The folly of the Justice Department's antitrust suit against Google

All monopolies self-destruct by sclerosis to prevent stranded investment

The U.S. Justice Department and eight state attorneys general yesterday filed an anti-monopoly suit against Google yesterday for allegedly abusing its dominance in the online ad industry. This attack on an internet giant destined, to continue for a decade, is sheer folly. A few pages of history is worth volumes of logic.

All monopolies are self-liquidating. They are founded on investments or ways of doing business that inevitably become antiquated by innovations, inventions, or substitutes. IBM at one time monopolized main frame computing. The Department of Justice filed an anti-monopoly suit in 1969. But laptops made main frame computing largely obsolete. The lawsuit endured for 13 years before the Department dismissed the case as without merit. Thousands of hours of testimony, the submission of tens of thousands of exhibits, and 30 million documents were generated before the caper ended. The money and manpower used by the Department to prosecute the case could have been spent more productively detecting and punishing price-fixing.

The IBM debacle was largely repeated in the Department’s 1974 anti-monopoly suit against AT&T. It was slow to embrace fiber optics to avoid stranding its vast network of copper wire. Its long-distance market share was tumbling even before suit was filed. It eventuated in a 1982 Modified Final Judgment that created seven new regional Bell operating companies (RBOCs) and a much downsized AT&T. But customary market forces soon returned the phone industry to a duopoly: Verizon and AT&T. But this market shake-out would have occurred without the staggering resources devoted to the antitrust suit. It would have come earlier if federal and state regulators had not arrested free market forces to protect AT&T’s profits.

Eastman Kodak once monopolized the film industry. But it resisted digital photography to protect its vast investment in film. On January 19, 2012, one of America’s great success stories came to an end when Eastman Kodak filed for bankruptcy.

The Google suit is not only unnecessary but also a waste of scarce antitrust enforcement resources. Even without the litigation, Google is destined to succumb to sclerosis to protect its current online ad monopoly and way of doing business. It is only a matter of time before new competitors will emerge unhandicapped by incumbent technologies to capture market share away from Google. Conventional wisdom says that will never happen because Google is too powerful. But the same was said of IBM before it was eclipsed by laptops. Time has upset many fighting faiths.

Google will retain an army of high-priced expert lawyers to fight the anti-monopoly suit. The Department will devote huge resources in the prosecution of the ultra-giant. The current market value of Google’s parent, Alphabet Inc., exceeds $1.2 trillion. Antirust litigation is notoriously lead-footed. It would be a miracle of the Google suit concluded before10 years not including an appeal. By then, the online ad industry will have metamorphosed at warp speed into something new.

Antitrust has a legitimate role in preventing and punishing price-fixing and other collusive practices between competitors that shortchange consumer welfare. Adam Smith noted in Wealth of Nations: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the publick, or in some contrivance to raise prices.”

The Department should drop its suit against Google and redirect its enforcement resources to garden variety antitrust violations perpetrated by competitors. These prosecutions may be less glamorous and heady than suing marquee names, but they do much more to benefit consumers.