Researchers piece together an explanation for the decline in US antitrust enforcement in recent decades.What Made the Chicago School So Influential in Antitrust Policy?
Back in 2020, New York Times reporter Kashmir Hill wrote about an experiment she conducted for the news site Gizmodo the year before to see how hard it would be to disconnect from Big Tech—Amazon, Facebook, Google, Apple, and Microsoft. As part of the effort, Hill hired an expert to design a custom virtual private network that blocked her phone, laptop, and other devices from sending or receiving data from the millions of internet addresses controlled by the tech behemoths.
Ties with the technology giants turned out to be more like zip ties. Uncoupling from Amazon posed serious challenges in part because so many other companies use its Amazon Web Services, the internet’s largest cloud provider, to host their own sites. She lost access not only to Amazon Prime Video but also to its competitor Netflix, which operates on AWS. Many companies also use Fulfillment by Amazon, a service that stores and ships their products, and were therefore also suddenly off-limits to Hill.
Web browsing slowed when she blocked Google because of all the things—fonts, ads, trackers—the company provides to so many sites. And ironically, blocking Google would also have prevented her from watching a bipartisan roasting of Jeff Bezos of Amazon, Tim Cook of Apple, Mark Zuckerberg of Facebook, and Sundar Pichai of Google by the US House antitrust panel, which took place the same week that Hill’s Times article was published. C-SPAN streamed the hearing live via YouTube, which Google owns.
We’re in an age of not just big business but really big business. Big Tech dominates headlines, but humongous players reign in many other industries as well. The broad reach of a small number of really big companies is, for some, reminiscent of a time when John D. Rockefeller and his associates controlled almost all oil production, processing, marketing, and transportation in the United States via Standard Oil, and American Tobacco grew through mergers and acquisitions to control virtually the entire US tobacco industry. The Sherman Antitrust Act became law in 1890, but it wasn’t until 1911 that the Supreme Court ordered both Standard Oil and American Tobacco to break up as a result of violation of the act.
A new cycle of scrutiny by academics and regulators on antitrust has arisen partly in response to what Harvard PhD student Spencer Yongwook Kwon, Chicago Booth’s Yueran Ma, and Leibniz Institute for Financial Research’s Kaspar Zimmermann argue is a 100-year trend toward higher production concentration. They find that the share of economic activities accounted for by the largest companies has increased persistently over the past century by three measures—size by profits, from 1918 to 1975; size by sales, from 1959 to today; and size by assets, for the longest stretch, from 1931 to the present.
What to do about this situation is up for debate. One option is to break up some of the biggest companies, as was done with Standard Oil and American Tobacco, restructuring the relevant markets to give space for more competitors. But forced breakups of big companies are controversial and rare. A second approach involves aggressive regulation, litigation, and legislation to check the power, and further growth, of the biggest companies.
However, there is also a view that bigness itself is not necessarily an indication of a problem, and that if corporate behemoths have too much political or social power, antitrust isn’t the mechanism for addressing it. If the presence of fewer and larger companies in many markets is not economically harmful, this suggests that changes to the antitrust enforcement regime should be incremental and undertaken with caution.
The outcome of this debate will have major implications for US and global markets. Whichever path policy makers choose will help determine the ease with which new entrants can challenge incumbents, the ways in which businesses are allowed to grow, the incentives corporate leaders have to drive innovation, and, ultimately, the behavior of companies that most of us interact with many times a day.
Political support for antitrust
Concern over monopoly power has waxed and waned over time, among both policy makers and the public. At times, the decades-long trend of corporate consolidation has been celebrated. But misgivings about market power lingered even when they were politically unfashionable, and in the past decade they have come to the forefront.
Antitrust enforcement and market power are popular topics in the media and in Washington, where trust-busting seems to be one of the few issues Democrats and Republicans agree on, including Senators Elizabeth Warren (Democrat of Massachusetts) and Bernie Sanders (Independent of Vermont) and Congressman Ken Buck (Republican of Colorado). In February, Buck and Congressman David Cicilline (Democrat of Rhode Island, who has since resigned from Congress) established the Congressional Antitrust Caucus, citing Big Tech as part of its raison d’être.
An interventionist approach to ensuring competitive markets has become more obvious in the executive branch as well. Former president Donald Trump dipped a toe into the antitrust arena by signing the Competitive Health Insurance Reform Act, passed by Congress on a bipartisan basis, into law in 2020. The law removed an exemption from federal antitrust laws for the health insurance industry that had been in place since 1945.
A resurgence of antitrust
In recent years, US policy makers, judges, and regulators have become more aggressive about making and pursuing claims of anticompetitive behavior or mergers.
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Under Trump’s successor, Joe Biden, antitrust authorities have continued to be markedly more aggressive in opposing mergers and accusing companies of wielding monopoly power. Their success in court has been mixed. In 2022, judges ruled against the Department of Justice in merger challenges involving U.S. Sugar, defense contractor Booz Allen, and UnitedHealth Group, and in February 2023, the Federal Trade Commission failed to stop the acquisition of VR company Within by Facebook’s parent company, Meta. The DOJ has also lost a string of cases in which it has accused employers of conspiring to fix wages.
But also in 2022, a court found former Turing Pharmaceuticals head Martin Shkreli individually liable for executing illegal schemes to monopolize the market for the life-saving drug Daraprim, ordered him to pay $64 million, and banned him from the pharmaceutical industry for life. In October of that year, the DOJ won its first criminal monopolization case in more than 40 years when the president of a Billings, Montana-based asphalt company pleaded guilty to attempting to monopolize the regional market for highway crack-sealing services. The same day, a federal judge blocked a $2 billion merger between book publishers Penguin Random House and Simon & Schuster. Two weeks later, after Ticketmaster’s systems crashed during the presale for tickets for Taylor Swift’s concert tour, the New York Times reported that Live Nation Entertainment, which owns Ticketmaster, was the subject of an antitrust investigation.
Even Big Tech is feeling the sting of regulation, albeit from abroad. In May, Meta agreed to sell Giphy, a gif search engine, to the stock-image service Shutterstock for $53 million—more than $260 million less than it paid for it in 2020—after the United Kingdom’s Competition and Markets Authority ruled the acquisition threatened competition.
Tech mergers, too, are being met with mixed reaction from regulators. Microsoft’s $69 billion acquisition of game company Activision Blizzard, first announced in January 2022, was blocked by the CMA in April of this year, then approved weeks later by the European Commission. After the FTC failed, in July, to convince a federal judge to delay the merger, the CMA indicated it would consider a restructured version of the deal if the companies chose to propose one.
The Chicago school and consumer welfare
Some of the fluctuation in support for antitrust enforcement over time has to do with the fundamental question of what antitrust laws are meant to achieve. The prevailing legal standard for assessing monopoly harm in the US is the consumer welfare standard, which traditionally looks at the effect of competition (or the lack thereof) on prices, quality, innovation, and output. But consumer welfare is a standard with a lot of room for interpretation. Jonathan Kanter, who leads the DOJ’s antitrust division, has called consumer welfare “a catch phrase, not a standard” because “if you ask five antitrust experts what the consumer welfare standard means, you will often get six different answers.”
The designation of consumer welfare as an objective of antitrust is popularly associated with the late legal scholar Robert Bork, who argued in the 1970s that the Sherman Act, which sought to establish free and competitive markets, was meant to be a “consumer welfare prescription,” meaning the act was intended to fix the problem of short-term price increases and output reductions enabled by reduced competition.
Bork argued that antitrust should be based on economic principles and set objectives defined in economic terms, with a particular focus on maximizing efficiency. He was supported in that view by a group of economists and law professors that was dubbed the Chicago school (so called because it included academics associated with the University of Chicago, including the late Milton Friedman and the late George Stigler, both Nobel laureates, and UChicago’s Richard Posner). By limiting the scope of antitrust, the Chicago school helped pave the way for a more passive stance toward antitrust enforcement.
Some experts argue that breaking up Big Tech is more complicated, and less helpful, than it may sound.
The Chicago school’s emphasis on specific, narrowly defined, and measurable outcomes contrasted with what many characterize as the incoherence of US antitrust policy in the mid-20th century.
“Antitrust in the 1960s and early ’70s was a mess,” says Chicago Booth’s Luigi Zingales. It was unclear, he says, exactly what it was trying to accomplish. “One of the reasons the Chicago push succeeded is because it was logical and simple in a world in which there was a lot of contradiction and tension.”
However, Zingales’s research suggests that the ascendancy of the Chicago school approach in the 1970s was not as simple as a bad policy regime being replaced by something new and improved. With ETH Zurich postdoctoral scholar Filippo Lancieri and University of Chicago’s Eric Posner (Richard’s son), he seeks to explain how the Chicago school and its ideas came to dominate antitrust policy. The widespread implementation of Chicago school ideas in policy was not due to any evident preference for them among voters or even elected officials, they argue in a 2023 paper, but rather was the result of the decisions of unelected judges and regulators.
This could align with what Lancieri, Posner, and Zingales call an “enlightened technocrat narrative” that involves policy experts choosing the perceived best-available policy arguments from academia—except that there’s no evidence the Chicago school approach benefited the economy or achieved its stated goals of increasing market competition. They argue that the true beneficiary of the Chicago school approach was big business, and that big business lobbyists were primarily responsible for its success in influencing antitrust enforcement. (See “What Made the Chicago School So Influential in Antitrust Policy?”)
Zingales and many others suggest that whatever their merits relative to the state of antitrust thought that preceded them, the consumer welfare standard and the Chicago School’s narrow economic approach to antitrust have perhaps outlasted their usefulness.
“It isn’t that a change was not due in 1970,” Zingales says, “it’s that [the changes] lasted too long.”
Head of the FTC Lina Khan, using Amazon as an example, argued in a 2017 Yale Law Journal article that the consumer welfare standard, which she described as particularly concerned with price and output effects, is “unequipped to capture the architecture of market power in the modern economy.” Then a third-year law student at Yale, Khan asserted that the potential harms posed by Amazon’s market dominance are underappreciated by the prevailing antitrust framework partly because concerns about the competitive harms of predatory pricing and vertical integration have waned in recent decades—but also because “the undue focus on consumer welfare is misguided” and ignores “a host of political economic ends” that Congress intended in passing antitrust legislation.
In other words, according to Khan and other reformers, allowing companies to get too big can have negative societal consequences even when prices don’t go up. Massive economic power can be translated into massive political power, undermining democratic legitimacy. Pervasive control over digital communications can threaten free speech and privacy. A few banks with enormous influence in the financial system can lead to instability.
But is antitrust the best tool for addressing all those concerns? The US has the FTC to help regulate privacy (along with its role in promoting competitive markets), the Federal Reserve to help keep the banking system steady, and campaign-finance laws enforced by the Federal Election Commission to safeguard democracy. If those institutions are inadequate to their tasks, is it the role of antitrust enforcement to backstop them?
“If antitrust policy is turned into a tool to achieve every desirable goal imaginable, then there is no guidance at all as to what the tradeoff among these differing goals should be,” writes Booth’s Dennis W. Carlton, who has advised the DOJ, the FTC, and private clients on antitrust matters, in an essay published in Competition Policy International. “A policy that considers everything in its decision making is a policy doomed to fail and one that is likely to turn antitrust policy into a political weapon to be wielded against disfavored firms or individuals, untethered from any well-defined principle, or to lead to court decisions that depend on the idiosyncratic preferences or political leanings of the judges and juries.”
Because healthy competition affects so many outcomes, deciding which outcomes define healthy competition is contentious. But understanding what, if anything, antitrust enforcers should do about any particular business requires first understanding what policy makers and regulators want antitrust to achieve.
Break them up
In April 2022, Matt Stoller of the American Economic Liberties Project outlined a plan for antitrust action against Facebook. Speaking at a panel organized by Booth’s Stigler Center for the Study of the Economy and the State, he said enforcers should emulate Thurman Arnold, who headed the DOJ’s antitrust division for a time during Franklin Delano Roosevelt’s presidency, and consider criminal charges when the evidence warrants it. Shown the cudgel of indictments, Stoller predicted, the executives would welcome structural changes at the company as an alternative.
“Then it’s just split up Instagram, WhatsApp, Facebook. . . . Block them from buying any other companies,” and perhaps also implement controls over how the company can use data, he said. “And there we go. It’s not that complicated. The question is, how do you get around the procedural obstacles, which we all kind of throw our hands up [at] and say, ‘Oh, this will take forever.’ But it doesn’t have to.”
Competition law gives regulators the power to break up anticompetitive companies or conglomerates, but that happens rarely, and nearly never limits internal corporate expansion except in the extreme circumstance when a monopoly harms human welfare.
Stoller is not the only person suggesting breakups may now be necessary. In their book Power and Progress, MIT’s Daron Acemoglu and Simon Johnson suggest breaking up the tech giants as part of a suite of policies—including subsidizing technologies that complement human labor and taxing digital advertising revenue—for ensuring digital technologies such as artificial intelligence generate broadly shared benefits. Breakups would “create room for greater diversity of innovations,” they argue, but on their own won’t direct technological change toward prosocial development because they won’t do much to influence the business models of the tech companies.
“Therefore,” they write, “breakup and more broadly antitrust should be considered as a complementary tool to the more fundamental aim of redirecting technology away from automation, surveillance, data collection, and digital advertising.”
Big Tech, big deals
US tech giants have bought hundreds of companies in the past three decades. Some deals have been large, multibillion-dollar acquisitions of rivals and companies in new sectors.
In December 2020, the FTC filed a lawsuit against Facebook that opened the door to some of the remedies Stoller mentioned, including divestiture of Instagram and WhatsApp, and extra scrutiny for further acquisitions. That case is pending; a request by Facebook’s parent company, Meta, to dismiss the suit was rejected by a federal judge in January 2022.
Facebook is not alone in the hot seat. In January of this year, the DOJ filed a suit against Google alleging that the company has a monopoly on internet advertising technology, a case that could result in Google having to sell or spin off some of its assets. The suit follows another DOJ antitrust lawsuit against Google, filed in October 2020, that is still pending.
Lawsuits such as those against Facebook and Google represent a broad push by competition regulators to shift from a more passive orientation to antitrust enforcement in recent decades. Some, but not all, of the scholars, regulators, and antitrust reformers associated with this shift are members of the New Brandeis movement, with which Khan and Kanter are often identified. New Brandeisians place much of the blame for what they see as the troubling state of market competition on the Chicago school and the consumer welfare standard approach to antitrust enforcement. The New Brandeisian philosophy of market competition takes its inspiration from US Supreme Court justice Louis Brandeis, who died in 1941 but remains the movement’s guiding light. In an address to the Economic Club of New York in 1912, Brandeis explained his views on the trade-off between restricting freedom for some, via regulation, and preserving economic liberty for all:
We learned long ago that liberty could be preserved only by limiting in some way the freedom of action of individuals; that otherwise liberty would necessarily yield to absolutism; and in the same way we have learned that unless there be regulation of competition, its excesses will lead to the destruction of competition, and monopoly will take its place.
New Brandeisians’ support for a more aggressive approach to antitrust enforcement may include a greater willingness to break up big companies, but that isn’t the only remedy they advocate. Fordham’s Zephyr Teachout writes in her book Break ’Em Up that forced dissolution and strong regulation are not either-or strategies. One need not choose between breaking up banks, for example, and regulating them. Stoller agrees: “The idea that anyone thinks all we need is to break up companies and we don’t need regulation is not true. It’s a bad-faith critique [of the New Brandeisians],” he says.
“The New Brandeisians—like Justice Brandeis—recognize that certain industries tend naturally towards monopoly,” Khan wrote in 2018. “This is especially true of networks. In such cases, the answer is not to break these firms up, but to design a system of public regulation that prevents the executives who manage this monopoly from exploiting their power.”
Some experts argue that breaking up Big Tech is more complicated, and less helpful, than it may sound. In a 2019 Washington Post op-ed, Yale’s Fiona Scott Morton, a former deputy assistant attorney general in the antitrust division of the DOJ who has published “road maps” for antitrust cases against both Google and Facebook, argues that breaking up Big Tech companies “is often not a good solution to the economic harms created by large firms in this sector. There are usually more effective ways to create competition.”
In the case of Facebook.com, “just ‘break them up’ is an oversimplified sound bite,” Scott Morton writes, “not a real policy that would restore competition in digital markets and benefit consumers.”
George Stigler himself had a change of heart about antitrust, Zingales noted as a panelist alongside Stoller at the April 2022 Stigler Center event. When the center’s namesake was 41, he wrote an article for Fortune magazine entitled, “The Case against Big Business,” in which he advocated for breaking up big companies. Stigler argued this was not only the right thing to do but the Conservative thing to do, Zingales said.
However, over the next decade, Stigler’s views changed, and he became less enamored of the breakup remedy. On the occasion of the 35th anniversary of Stigler’s Nobel Prize, Dartmouth’s Douglas A. Irwin wrote on ProMarket, the Stigler Center’s online publication, that Stigler came to believe business concentration did not necessarily suggest the absence of competition or the presence of anticompetitive practices. Stigler eventually concluded that dissolution “should be used only in the most extreme occasions.”
Regulate and legislate
If even those who argue that regulators should be willing to break up companies advocate doing so in conjunction with other steps to constrain monopolies, what are those other steps? Many feel the US needs revised legislation and more aggressive litigation to enforce the laws that promote competition, equity, and fairness.
One way to prevent companies from accruing a dangerous degree of market power would be to make it harder for them to use mergers and acquisitions to grow larger and more powerful. John Kwoka of Northeastern University finds evidence of an “enforcement gap” for mergers with certain characteristics. Looking at data from the FTC from 1996 to 2011, as well as the results of 60 studies analyzing the effects of specific mergers from the time period, he finds that mergers that resulted in four to six remaining competitors in a market reliably had anticompetitive effects but faced very little scrutiny from regulators. (Mergers that left five or more competitors in a market received no challenges from the FTC from 2008 to 2011, he notes.)
Zingales agrees. “With the benefit of hindsight, can we say, ‘Did we enforce too little or do we enforce too much?’ It’s not ever super easy to say, but my rating of the evidence is that we enforced too little,” he says.
For companies, including tech companies, that have already achieved market power that enables them to restrict competition, there are case-specific remedies authorities can apply that don’t require a breakup. Zingales has suggested, as Scott Morton has, that forced interoperability could blunt the network advantage of a dominant social media company such as Facebook. (Acemoglu and Johnson also advocate for forced interoperability, though in conjunction with breakups.) University of Pennsylvania’s Herbert Hovenkamp has noted that injunctions forbidding certain anticompetitive practices might be more effective than breaking up Google, and that forced changes in corporate governance at Amazon—installing a decision-making body that includes “representatives of the various merchants and others with whom it does business”—might address concerns about its power.
Regulators also apply case-specific remedies in hopes of preserving the efficiency-enhancing effects of proposed mergers while still addressing concerns about competition. For example, the DOJ and a federal court blessed the merger of Sprint and T-Mobile in February 2020 on the basis of a consent decree that required, among other things, Sprint to provide network access and transition services to Dish Network, a competitor. However, Kwoka finds in research that regulator-constructed merger remedies generally fail to safeguard competition.
One risk of a new approach to antitrust enforcement, of course, is that regulators and policy makers could get it wrong. Overzealous enforcement could threaten the benefits that come with greater economic efficiency. Legislators intending to enhance competition in a market may end up passing laws that unintentionally erode it instead.
University of Southern California’s Erik Hovenkamp, Herbert Hovenkamp’s son, writes in Competition Policy International that while “there are indeed good reasons for thinking antitrust could benefit from pro-enforcement reform,” two bills introduced in the Senate to curb Big Tech’s power, the American Innovation and Choice Online Act and the Open App Markets Act, “fall woefully short” in distinguishing anticompetitive practices from reasonable or benign ones. “They shoot first and ask questions later,” he writes. “As a result, they pose a major risk to competition and innovation.”
George Mason University’s Joshua D. Wright and Milbank LLP’s Jennifer Cascone Fauver contend that those calling for radical reform of antitrust laws make a simple but inaccurate argument of systematic market failure and institutional failure by the courts to enforce the law. “The data do not support claims of either,” they write.
Booth’s Carlton points out that growing market concentration, one of the metrics that motivates many antitrust proponents, is not itself an indicator of a competition problem. A company could accrue a large market share because, fearing new entrants and other competitors, it is forced to continually innovate and operate more efficiently, to the ultimate benefit of consumers.
He also argues in CPI that while there is evidence some mergers that regulators could have plausibly challenged have resulted in higher prices, “no one, as far as I know, has figured out the extent to which more stringent antitrust policy toward merger activity might inhibit actual efficiency enhancing mergers from even being attempted.”
Still, though he dismisses as “wrongheaded” the notion “that antitrust needs to be radically redirected and that the core principles that have guided it for the past half century should be jettisoned,” he agrees that antitrust policy and enforcement need refinement. The changes he advocates include adjustments to how the law regards tie-in sales (in which consumers can’t purchase a particular product unless they buy a related product) and to the legal sanction of what he considers anticompetitive practices in the credit-card industry, wherein cards that charge higher fees to merchants also prohibit those merchants from steering customers toward lower-fee payment types. In research with University of British Columbia’s Ralph A. Winter, he finds that such prohibitions decrease competition in the credit-card market by making it impossible for cards to compete on the basis of lower fees for retailers.
A mixed tool kit
Competition law traditionally uses structural tools (those that seek to change the structure of a market, such as forced divestiture) or behavioral tools (those that seek to influence specific behavior by a company, such as price caps or mandated changes to corporate governance). These are very different approaches, and the debate about what faults US antitrust policy may have and how to fix them boils down to which tools to use, if any at all, and when.
The mix of blocked mergers, criminal charges, and other remedies, along with forced divestment, suggests that contemporary regulators’ more aggressive approach to antitrust includes breakups but doesn’t end there. Whether YouTube remains part of Google’s corporate family or WhatsApp a part of Meta’s, this renewed activity may discourage those companies or others from making future similar acquisitions—and in fact, Bloomberg reports that announcements of billion-dollar mergers in the US have declined since 2021.
However, the century of increasing concentration documented by Booth’s Ma and her coauthors includes periods of both light and heavy antitrust enforcement. If greater corporate concentration is an indelible feature of the US economy, policy makers struggling against it may find it, as Kashmir Hill did of the tech giants, nearly impossible to escape.
- Daron Acemoglu and Simon Johnson, “Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity,” New York: PublicAffairs, 2023.
- Dennis W. Carlton, “Understanding Basic Principles and Facts About Antitrust to Create a Basis for Some (Any?) Consensus,” CPI Antitrust Chronicle, August 2022.
- Dennis W. Carlton and Ralph A. Winter, “Vertical Most-Favored-Nation Restraints and Credit Card No-Surcharge Rules,” Journal of Law and Economics, May 2018.
- Erik Hovenkamp, “Proposed Antitrust Reforms in Big Tech: What Do They Imply for Competition and Innovation?” CPI Antitrust Chronicle, July 2022.
- Herbert Hovenkamp, “Antitrust Remedies for Big Tech,” Regulatory Review, January 2021.
- Lina Khan, “Amazon’s Antitrust Paradox,” Yale Law Journal, January 2017.
- ———, “The New Brandeis Movement: America’s Antimonopoly Debate,” Journal of European Competition Law & Practice, March 2018.
- Spencer Yongwook Kwon, Yueran Ma, and Kaspar Zimmermann, “100 Years of Rising Corporate Concentration,” Working paper, May 2022.
- Filippo Lancieri, Eric Posner, and Luigi Zingales, “The Political Economy of the Decline of Antitrust Enforcement in the United States,” Working paper, March 2023.
- Zephyr Teachout, “Break ’Em Up: Recovering Our Freedom from Big Ag, Big Tech, and Big Money,” New York: All Points Books, an imprint of St. Martin’s Press, 2020.
- Joshua D. Wright and Jennifer Cascone Fauver, “Antitrust Reform and the Nirvana Fallacy: The Case against a New Sherman Act,” Columbia Business Law Review, July 2022.
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