The Rise and Fall of Antitrust: Why Antitrust Revival is a Legal Necessity

It is an absurd truth that the Gilded Age economy of the late nineteenth and early twentieth century (when homes lacked electricity and running water)  closely resembles the twenty-first century economy dominated by social media and technology firms. In the Gilded Age, the Trust Movement constructed an economy rife with market concentration and devoid of real competition. As legal scholar Tim Wu writes, “The Trust Movement envisioned an economy with every sector run by a single, almighty monopoly, fashioned out of hundreds of smaller firms, unfettered by competitors or government restraint.” [1] As a result of the increasing market power wielded by a few firms, consumers were harmed substantially, and small businesses could hardly survive. Just in the years 1895 to 1904, at least 2,274 manufacturing firms combined to form 157 corporations, nearly all of which completely dominated their respective industry. Eliminating competition enabled monopolists to charge prices that greatly exceeded those under a free market. Consequently, wealthy businessmen began to earn millions of dollars annually while their workers earned under $2 per day on average. [2] Across the last few decades, antitrust enforcement has greatly declined due to the strategic and legally invalid undermining of antitrust precedent that was first successfully achieved in the late 1970s, which has caused the current U.S. economy to once again resemble the Gilded Age economy.

Today, there is more extreme income and wealth inequality, and it is more difficult for small and medium-sized businesses to survive in the United States than at any time since the Gilded Age. For example, in the 1960s—the decade known as the “Golden Era of Antitrust”—the income flowing to the top one percent of earners was eight percent of national income. Now, the top one percent earns nearly a quarter of national income and controls nearly 40 percent of national wealth. [3] Furthermore, the World Economic Forum has found that over the last quarter century, 75 percent of American industries have become more concentrated, and far fewer firms and industries have come to control a far larger share of global wealth and market influence. [4] In our New Gilded Age of increasing corporate monopolization, it is a legal necessity to revitalize antitrust law in the United States. First, the courts must invalidate the legally unsound logic propagated by Robert Bork and the Chicago Antitrust School. Next, the Supreme Court must once again embrace the legal framework for antitrust enforcement that Justice Louis Brandeis first articulated over a century ago.

The Gilded Age’s extreme inequality necessitated government action to curb private power and regulate trusts, which are monopolies formed through the merger of many smaller firms into one larger firm. As a result, Congress passed two bills designed to revive economic competition by regulating or breaking up trusts. Congress’ first measure, the Sherman Antitrust Act of 1890, sought to combat the rising power and market concentration of trusts. Section 2 of the Sherman Act explicitly prohibited any merger “in the form of trust or otherwise that was in restraint of trade or commerce among the several states, or with foreign nations.” [5] The law aimed to restore true economic competition by empowering the federal government to dissolve any trusts they deemed anticompetitive, like Rockefeller’s Standard Oil. However, the Sherman Act had vague wording and failed to define “trust,” “monopoly,” or even economic “conspiracy”. Therefore, the Sherman Act was originally a largely performative measure aimed to assuage public fears of the power of trusts and was not immediately used to carry out government regulation of trusts.

After President McKinley’s death propelled Theodore Roosevelt to the presidency in 1901, the federal government began aggressively pursuing the dissolution of trusts. Roosevelt’s Justice Department asserted that the establishment of the Northern Securities Company, a merger designed to unite two enormous railroad companies, intended to monopolize the railroad business and thereby violated Section 2 of the Sherman Act. [6] When the case reached the Supreme Court in 1904, the Supreme Court ruled in a 5-4 decision that the Northern Securities Company merger must be dissolved, thereby reading the Sherman Act effectively as a ban on trusts. Justice John Marshall Harlan wrote the majority opinion and claimed that the merger “placed the control of the two roads in the hands of a single person, to wit, the Securities Company, . . . [and] destroy[ed] every motive for competition between two roads . . . by pooling the earnings of the two roads for the common benefit of the stockholders of both companies.” [7] With this decision, the Supreme Court activated the Sherman Act and in Wu’s words, “awoke [its] anti-monopoly powers.” [8] Nevertheless, given the ambiguities inherent in the Sherman Act, the Congress of 1914 took action to fortify national antitrust laws.

The Supreme Court applied the Clayton Act to rule on whether corporate behavior was either pro-competitive or anticompetitive in the same way that it had done with the Sherman Act but far more aggressively. The Clayton Act of 1914, ratified and fortified the Sherman Act and explicitly outlawed various anticompetitive practices. Unlike the Sherman Act, the Clayton Act outlawed interlocking directorates: the practice of manipulating the market by populating the Boards of Directors of many companies with the same individuals. [9] Furthermore, Section 7 of the Clayton Act empowered the Antitrust Division of the Department of Justice (DOJ), the Federal Trade Commission (FTC) – which President Woodrow Wilson established the  same year that Congress signed the Clayton Act – state attorneys general, and private citizens to contest any mergers and acquisitions of multiple companies into a single entity that would reduce market competition. In 1966, the Supreme Court ruled in United States of America v. Von’s Grocery Company and Shopping Bag Food Stores “that the acquisition by defendant Von’s Grocery Co. of all of the capital stock and assets of defendant Shopping Bag Food Stores violated Section 7 of the Clayton Act.” [10] Statistical evidence presented to the Court proved that this merger of two of the largest grocery store chains in the Los Angeles area had increased market concentration among the leading firms, and that smaller companies faced increasing pressure to merge with the larger firms in the market. [11] As a result, the Court ordered the dissolution of this merger.

The Sherman and Clayton Antitrust Acts empowered the federal government to intervene in the economy on behalf of consumers and small businesses. The passage of the Sherman Act and the establishment of the FTC in 1914 can together be taken as a congressional rejection of antitrust laws being intended for symbolic, toothless regulations with narrow scopes. In contrast to Justice Oliver Wendell Holmes’ dissent in Northern Securities Co. that it is actually “the ferocious extreme of competition with others, not the cessation of competition among the partners… [that is] the evil feared,” legal precedent has definitively established the intentions of the Congresses of 1890 and 1914 to limit monopolization. [12] Antitrust laws have aimed to empower the federal government to ban anticompetitive mergers, regulate anticompetitive business practices, and preserve competition among a large number of sellers.

Robert Bork and the University of Chicago School of Antitrust, however, worked systematically to undercut legal precedent and establish the modern legal embrace of trusts as conducive and essential to consumer welfare. Ever since Adam Smith’s Wealth of Nations, economists have broadly advocated for competition and against monopolization, with experts like Columbia University’s David Dewey claiming that no true economist could ever question the necessity or desirability of antitrust legislation. [13] Nevertheless, in the 1970s and 1980s, by attacking Supreme Court case law as being “counterproductive in terms of consumer welfare,” Bork and the Chicago School successfully convinced Congress and the Supreme Court that the sole intention of antitrust law is—and always has been—to lower prices for consumers. [14] In a 1966 paper called “Legislative Intent and the Policy of the Sherman Act”– which experts assert is the most influential antitrust paper ever written – Bork argues in a way that entirely runs counter to established legal precedent upheld by the Supreme Court in that very same year in Von’s Grocery Store. Bork states that the “legislative history [of congressional debates surrounding the Sherman Act]. . . contains no colorable support for application by courts of any value premise or policy other than the maximization of consumer welfare.” Bork proceeds to contend that “courts should be guided exclusively by consumer welfare.” [15] Therefore, in any antitrust case, the government or plaintiff must verifiably prove that the corporate behavior in question has raised prices for consumers. Bork’s analysis of the debates leading up to the passage of the Sherman Act omitted the concerns of Senator John Sherman, the author of the Sherman Act, that antitrust law should combat “inequality of condition, of wealth, and opportunity” and that trusts establish an anti-democratic, “kingly prerogative, inconsistent with our form of government.” [16] Hence, Bork’s reasoning is not only legally invalid but also historically based on a farce that he manufactured to advance his ideological attack on established antitrust legal precedent.

Robert Bork prevailed in unraveling nearly a century of antitrust precedent with the Supreme Court’s unanimous decision in Reiter v. Sonotone Corp. (1979). In this case, Reiter filed suit on behalf of all retail consumers who had purchased hearing aids from the Sonotone Corporation. Reiter argued that the Sonotone Corporation had violated established antitrust law (Sections 1 and 2 of the Clayton Antitrust Act) by engaging in horizontal and vertical price-fixing methods through integration. Horizontal integration is when a company acquires or merges with a similar company to increase market concentration, and vertical integration is when a business acquires or merges with a supplier or distributor to increase market power by controlling the chain of production. This resulted in the class of plaintiffs overpaying for hearing aids at illegally fixed prices that greatly exceeded what a free market would have generated. According to Daniel Crane, a professor of Antitrust Law at the University of Michigan, the Supreme Court’s decision in Reiter v. Sonotone was entirely based upon Bork’s argument that Congress intended the Sherman Act to advance consumer welfare. [17] In fact, Chief Justice Warren E. Burger’s majority opinion cited Robert Bork’s 1978 work, The Antitrust Paradox.  Burger addressed the investigation of floor debates before the passage of the Sherman Act in the Court’s declaration that “Congress designed the Sherman Act as a ‘consumer welfare prescription’.” [18] With this one sentence, Bork had succeeded in reorienting antitrust law away from its Brandeisian origins.

The legal embrace of trusts that began with Reiter has resulted in the gradual re-establishment of an economy marked by extreme market concentration and economic inequality that has not been present in the United States since the Gilded Age. With just two monopolies dominating the telecommunications industry, three monopolies controlling the cable industry, the consolidation of the pharmaceutical industry into just ten firms, and one corporation controlling over seventy percent of beer sales, one might expect that such egregious statistics would precipitate the enforcement of antitrust laws. However, tech giants such as Google, Meta, and Amazon have undertaken a combined 372 unchallenged acquisitions in recent years to establish market control in the social media industry, which generates over $50 billion in annual revenue. Therefore, it is possible that the American economy is on its way to becoming even more concentrated than it was in the original Gilded Age. [19]

With harm to consumers through rising prices replacing harm to corporations through limited competition as the essential element to successfully enforcing antitrust laws, it has become increasingly difficult for the federal government to prove consumer harm and to regulate big business. Currently, the DOJ’s Antitrust Division is in a legal battle with Google over the claim that the corporation has used their control of over 90 percent of the internet search market to monopolize their digital advertising technologies and thus increase ad revenue while decreasing consumers’ media choice. Google’s market power rivals that of John D. Rockefeller’s Standard Oil Trust, which came to control 90% of the Gilded Age oil industry through horizontal integration. On the first day of the trial, the Justice Department argued that Google had paid tech platforms, including Apple, over $10 billion a year to ensure its dominance as the default search engine on the iPhone and other devices. [20] However, because this anticompetitive behavior monetarily harms competitors and not consumers, it will be incredibly difficult for the DOJ to emerge successful. Although the FTC and DOJ Antitrust Division have become far more aggressive since President Biden took office, they have lost every major merger and antitrust case that they have brought against the tech giants because of the difficulty of proving consumer harm.

Against these pressures, it is crucial to revive America’s longstanding tradition of enforcing antitrust laws to break up anticompetitive monopolies. Congress must write and pass new antitrust legislation that not only applies to our time and the nuances of tech monopolization, but also specifically offers a legal framework—one that the Supreme Court could accept—that invalidates Bork’s legally illogical arguments that have frozen the federal government from antitrust action for far too long. With public support for antitrust legislation rising, debate in Congress surrounding the issue has increased in recent years. Action must be taken before modern monopolies become too entrenched within burgeoning industries that the firms cannot be unraveled. Congress must act swiftly and decisively to establish a new, unambiguous legal precedent for antitrust law for the Supreme Court to adopt.

[1] Wu, “The Curse of Bigness: Antitrust in the New Gilded Age,” (Columbia Global Reports, 2018), 24.

[2] Wu, The Curse of Bigness: Antitrust in the New Gilded Age, 30.

[3] Wu, The Curse of Bigness: Antitrust in the New Gilded Age, 20.

[4] Wu, The Curse of Bigness: Antitrust in the New Gilded Age, 20.

[5] National Archives, Sherman Anti-Trust Act (1890), https://www.archives.gov/milestone-documents/sherman-anti-trust-act?_ga=2.79837470.889115826.1700620506-354688269.1700620506

[6] Wu, “The Curse of Bigness: Antitrust in the New Gilded Age,” 48

[7] “Northern Securities Co. v. United States, 193 U.S. 197 (1904),”Justia, N.d. https://supreme.justia.com/cases/federal/us/193/197/.

[8] Wu, “The Curse of Bigness: Antitrust in the New Gilded Age,” 52.

[9]: Troy Segal, “Clayton Antitrust Act of 1914: History, Amendments, Significance,” Investopedia, April 18, 2023, https://www.investopedia.com/terms/c/clayton-antitrust-act.asp.

[10] “United States v. Von’s Grocery Company/Opinion of the Court,” Wikisource, N.d. https://en.wikisource.org/wiki/United_States_v._Von%27s_Grocery_Company

[11] Wikisource, “United States v. Von’s Grocery Company/Opinion of the Court”

[12] “Northern Securities Co. v. United States, 193 U.S. 197 (1904),”Justia, N.d. https://supreme.justia.com/cases/federal/us/193/197/.

[13] Wu, “The Curse of Bigness: Antitrust in the New Gilded Age,” 83.

[14] Oliver E. Williamson and Reinhard Bork, “The Antitrust Paradox: A Policy at War with Itself,” University of Chicago Law Review 46, no. 2 (January 1, 1979): 526, https://doi.org/10.2307/1599462.

[15] Bork, Reinhard. “Legislative Intent and the Policy of the Sherman Act.” The Journal of Law and Economics 9 (October 1, 1966): 7–48. https://doi.org/10.1086/466617.

[16]  Wu, “The Curse of Bigness: Antitrust in the New Gilded Age,” 89. 

[17] “THE TEMPTING OF ANTITRUST: ROBERT BORK AND THE GOALS OF ANTITRUST POLICY on JSTOR.” Www.Jstor.Org, n.d. https://www.jstor.org/stable/43486968.

[18] Reiter v. Sonotone Corp. : 442 U.S. 330 (1979) and Oliver E. Williamson and Reinhard Bork, “The Antitrust Paradox: A Policy at War with Itself,” University of Chicago Law Review 46, no. 2 (January 1, 1979): 526, https://doi.org/10.2307/1599462.

[19] Wu, “The Curse of Bigness: Antitrust in the New Gilded Age,” 123.

[20] McCabe, David, Cecilia Kang, and Steve Lohr. “What the U.S. Has Argued in the Google Antitrust Trial.” The New York Times, October 25, 2023. https://www.nytimes.com/2023/10/25/technology/google-antitrust-trial.html.