, if you pay them each something more, that’s basically where your profit came from. It’s not true in industries where workers are much more productive, but in retail it is, but culturally, yes, that’s how people attack…

0:22:43.2 Peter Van Doren: So the United Commercial Food workers, they’re one of the unions that wants to organize McDonalds and they want to organize low wage workers and increase their pay, the problem is… And those companies make a lot of money, it seems like, but they don’t make much money per worker, if you follow what I’m saying, so to give each worker what seems to ordinary people or middle class people a sort of sensible wage would actually wipe out much more of the profits in those sectors than you would at first think unless you did the math.

0:23:21.7 Trevor Burrus: When we talk about firms being anti‐​competitive, it seems a little difficult for me to define that, and I’m a lawyer, so I’ve read some of these cases, but there are ways that I can imagine being totally anti‐​competitive, sort of stealing trade secrets or doing some other kind of nefarious things to undermine your competitors. There’s always the idea of, what is the word I’m looking for? Dropping your… Predatory pricing, like that kind of behavior. But sometimes if you’re anti‐​competitive, it’s because you’re just better at what you’re doing. And then the other thing that’s always struck me as weird is it’s kind of hard to define who some firms are competing against.

0:24:01.9 Trevor Burrus: I seem to remember a case, an antitrust case about movie theaters in Dallas or something like that in the ‘60s, where some company controlled 50% of the movie theaters or something, and so they were comparing the pricing structure between movie theaters, but aren’t movie theatres competing against every form of entertainment that is not a movie? And there’s a lot of firms that just do not directly compete on a one‐​to‐​one scale with other firms, so that all this makes defining any competitive as kind of a philosophical question as much as an economic one?

0:24:32.9 Peter Van Doren: Correct. There is much ink spilled over trying to define what the relevant market is when you’re calculating what are called the Hirschman Hirfindahl indices, right. So antitrust now has a whole technical apparatus of which, when a merger is proposed, the very well‐​paid economists in the Justice Department sit down and try to calculate what the Hirschman Hirfindahl index would be pre and post merger and whether or not it rises above a certain number, and if it rises above a certain level, then that merger is declared to be problematic, because… But as Trevor said, well, what’s the market. And so, and Trevor went beyond, which is, let’s say the market is for widgets, but then, widgets, you could spend all your money not on widgets, but on some other kind of thing, manufactured good, or if it’s, is the market for entertainment broadly construed, or is it about movies in Dallas in certain zip codes? How many providers are there?

0:25:41.6 Peter Van Doren: And that choice is not really a scientific choice, it’s just like if you define the market this way and then you ask technical people to make calculations, they will come up with an answer, and then you say, should the government try to think about substitutes beyond movies in this zip code in Dallas, in fact, if they don’t spend it on movies is bowling equally useful for spending one’s entertainment dollar? That’s kind of outside… We can give you an elasticity estimate, we can say if the price of movies rises by so much, how many people stop seeing movies and start doing something else, right, bowling with their entertainment dollar. So we could actually find the scientific answer to that question, then you’d have to say is it, should the government intervene to make movies more competitive, even though if they weren’t, people would drift into bowling, if you see what I’m… So yes, there’s both technical and broader philosophical questions lurking in this discussion.

0:26:52.8 Aaron Powell: I’m going to go back for a moment to predatory pricing that Trevor mentioned, because I have heard this horror story told of, you’ve got a street with local, say, like small record stores, and they’ve been in business forever, and then a big box record store comes in and it intentionally because it’s got big boxes all over, and so it’s got profits coming in from all over the country, can on that street, cut the cost of records by 50%, so it’s radically undercutting the mom and pops, but it’s also losing money on every record sold. And then it drives them out of business because people flock to the half‐​off, and then once it’s driven them all out of business, it can jack up its prices to either just as high as they were at the beginning or even higher and hurt the consumers. Does that sort of thing actually happen?

0:27:49.1 Peter Van Doren: The short answer is no, but that story you just told is repeated over and over and over again, and it’s the source of cultural support for… You remember the bootleggers and Baptists, right? This is the Baptist sort of… But the people who peddle this story are usually the small firms whose costs are higher. So what innovators do is show that there’s economies of scale in something for which people used to think there weren’t. So Tower Records is something, I remember the innovation, and I remember going… I mean, the stores were… It’s just amazing, right, Tower Records changed everything and undercut traditional, smaller local record stores. I remember in New Haven there was… Oh goodness, I can’t remember the name, but all college towns have a small family‐​run, exotic record store that has jazz and this and that and the other thing, and then if Tower Records is anywhere nearby, like in New York or Boston, it was in New Haven, then all those little record stores that catered to audiophiles who went to NYU, they couldn’t make it, they couldn’t compete.

0:29:10.9 Peter Van Doren: But it wasn’t because they’re pricing below cost, it’s just that their costs are lower. Now, Amazon, Amazon lost money for 18 years, they made money, but they took all the money and reinvested, because it turns out for what they do, there are large economies of scale, or not large, but at least sufficient economies of scale so that the marginal costs of distributing and to‐​ing and fro‐​ing and all of that actually kept going down a bit as they got bigger and bigger and bigger, so that’s another way people… I mean, a firm that never makes money for 20 years, isn’t that, isn’t… Shouldn’t that be illegal, or something like that. It certainly comes up with Amazon’s history.

0:30:01.7 Trevor Burrus: If we’re looking at the… Yeah, like this question that we ask is the behavior of business men, business women, business people, Aaron’s question, and what I’ve been asking about predatory pricing, I’ve said it, it seems like a very crazy business decision, wherein if you’re in a competitive market, you’re kind of taking this huge risk to lose money on the hopes that you’ll gain it back in the end. And there’s a lot of discussion of antitrust where you, at least in the popular kind of person, twiddling their mustache with a monocle mwahaha‐​ing about they’re going to take over some industry, that they’re behaving as a business person usually wouldn’t behave, because it would be highly risky.

0:30:43.6 Trevor Burrus: And usually someone who’s a CEO of a company, even a very big one, is constantly looking in their rear view mirror for what’s coming up next. Blockbuster Video got caught napping by Netflix and everyone else, and you see this time and time again. So in general, should we be more concerned about the kind of elements of markets, so that some markets, some businesses may not have to be as aware of competition because there are barriers of competition, either artificial barriers or ones that are created by government that actually make it more of a concern for a trust or a monopoly than most sort of standard competitive markets?

0:31:22.2 Peter Van Doren: Yeah, one of the interesting things to think about, and certainly a lot of what business school is about, or a part of business school is about, is brands. You talk about technical versus philosophical question, which is are Coke and Pepsi competitors? And you kind of think, Peter, what did you have for lunch? Did it alter your… I mean, until I read the paper and questioned where this came up, I hadn’t… Of course, Pepsi and Coke are competitors. But is Coke… I mean, Coke and Pepsi so, because it’s a trademark secret… So for the particular thing called Coke, Coke is a monopolist. There are other colas, but they taste slightly different, so if you’re really, really into Coke, there are no substitutes.

0:32:21.0 Peter Van Doren: And the same may be true for like Apple people, right, people love MacIntoshes or the computers, right? There’s some term for them in popular culture, and what… You can tell, you guys are more informed than I am, there’s the normal computer market, and then there’s Apple, and so Apple price is higher and all iPhones, and so are Android phones competitors for iPhones? . Well, for the real iPhone person, the answer is no, right? Do you see what I’m saying?

0:32:57.1 Trevor Burrus: Absolutely, yeah.

0:32:58.4 Peter Van Doren: This… Do you see how it gets… Again, there’s this technical notion of competition and how much is there and all that, but it’s back to Trevor’s earlier statement about, well, how do you know what a market is, and then is there a market for phones which have different brand names and different features, or are there different… There’s some monopolies for certain things, and then there’s competitors that are slightly different, and for most people that doesn’t matter, and that’s good enough.

0:33:33.1 Aaron Powell: I’m not sure if this question, this follow‐​up, is going to make sense, ’cause it’s not a 100% clear in my head, but I’m just going to rush forward with it. I wonder if thinking of this relationship, like what are the markets and are they competitors or are they in their own markets because they’re slightly different, and that we can kind of, as we zoom in and out, we can see, we can say they’re in the market, they’re in the same market, but they’re not, that that might potentially scale with prices, so if Coke and Pepsi cost exactly the same amount, then the reason that I’m choosing one or the other has to do with entirely the taste of them, and in that case, they’re not competing in the same market, because what matters is that Coke tastes like Coke, and so that’s the Coke market, and Pepsi tastes like Pepsi, and that’s the Pepsi market.

0:34:26.1 Aaron Powell: But if Coke jacked its prices up much higher, I might start to, I guess, place less emphasis on the subtle differences in flavor, because whatever little marginal utility I get from the difference in flavor between Coke and Pepsi doesn’t outweigh the cost difference, and so then they move into the same market, I.e., like I would substitute to a different good. And so I’m also thinking of the iPhone. You might say the iPhone, the iPhone diehards don’t see it having competitors, but if the cost of the iPhone becomes sufficiently high, then they will start seeing it as having competitors because they’ll be more willing to look at similar but cheaper phones.

0:35:15.5 Peter Van Doren: All true. Well said, I don’t… I can’t add… I mean, prices matter, and so what firms try to do is raise prices to the point where they make the most money, and they’re always experimenting with what’s called product differentiation. There’s a whole literature out there about why are there so many different kinds of Triscuits where, you know, supermarkets, brand differentiation… Are they trying to block entry by occupying 17,000 square feet of the cracker shelves? And to some economists, the answer’s yes. Or is this okay because the thin Triscuit market is really different than the thick one and really… You see what I’m saying?

0:36:04.3 Peter Van Doren: And yeah, it’s… But, eventually, if prices get high enough, ’cause there is an income constraint, firms go over the edge and people start looking and then they’re toast before they know it. Yes, all of what you said is true. And business school tries to, unlike economics, which is about consumer welfare, business school is all about trying to train people to exploit the differentiation that you describe, so that, to the extent possible, they can make profits without inducing entry and/​or consumer choice or consumer thinking about going to something else.

0:36:49.6 Aaron Powell: How does this work then when the price is zero? So right now we have… The government has announced the antitrust action against a bunch of big tech companies, and some of them, Google, Facebook, set their price at zero, it doesn’t cost me anything to use Google outside of a handful of services that I might pay for but most people don’t. It costs zero for consumers to use Facebook. And so these firms aren’t competing on prices at all, so how do we think about monopolies and market and market entrants and competition in a market where consumers aren’t charged any prices?

0:37:29.2 Peter Van Doren: Good question. My simple pedantic answer is, if something’s free, then you can’t talk about whatever it is as a market, so what the modern, what Google and Facebook and the other electronic platforms are, are they’re creating markets for advertising, and thus, notwithstanding all the philosophical questions we had earlier about what is a market, is whether digital advertising is separate from other advertising. I think of Google and Facebook as competing with network television and radio and print and all other forms through which firms try to reach consumers with a message about their characteristics or their prices.

0:38:29.3 Peter Van Doren: And so for me, the question is, has the market for advertising been made more or less competitive by these new firms? And as best I can tell, it’s made it different in the following sense, the… Think of Cato. Cato tries to advertise, it buys lists of people in broad demographics, it says, these people are over age 60 and have this kind of income, and we can sell you their names and you can send a little Cato thing and ask for donations. But what Facebook and Google do is try to have much more fine‐​tuned information, which to some people raises privacy concerns if it’s obtained without consent, and in effect to make the market for reaching the people you want to reach much more clarified and much narrower, and thus you’re not wasting advertising dollars on reaching people through a circular in the newspaper, which then everyone calls junk mail and then throws away.

0:39:42.1 Peter Van Doren: And so when I finally read an article about what Facebook and Google do for advertisers, I said, oh, my God, that’s just… That’s helping them waste less money on advertising, and I happen to like newspaper circulars and the old‐​fashioned thing, and I read those, even though those people think of it as junk mail, but I have to admit that most people don’t read them, and thus all that newsprint and all that, all that money spent attempting to reach consumers to describe prices and product characteristics, it’s better for society to spend less money on that than more money, and thus these new digital entities are, in some sense, I think, improving the advertising market. And thus, there is no market for search, saying that Google has a monopoly on the market for search, well, there is no market for search, because no one pays for search, so to get back to your original question, which is you can’t talk about markets and listed prices.

0:40:53.1 Trevor Burrus: So this whole discussion has led me to this kind of thinking about the question of… In the way that we are concerned with as economists, libertarians, can we think of an example of a monopoly? I mean, it seems like we’ve punched holes in a bunch of Standard Oil and US Steel to some extent, again, we’re going to be maybe going back to definition, but… Has there been an example of the market creating a monopoly that we can think of, wherein it did the kind of things that people believe that these monopolies can do, setting prices without any concern for consumer welfare and sustained it for a meaningful period of time, or maybe I’m asking in the sense that, is there one of those that has not been facilitated or created by government or are there regulations that help create those things?

0:41:47.9 Aaron Powell: I mean, maybe you don’t know the answer, but maybe part of the point is that it’s hard to think of that, even though a lot of people on the other side think it’s obvious the monopolies exist everywhere all the time and they’re just constantly popping up, and if you actually think about it, it’s hard to even name one.

0:42:03.1 Peter Van Doren: Not monopolies. I think what I can provide evidence on is there are… There’s a subset of antitrust that’s worried about mergers. So in other words, should the government have the right to think about and then intervene in the number of competitors in a market, even though we’ve said how difficult it is to know what a market is, etcetera, etcetera. So there are articles in the literature that talk about the effects of mergers and… For things like dishwashers and washing machines and etcetera, and there’s… I think in the notes that I’ve distributed, I talk about the effects of mergers and refer to some articles by Orly Ashenfelter, who’s a famous econometrician at Princeton, and he studied the Maytag/​Whirlpool merger and found in very convincing econometric fashion that there were some markets in which Whirlpool and Maytag competed before the merger, and there were markets in which they did not compete, I.e., dishwashers versus dryers and washers.

0:43:13.4 Peter Van Doren: And in the markets where they competed before, prices for those products after the merger went up by 4% to 5%, that’s… In other words, do, does it matter how many competitors there are in a market for goods like that, even though, despite our earlier Coke‐​Pepsi discussion like, oh, well, a Maytag and a Whirlpool washer and an LG washer, and a different brand, those are all really separate markets, ’cause they’re special or a Bosch, and thus they don’t really compete with each other. Well, I think for most people, unlike Apple, most people think of washers as washers and…

0:44:05.2 Peter Van Doren: So there’s one example. The second example I would bring up and I wanted to discuss with you guys is the recent Apple/​Amazon book publisher case with book distribution, and whether or not that was mischief or not, and whether the government did consumers a good thing by intervening in what Apple was trying to do. That case… So even though we’re libertarians and economists are good at coming up with all the stupid things antitrust did, there are some… I mean, that case, for example, strikes me as… What Apple was up to was not helping consumers, it was trying to do a job on Amazon and Amazon, quote, selling books below what publishers wanted them to be sold at and breaking the publishing model, and then Apple was going to, in effect, not buy the books from publishers, but just act as an agent to sell and then cut the revenue with the publishers, etcetera, etcetera.

0:45:09.7 Peter Van Doren: And again, at least from what I’ve read, I haven’t, I haven’t seen many right of center economists write to, say, intervening in that case through antitrust was obviously pure mischief and not for consumers, etcetera, etcetera. So those are two notions that I… But they’re not monopolies for long periods of time.

0:45:37.4 Trevor Burrus: It seems like quite often that the apparatus for the state to intervene in these monopolies is either misinformed, radically misinformed, just a bad paradigm for looking at the situation, I.e., defining the market, or it’s a gamesmanship on behalf of competitors trying to put someone out of business, or it takes so long, like the Microsoft case of the late ‘90s, where it takes so long and by the time they get the case together, the purported monopoly has gone away. So that similarly… Sorry, continue.

0:46:15.8 Peter Van Doren: Well, just the long one was the long, long, long attempt to break up AT&T, which then sort of gradually put itself back together and then, because communication changed from landlines, it’s all kind of… You just look at how much energy, money and whatever was spent over figuring out how to deal with the telephone system, it just… To talk to anyone under my age that we spent years and years and years trying to create competition over landlines, just go and… What? And yet we did, we did spend an enormous amount of energy over that.

0:46:55.6 Trevor Burrus: Go to Ma Bell, yeah. So is the bottom line, it seems to me, that there’s a good reason to be skeptical of claims to antitrust and actions against antitrust doing the kind of consumer benefit that they’re purported to say, even though occasionally there might be some we can imagine that could be beneficial, they seem to be far outnumbered by the ones that are not beneficial.

0:47:24.4 Peter Van Doren: I think so. I think that’s a fair reading, but we sort of, on one side of it, I find this despite 100 and whatever years of thinking about this, people still remarkably fall along ideological lines. And Fiona Scott Morton and Herbert Hovenkamp, right, a famous Yale economist and a famous… The most famous antitrust… Well, legal, he’s at Warton now, he was at Iowa forever, Herbert Hovenkamp. They are, they’re writing, if I gave you their articles to read, you would… And Hovenkamp is seen as a kind of a neutral middle of the road antitrust person, not a Lina Khan Brandeisian by any means.

0:48:17.7 Peter Van Doren: And those middle of the road, probably liberal academics still see an urgent need for antitrust. One of my colleagues at Princeton, Carl Shapiro, now is at Berkeley, he’s for vigorous antitrust enforcement and he was chief economist for antitrust under Obama, so if… It’s frustrating to me, ’cause I’m not an antitrust person, but if you locked all these people in a room and you force them to wrestle with all the various articles and evidence, would they come to the conclusion you just stated, which is, you can find instances where it appears that antitrust could and did do some good for consumers. But there’s so much, so many cases and absurd things on the other side that it’s hard…

0:49:17.8 Peter Van Doren: That is, if you had to choose that we have nothing or have the apparatus we have, it wouldn’t be horrible to have nothing. I think that’s a fair statement, but nothing you will read from them suggest that’s true.


0:49:46.0 Aaron Powell: Thank you for listening. If you enjoy Free Thoughts, make sure to rate and review us in Apple podcasts or in your favorite podcast app. Free Thoughts is produced by Landry Ayres. If you’d like to learn more about libertarianism, visit us on the web at www​.lib​er​tar​i​an​ism​.org.