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Orrin Hatch + Ted Kennedy

Ranking Republican Senator of the Senate Finance Committee Orrin Hatch and the late Kennedy do have one thing in common…they both favor antitrust. Hatch stated that “Vigilant and effective antitrust enforcement today is preferable to the heavy hand of government regulation of the Internet tomorrow.” Hatch appears particularly insightful in the sense that unrestrained growth and industry domination do indeed lead to more aggressive government regulation. Why not let market economies function properly by aggressively pursuing antitrust violators?

He had at least one friend on the other side of the aisle in the form of the late Senator Ted Kennedy. Kennedy championed a theory of “No-Fault” Monopoly, that is, one that arbitrarily limited the size of institutions via defined monetary thresholds and rules regarding mergers/acquisitions (feel free to drop me a line if you have a link to the language of his legislative proposal). While such an arbitrary purview of corporate competition can indeed hinder market competition (a speech titled The Impact of Antitrust Requirements on Corporate Activities, by Robert S. Hatfield lays out the cons of such a policy quite nicely), there is still some value in limiting the size of institutions. (See after the break for a more thorough discussion with specific examples).

It’s a story that has played out significantly over the years…corporations, without intent to monopolize, become bigger and less responsive to consumer demands. In 2007, Microsoft owned 95.69% of all desktop operating software marketshare. As of this week, Microsoft owns 83.27% of desktop marketshare, nevermind that no one under the age of 30 even owns a desktop anymore (numbers care of NetMarketShare.com).

Few among us (if any) would be willing to state that the inclusion of competitors (primarily Apple) has detrimentally affected the marketplace. It has inspired newer versioning of both pieces of software, and innovations that weren’t required by a market participant. The question remains, how much faster would ideas have been implemented and innovated had rules been applied to create more competition in a marketplace (nevermind the fragmentation issues that belie the technology industry)? The notion of breaking up a monopoly has all but been eliminated, but what other prospects remain? This is a question for a separate post.

I find this important, contextually, in the form of the recent hullabaloo over the Department of Justice’s (DOJ’s) pursuit of Apple for collusion. Apple’s defense, outside of its arguments to try its case in court, turn on its desire to compete with an existing monopoly in e-book offerings. Regardless, there appears to be a pretty slam dunk case that Apple conspired to collude with the additional publishers named in the case. As always, law may turn on one of intent. Does competition with an existing monopolist allow a party to collude? In the words of my mother, do two wrongs make a right?

In this case, I still don’t believe that it does. While the DOJ is correct in prosecuting Apple for it’s blatantly collusive practices, it is a fair point that Amazon is currently entrenched as the industry monopolist for eBooks. I know personally that purchasing an eBook for $9.95, a couple dollars less than the paperback price seems absurd. There are smaller delivery costs, no warehousing, and no physical materials required for production. A kid with a router and a computer can produce something as long and as epic as the Iliad.

The result, then, would seem obvious: Go after Amazon for its monopolist pricing. The days of $1.95 books by the likes of major authors are coming…but the question remains…what constitutes a monopoly? And should there be no-fault monopolies? In the words of the revered Justice Learned Hand:

“It was not inevitable that it should always anticipate increases in the demand for [widgets] and be prepared to supply them. Nothing compelled it to keep doubling and redoubling its capacity before others entered the field. It insists that it never excluded competitors; but we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every new-comer with new capacity already geared into a great organization, having the advantage of experience, trade connections and the elite of personnel,” (US v. Alcoa, 148 F.2d 416 (2d Cir. 1945)).

While I obviously support Senator Hatch’s position, would I go slightly further and support a weakened variation of Senator Kennedy’s proposal? Think of it this way…would you watch the Bears play the Packers if the Packers won 637 games in a row? If so, I have a bridge to Wisconsin to sell you.

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