Lamoreaux, Problem of Bigness (2019)

Journal of Economic Perspectives—Volume 33, Number 3—Summer 2019—Pages 94–117
The Problem of Bigness: From Standard

Oil to Google
Naomi R. Lamoreaux
A
number of observers have been sounding the alarm recently about the
growth of monopoly power in the US economy. Expressions of concern
have issued from all parts of the political spectrum (Langlois 2018), but the
most sustained warnings have come from the self-proclaimed “New Brandeisians,”
a group of scholars for whom the title of Louis Brandeis’s famous essay, “A Curse
of Bigness” (Brandeis 1914, chap. 8), has become a potent rallying cry. Members
of this group claim that Google, Amazon, and other giant tech firms are exploiting
blatantly anticompetitive practices to block potential rivals—and getting away with
it by manipulating the political system. They are particularly worried that current
antitrust orthodoxy, which is preoccupied with the issue of harms to consumers,
has left the country all but defenseless against bigness’s other ills (Lynn 2010; Khan
2018; Wu 2018; for an overview, see Berk 2018).
The New Brandeisians argue that the country has entered a second Gilded
Age, and certainly the concerns they express are much the same as those prompted
by the rise of the Standard Oil Trust in that earlier period of turmoil. To late
nineteenth-century Americans, Standard was a monster that corrupted politicians
and laid waste its competitors. Legislators responded to the mounting pressure to
take action by passing antitrust laws at both the state and federal levels beginning
in the late 1880s, but these statutes did not prevent other large firms from amassing
positions of dominance in most important sectors of the economy over the next two
■ Naomi R. Lamoreaux is the Stanley B. Resor Professor of Economics and History, Yale
University, New Haven, Connecticut, and Research Associate, National Bureau of Economic
Research, Cambridge, Massachusetts. Her email address is [email protected].
†
For supplementary materials such as appendices, datasets, and author disclosure statements, see the
article page at
https://doi.org/10.1257/jep.33.3.94 doi=10.1257/jep.33.3.94
Naomi R. Lamoreaux 95
decades. Some of the new giants followed Standard’s example and achieved their
market power by acquiring competitors. Others grew large by innovating, devising
new products or new ways of producing that yielded significant economies of scale.
Regardless of the route these firms took to bigness, their sheer size and sudden
emergence awoke fears that, unless the government did something fast to prevent
it, the giants would entrench themselves by nefarious means.
There was general agreement that Standard had grown large by pursuing
anticompetitive practices and should be broken up, and in 1911 the US Supreme
Court issued the necessary order. The knottier problem was how to deal with
“trusts” (as big businesses were generically called) that acquired their market
power by innovating. Although contemporaries tried, following President Theo-
dore Roosevelt’s lead, to sort the trusts into “good” and “bad” categories, this
exercise in classification turned out to have severe limitations. Because firms
always pursue a mix of strategies to “escape from equilibrium,” in Levenstein’s
(2012) apt phrase, deciding which behaviors were pro- and which were anticom-
petitive was a difficult task. Not only did “good” trusts sometimes resort to “bad”
practices to preserve their advantages, but there were many cases in which it was
not at all easy to distinguish actions that were anticompetitive in their purpose
and effect from those that improved productivity and brought real benefits to
consumers. During the so-called Progressive Period—that is, from the turn of the
twentieth century to the outbreak of First World War—policymakers struggled
with this problem. The solution they arrived at was to write a set of specific prohi-
bitions into the Clayton Antitrust Act of 1914 and simultaneously to create a new
regulatory agency, the Federal Trade Commission (FTC), empowered to define
and police the boundary.
The boundary between anticompetitive practices and those that enhanced
efficiency nonetheless remained difficult to draw. Firms continuously sought new
ways to increase their market power, and regulators just as continuously sought new
ways to make their efforts illegal. The line between behaviors seen as violating the
law and those viewed as legally acceptable shifted back and forth; regulators were
excessively vigilant in some periods and excessively lax in others. During the late
1930s, however, in the context of a revival of anti–big business sentiment during
the late New Deal, antitrust officials abandoned the attempt to draw the line and
instead defined bigness itself as the problem. Their success in inducing the courts
to impose antitrust remedies on firms that had not been found guilty of anticom-
petitive conduct provoked a counterreaction by a group of economic and legal
scholars, dubbed the “Chicago School,” who in turn prevailed in the courts once
economic conditions deteriorated in the 1970s. Advocates of the Chicago School
sought to shift the focus of inquiry from whether large firms had market power
to whether the market power they possessed had been detrimental to consumers.
Like the aggressive trust-busters they opposed, however, they emphatically rejected
the preoccupation with conduct that early twentieth-century policymakers had built
into the law—just in time for a new wave of giant innovative firms to behave in ways
that reanimated those very concerns.
96 Journal of Economic Perspectives
Standard Oil and the Rise of Antitrust
The Standard Oil Company’s market share suddenly rose during the 1870s,
from about 4 percent of the US petroleum industry to fully 90 percent, sparking the
fears that gave birth to the antitrust movement. These fears were not primarily about
high prices or harm to consumers. The price of refined petroleum dropped during
the 1870s from about 25 cents per gallon to less than 10 cents, much faster than the
general price level, and it remained essentially flat in real terms into the twentieth
century.1 Instead, critics focused on Standard’s brutal treatment of competitors,
particularly its use of secret discounts from railroads to force rivals to sell out. They
also worried that Standard’s enormous wealth would enable it to wield undue influ-
ence over the political system (see especially Tarbell 1904).
These worries had a real basis in fact. As Granitz and Klein (1996) have shown,
Standard’s rapid rise to dominance owed more to railroad rebates than to any
initial advantage in efficiency. Although its refineries were large by the standards
of the time, the minimum efficient scale of production was well below Standard’s
capacity. Nor did Standard benefit from any barriers to entry that might have arisen
from superior technology or control of raw-material resources. The industry was
competitively structured, with most of the growth in production in the late 1860s
and early 1870s coming from new entrants rather than the expansion of existing
refineries (Williamson and Daum 1959, chap. 12). Price competition was so intense
that producers were driven (unsuccessfully) to collude. After an agreement to form
a pool collapsed in 1872, a frustrated John D. Rockefeller, Standard’s president,
dismissed all such devices as “ropes of sand” (Chandler 1977, p. 321).
Determined to find another way to limit competition in the industry, Rock-
efeller took advantage of a parallel effort at cartelization that the railroads serving
the oil region were undertaking. Like the petroleum refiners, the railroads had
been attempting—without success—to restrain price competition, and they hit on
a plan that would deploy the refiners as enforcers. The idea was to organize a select
group of leading refiners in Cleveland, Pittsburgh, and other production centers
into an association called the South Improvement Company, which would then allo-
cate each railroad a share of the business of transporting oil. In return for ensuring
that the railroads kept to their allocations, the chosen refiners were granted rebates
(discounts) on their own shipments of oil as well as drawbacks (kickbacks) on those
of competitors, giving them a significant cost advantage. Although the violent
opposition of producers in the oil fields prevented the railroads from actually
implementing the plan, there was a period of several months, after the company
was formed but before it fell apart, when prospects seemed dire for refineries not
1
Contemporaries attributed the drop to the expansion of output in the oil fields rather than to any
savings from Standard’s large-scale operations (New York State 1888, p. 12). Granitz and Klein (1996,
p. 30) shared this view, though their data showed that the margin between the prices of crude and
refined oil also fell during the 1870s by about 50 percent. Chandler (1977, pp. 321–25) argued that
Standard achieved economies of scale in refining and pipeline shipping, though most of the advances he
described occurred after the 1870s, when margins were flat.
The Problem of Bigness: From Standard Oil to Google 97
included in the scheme. Rockefeller took advantage of this period to induce the
other Cleveland refiners to sell out to him. As Granitz and Klein (1996) pointed
out, companies outside a pool normally have nothing to fear because they can
profit from underselling participants. Only the advantages that the South Improve-
ment refineries stood to gain over their competitors can explain why so many rivals
ended up selling out to Rockefeller at prices they regarded as below value. Standard
emerged from this incident with effective control over the Cleveland segment of the
industry and then secretly merged with the participating refiners in other produc-
tion centers. As a result of these acquisitions and mergers, Standard grew large
enough to demand that the railroads continue to grant it rebates, which in turn
enabled it to defend its dominance and acquire most of the remaining independent
refineries.2
That Standard used its resources for political ends is also clear. For example,
it is on record as contributing $250,000 to Ohio Republican Party boss Marcus
Hanna’s fund to defeat William Jennings Bryan, the 1896 Democratic candidate for
president (White 2017, p. 846).3 It also used its influence to try to protect itself from
prosecution. A good example was the pressure brought to bear on Ohio’s attorney
general, David K. Watson, to drop a lawsuit to revoke the company’s corporate
charter. As was the norm at the time, Ohio law prohibited corporations from holding
stock in other companies. Searching for another way to consolidate the company’s
acquisitions, Standard’s lawyers developed a complex type of voting trust, whereby
shareholders in the various companies it controlled, including the Standard Oil
Company itself, transferred their stock to a board of trustees who voted on their
behalf, giving the board powers akin to those of a holding company (Nevins 1953,
vol. 1, chap. 21; Hidy and Hidy 1955, pp. 40–49; Williamson and Daum 1959, pp.
466–70). When Watson learned about this arrangement, he filed suit to dissolve the
Standard Oil Company on the grounds that participation in the trust violated the
terms of its Ohio charter. According to a later attorney general, Watson was repeat-
edly offered bribes to drop the case. That charge is difficult to substantiate, but
there are extant letters from Hanna threatening Watson’s political future: “From a
party standpoint, interested in the success of the Republican party, and regarding
2
For a somewhat different explanation of Standard’s rise, see Priest (2012). Priest was critical of Granitz
and Klein’s (1996) account, but his evidence was consistent with their analysis. See also Klein’s response
(2012). Some historians (for example, Chandler 1977, p. 321) have argued that the rebates Standard
received were compensation for the gains in efficiency it offered the railroads. There were surely some
such gains, but as Crane (2012) has shown, there are many aspects of the rebate arrangements (especially
the drawbacks) that do not fit such a story and can only be explained as anticompetitive. According to
a report by the US Bureau of Corporations (1907), Standard continued to receive what were effectively
rebates long after they were ostensibly outlawed by the Interstate Commerce Act of 1887. The report
spurred Congress to pass new legislation (the Hepburn amendment) that closed the loophole in the law
(Johnson 1959, pp. 583–85).
3
Some of the most nefarious charges were never proven. In one major scandal, for example, Standard
stood accused of bribing Ohio legislators to secure a seat in the US Senate for H. B. Payne, the father of
the company’s treasurer. The charges were compelling enough for the Ohio legislature to conduct an
investigation, with troubling though inconclusive results. At that time US senators were chosen by the
various state legislatures rather than by the general electorate. See Tarbell (1904, vol. 2, pp. 112–19).
you as in the line of political promotion, I must say that the identification of your
office with litigation of this character is a great mistake” (quoted in Bringhurst 1979,
p. 14). Watson persevered and won the case in 1892, though rather than revoke
the corporation’s charter, the Ohio Supreme Court merely required it to withdraw
from the trust (State v. Standard Oil Company, 49 Ohio St. 137 [1892]). Standard
obeyed the letter of the court’s order and dissolved the trust, but it preserved its
monopoly by moving its corporate domicile to New Jersey and reorganizing as a
holding company under that state’s newly liberalized general incorporation law
(Hidy and Hidy 1955, pp. 219–32; Bringhurst 1979, pp. 12–22).
Standard Oil’s success in eliminating competition in the petroleum industry
stimulated the formation of similar combinations in a number of other industries,
ranging from whisky to lead to sugar to cottonseed oil. As concerns about these new
sources of monopoly power rose, most states enacted antitrust laws (more than a
dozen before Congress passed the Sherman Act in 1890), and several state attorneys
general filed suits to revoke the charters of corporations that participated in trusts
(May 1987; Nolette 2012). State initiatives waned, however, when the trusts began
to reorganize as New Jersey holding companies, and as a consequence, pressure
built on the federal government to step up its own antitrust activities (US Bureau of
Corporations 1904; Seager and Gulick 1929; Thorelli 1955). These pressures inten-
sified as a result of the Great Merger Movement of 1896–1904, when about 1,800
firms disappeared into nearly 160 horizontal combinations. Few of the mergers
were as dominant in their industries as Standard Oil was in petroleum, but by a
conservative estimate, about one-third of them initially had market shares in excess
of 70 percent and one-half had more than 40 percent (Lamoreaux 1985, pp. 2–5).
Although the number of Sherman Act prosecutions increased under Presidents
Theodore Roosevelt and especially William Howard Taft, federal courts initially
found it difficult to apply the law to the so-called tight combinations that took the
form of state-chartered corporations. The federal government could act under the
Constitution’s commerce clause, but it had to tread warily for fear of undermining
the states’ authority over corporations; once an area of law came within the domain
of the commerce clause, state jurisdiction ended (McCurdy 1979; Lamoreaux 1985,
pp. 162–69). Eventually, the Supreme Court found a way around that problem in
the form of the “Rule of Reason,” which it handed down in a pair of landmark deci-
sions breaking up the Standard Oil and the American Tobacco Companies in 1911
(Standard Oil Company v. United States, 221 US 1 [1911]; United States v. American
Tobacco, 221 US 106 [1911]).
According to the Rule of Reason, loose combinations, such as price-fixing
agreements among firms, were illegal per se. But tight combinations like Standard
could not be held in violation of the Sherman Act by the mere fact of their size.
Although “combining . . . so many other corporations, aggregating so vast a capital”
gave substance “to the prima facie presumption of intent and purpose” to create
a monopoly, the prima facie presumption of intent had to be “made conclusive”
by showing that the purpose of the combination was to restrain trade. If that case
could be made, the federal government could take action without undermining
the states’ regulatory powers, for the simple reason that states did not have the
authority to charter corporations in violation of federal law. The key then was to
demonstrate that the company’s domination resulted not from “normal methods of
industrial development” but from “new means of combination . . . with the purpose
of excluding others from the trade and thus centralizing in the combination a
perpetual control” (Standard Oil v. United States, p. 75).
This emphasis on “excluding others from the trade” homed in on exactly the
behaviors that most worried contemporaries. Although some later commentators
have reinterpreted the Rule of Reason as a test of harm to consumers (see especially
Bork 1965, 1978), that is a misreading both of the decision and of the context that
gave rise to it.4 In his opinion in the Standard Oil case, Chief Justice Edward Doug-
lass White made no attempt to measure the extent of any damage done to consumers
but instead focused on the combines’ abusive conduct toward other individuals and
firms. “No disinterested mind,” he concluded, could survey the evidence about Stan-
dard Oil “without being irresistibly driven to the conclusion that the very genius for
commercial development and organization which was manifested from the begin-
ning soon begot an intent and purpose . . . to drive others from the field and to
exclude them from their right to trade and thus accomplish the mastery which was
the end in view.” Ticking off the methods Standard used to exclude competitors was
enough to demonstrate “a purpose and intent” to monopolize the industry that “we
think so certain as practically to cause the subject not to be within the domain of
reasonable contention” (Standard Oil v. United States, pp. 75–77).
“Good” versus “Bad” Trusts: The Case of Meat-Packing
Once the Supreme Court solved the problem of applying the Sherman Act
to state-chartered corporations, the Standard Oil case was easy enough to decide;
Standard had a virtual monopoly of output in the petroleum industry, and there was
abundant evidence that it had acquired its dominant position by predatory means.
Other cases, however, posed more difficult issues. What should be done about
industries dominated by several large firms (oligopolies) rather than single giant
enterprises (monopolies)? What about firms that grew large by innovating—that
vanquished competitors because they had developed superior products or because
their production processes were more efficient? Although some contemporaries,
like Brandeis, regarded bigness itself as a danger, most policymakers thought it was
important to distinguish “good” trusts from “bad.” Otherwise, regulations designed
to prevent anticompetitive behavior might themselves have anticompetitive conse-
quences by constraining innovation (Johnson 1961; Urofsky 1982; McCraw 1984,
chap. 3).
4
Bork’s reading of history has been much criticized. For an overview of this literature, see Crane (2014,
n3).
The meat-packing industry provides a good example of the difficulties that

policymakers faced in distinguishing between good and bad trusts. During the same
period that Standard was monopolizing production in the petroleum industry, a
small number of very large firms came to dominate meat-packing through a series
of innovations that dramatically increased the availability and reduced the price
of fresh meat. Many small producers suffered from the resulting gale of creative
destruction. Distinguishing their howls of protest from those provoked by unfair
competitive practices was not easy, however, in part because of the meat-packers’
own behavior. Not content to rely on the advantages generated by their superior
efficiency, they resorted to cartels and other types of collusion, triggering a series of
antitrust prosecutions and providing critics with abundant evidence of anticompeti-
tive activity.
As late as the 1870s, fresh beef was an expensive and seasonal commodity in
Eastern markets. Cattle were shipped live by rail from collection points on the Great
Plains and then butchered locally. Not only did shippers have to pay freight charges
on substantial parts of the animals that were unsalable, but cattle had to be fed,
watered, and otherwise cared for en route and could be transported only when
the weather was neither too cold nor too hot. Many entrepreneurs recognized that
there would be substantial cost savings from slaughtering cattle in the Midwest and
shipping only the dressed beef to Eastern markets, but the first to overcome all the
difficulties involved was Gustavus Swift (Chandler 1977, pp. 299–301; Yeager 1981,
chap. 3). He collaborated with a refrigeration engineer to design a suitable rail-
road car and then sank much of his capital into a small fleet. When the railroads,
concerned about their substantial investments in cattle cars and feeding stations,
refused to carry his cars, he formed an alliance with the Grand Trunk Railroad, the
one carrier serving Eastern markets that was not heavily invested in the old tech-
nology. Swift bought harvesting rights to ice on the Great Lakes, built a chain of ice
stations along the railroad route, and developed partnerships with wholesalers who
were willing to distribute his product. Where wholesalers were not cooperative, he
competed with them head on—sometimes selling beef directly from his railroad
cars at rock-bottom prices. The only firms that could withstand Swift’s competi-
tion were those with the financial resources to build similar vertically integrated
enterprises. By 1887, three had emerged. Together with Swift, they supplied about
85 percent of the interstate market in dressed beef. Other competitors entered
over time, but the industry remained highly concentrated, with the top five firms
accounting for 75 percent of the interstate market in 1907–1908 and 81 percent in
1916–1917 (Aduddell and Cain 1981, p. 219; Yeager 1981, p. 112).
The meat-packers’ innovations enabled consumers to purchase corn-fed beef
from the Midwest at prices that undercut the market for the less desirable cattle
raised on western ranges. Politically powerful ranchers responded to the decline
in their market, as well as the appearance of monopsony buyers for their output,
by demanding that Congress investigate and take action against the beef trust.
Their voices were joined by those of local butchers and meat wholesalers whose
businesses had been hurt by competition from the large packers. As it turned out,
there was much to investigate. Although the meat-packers had initially competed
vigorously on price, by the late 1880s they were resorting to price-fixing agreements
and cartels to keep prices from falling. These efforts continued until 1902, when
the Department of Justice secured an injunction against their pool. This avenue
of collusion blocked, the three largest producers decided to merge. Although the
deal ultimately fell through, in preparation for the consolidation they had each
acquired several smaller companies that they then unloaded on a new firm, the
National Packing Company, created expressly for that purpose. Jointly owned by
the top three meat-packers, National Packing functioned for the next decade as
an “evener” that adjusted its level of production as needed to stabilize prices in the
industry (Aduddell and Cain 1981, pp. 228–29; Yeager 1981, chap. 6).
President Theodore Roosevelt was one of those who believed in the impor-
tance of “discriminating between those combinations which do good and those
combinations which do evil” (as quoted in Johnson 1961, p. 418), and he sought
discretionary authority to make these kinds of determinations within the executive
branch. Congress never granted Roosevelt the powers he sought. In 1903, however,
it established the Bureau of Corporations in the new Department of Commerce and
Labor.5 The bureau had no enforcement powers, but it was authorized to conduct
investigations of large-scale businesses with the aim of distinguishing good trusts
from bad. The idea was that it would use the glare of publicity to discourage bad
trusts from pursuing anticompetitive practices.
As worries about the meat-packers’ manipulation of the market increased
with the formation of the National Packing Company, Congress pressured the
Bureau of Corporations to investigate the industry. The bureau complied and
issued a report in 1905 that provoked widespread outrage by largely exoner-
ating the companies (US Bureau of Corporations 1905). Adopting an approach
remarkably similar to that of the Chicago School today, the bureau focused
on the question of whether consumers had been harmed by the meat-packers’
actions. The investigators collected data on revenues and costs, from which they
concluded that the meat-packers’ prices had been reasonable and their profits
not excessive. In addition, they bolstered their empirical findings by arguing on
theoretical grounds that prices had been held in check by the threat of potential
competition, both from new entrants and from local butchers, and that it was
unlikely that the packers had engaged in predatory pricing because the struc-
ture of the market would have made such a strategy unprofitable. The report did
not examine muckrakers’ claims that the packers exercised their power in ways
that terrorized big and small businesses alike, “[t]o-day . . . compelling a lordly
railroad to dismiss its general manager, to-morrow . . . black-listing and ruining
some little commission merchant,” or that they “thwart[ed] justice and nullif[ied]
the laws by the almost undiscoverable methods of partisan politics” (Russell
5
There was significant congressional opposition to creating the Bureau of Corporations, but President
Roosevelt was able to overcome it by strategically releasing a telegram from Standard Oil executives
lobbying against the provision (Johnson 1959, p. 577).
1905, pp. 3, 242). It did not address even the most obvious instance of possible
collusion—the use the packers made of the National Packing Company—even
though the report conceded that the new company “obviously tended to establish
a strong community of interest among four of the six leading companies” (US
Bureau of Corporations 1905, p. 27). Criticism of the report was so scathing that
President Roosevelt, scrambling to get the damage under control, ordered the
bureau to publish a supplement (never actually produced) that would provide the
public with the answers it demanded (Yeager 1981, pp. 185–90; Murphey 2013,
pp. 86–91).
The Bureau of Corporations’ report was doubly disastrous because it contami-
nated the case that federal prosecutors were simultaneously bringing against the
meat-packers for violating the injunction against price-fixing. At the request of the
federal district attorney in charge of the case, Roosevelt had ordered the bureau
to provide the Department of Justice with the data it had collected, but the court
ruled that the information could not be used as evidence, effectively sinking the
prosecution (Yeager 1981, p. 189; Murphey 2013, p. 91). The Department of Justice
continued to seek ways of proceeding against the meat-packers, ultimately filing a
criminal indictment in 1910 against the National Packing Company’s directors for
violating the Sherman Act. That case also failed when, two years later, a jury voted to
acquit the men on all the charges (Yeager 1981, chap. 9).6
This series of failures nonetheless had a couple of important consequences.
First, it prompted the meat-packers to change their behavior. Although they won
the criminal case, they learned a crucial lesson from the experience (and from the
Supreme Court’s articulation the previous year of the Rule of Reason in the Standard
Oil case): large firms increased their risk of prosecution under the antitrust laws if
they interacted with competitors in ways that smacked of cartelization or unfair
leverage. The day immediately following the court victory, the three companies
that owned National Packing announced that they would dissolve the company and
divide up its properties (Yeager 1981, chap. 9). Henceforth they would concentrate
on improving their competitive positions by integrating vertically and exploiting
economies of scale and scope. By the end of the decade, the five largest firms had
acquired controlling interests in the livestock markets handling most of the animals
slaughtered in the United States. They had also integrated forward into the whole-
sale distribution of meat and meat products, as well as by-products of the packing
process (Aduddell and Cain 1981).
Second, the failures helped set in motion an effort to revise the Sherman Act.
Although the Supreme Court’s decision to break up Standard Oil (and American
Tobacco) was widely applauded, Chief Justice White’s articulation of the Rule of
6
There were many postmortems of the case in the newspapers. The general consensus was that jurors
were reluctant to assess criminal penalties on socially prominent defendants, particularly when only civil
charges had been brought in the cases against Standard Oil and American Tobacco, and that they were
not able (and indeed did not even try) to follow the technical details of the government’s case. See the
reports in the Chicago Daily Tribune (1912), Cincinnati Enquirer (1912), and New York Tribune (1912).
Reason sparked worries about how combinations in restraint of trade could ever be
considered reasonable (Winerman 2003, pp. 13–15). At the same time, the govern-
ment’s failure to rein in what appeared to be clear instances of collusion, most
obviously by the meat-packers, contributed to a general sense that more needed
to be done. Although lawmakers in the two major political parties differed on the
details, there was broad agreement about the importance of clarifying the meaning
of restraints of trade and attempts to monopolize. There was also agreement on the
need to create an administrative body that would monitor businesses’ adherence to
the laws. By mostly lopsided majorities, Congress enacted the Clayton Antitrust and
Federal Trade Commission Acts in 1914 (Sklar 1988; Winerman 2003). The first
of these laws amended the Sherman Act to prohibit a number of specific practices
that had been used for anticompetitive purposes. The second created a new admin-
istrative agency tasked with enforcing the antitrust statutes and went further than
the Clayton Act by declaring “unfair methods of competition in commerce” to be
unlawful (Udell 1957, pp. 14–33).7
The meat-packing firms had initially grown large by innovating, but they had
responded to the oligopolistic competition that ensued by colluding to control
prices and costs. As a result, in the eyes of the public, they had become bad trusts,
much like the Standard Oil Company. Indeed, one writer titled his book about
them The Greatest Trust in the World, claiming that in comparison the Standard Oil
Company was “puerile” (Russell 1905). Although after 1912 the packers focused
increasingly on improving their competitive position by integrating vertically, they
had so damaged their reputations that virtually anything they did was viewed with
suspicion by regulators and the media alike. Taking a dim view of their attempts
to exploit economies of scale and scope, the new Federal Trade Commission in
1919 charged them with using their dominance of all stages of the production and
distribution of meat to monopolize the industry. Even in hindsight, it is difficult to
disentangle the efficiency gains that the meat-packers realized through vertical inte-
gration from the enhanced ability it gave them both to control prices and exclude
competitors. Aduddell and Cain (1981) reviewed the FTC’s charges with a skeptical
eye and concluded that many could not “be proved or disproved.” They conceded,
however, that the FTC had uncovered “sufficiently strong evidence to recommend
prosecution under both sections I and II of the Sherman Act” (p. 235). In 1920, the
packers negotiated a consent decree with the Department of Justice that required
them, among other things, to divest themselves of their interests in stockyards and
similar facilities (pp. 239–42).
7
These laws essentially structure antitrust policy to the present day, though there have been some key
amendments, most notably, the Robinson–Patman Act of 1936, prohibiting price discrimination; the
Celler–Kefauver Act of 1950, allowing the government to block vertical mergers that reduced competition;
and the Hart–Scott–Rodino Antitrust Improvements Act of 1976, requiring potentially anticompetitive
mergers to be prescreened by the Federal Trade Commission and the Department of Justice.
To Balance or Not to Balance
The new antitrust regime put in place in the 1910s meant that firms could
no longer acquire monopoly positions in their industries by buying out all their
competitors the way Standard Oil had done. The Clayton Act made horizontal
mergers illegal when their effect was “substantially to lessen competition or tend to
create a monopoly.” Firms could still grow large and acquire market power by inno-
vating, so the key policy question became how to prevent businesses that grew large
“normally” from turning to anticompetitive practices to preserve their market power,
the way the meat-packers had done. The Clayton Act explicitly prohibited certain
behaviors, such as tying contracts and discriminatory pricing, and the Federal Trade
Commission had broad authority to take action against other conduct regarded
as “unfair.” As the FTC’s case against the meat-packers demonstrated, however, it
was often difficult to distinguish actions that increased efficiency from those that
forestalled competition. Over time these judgments became even more difficult,
as businesses learned how to operate in the new institutional environment without
running afoul of the antitrust laws.
The first decade or so of the twentieth century was a difficult period for the
giant firms formed during the Great Merger Movement. Although many of these
consolidations acquired the bulk of the capacity in their industries, relatively few
maintained their dominance for long. Unless they were able to erect barriers to
entry (most were not), whenever they tried to raise prices, new firms would enter
the market and their market shares would drop (Lamoreaux 1985). Livermore
(1935, pp. 90–94) collected earnings data from 1901 to 1932 for 136 mergers that
he deemed powerful enough at the time of their formation “to influence market
conditions.” He found that 37 percent of them were complete failures, while only
44 percent could be regarded as successes. Moreover, those that did not fail had
to worry about antitrust prosecution (Bittlingmayer 1993). DuPont was broken
up in 1911, shortly after Standard Oil and American Tobacco, and Alcoa signed
a consent decree the next year. In the wake of those victories, the Department of
Justice launched suits against US Steel and International Harvester, among other
companies. Both prosecutions ultimately failed, but they dragged on until the
1920s, absorbing company time and resources.
The firms that survived this shakeout period learned to compete in the new
institutional environment by means other than price-cutting. For example, they
deployed advertising and other marketing strategies to build brand loyalty, improved
their internal operations by integrating backward into raw-material production and
forward into distribution, stayed on the technological cutting edge by investing
in in-house research and development, and more generally erected barriers to
entry in any way they could without inviting antitrust prosecution (Chandler 1977;
Lamoreaux 1985). The firms that mastered these lessons dominated their industries
for decades. Edwards (1975) has compared the records of the 100 largest firms in
the economy in 1903 and 1919. Most of the companies in the 1903 group struggled.
Indeed, fully two-thirds were either liquidated within the next two decades or lost
Figure 1
Percentage of National and Manufacturing Income in Monopolized Industries,
Selected Years, 1899–1980
60
40
20
0
1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990
% of national income in monopolized industries (Nutter and Einhorn)

% of manufacturing income in monopolized industries (Nutter and Einhorn)
% of value added in manufacturing in industries with concentration ratios over 50 percent (Adelman)
% of national income in monopolized industries (Shepherd)
% of manufacturing income in monopolized industries (Shepherd)
Source: The author, using data from Nutter and Einhorn (1969, pp. 48, 50, 56, 63), Adelman (1951,
p. 291), and Shepherd (1982, p. 618). For details of this data and some related data sources, see the Data
Appendix available with this article at the Journal of Economic Perspectives website.
Note: The authors of the studies cited examined each broad industry or sectoral category to determine
whether it was effectively monopolized—that is, dominated by small numbers of large firms.
ground in terms of the real value of their assets. By contrast, most of the firms in the
1919 group were highly successful, with more than 90 percent maintaining at least
the real value of their assets a half-century later. Tracking the 100 largest firms in the
US economy at various points between 1909 and 1958, Collins and Preston (1961)
similarly found that the top firms gradually came to enjoy “an increasing amount
of entrenchment of position by virtue of their size” (p. 1001). Over these same
decades, moreover, there was remarkably little change in overall levels of economic
concentration. Scholars have measured concentration in different ways and over
different sets of years, and as a result, their estimates diverge somewhat. But, as
can be seen from Figures 1 and 2, there was no clear trend toward increasing (or
decreasing) concentration, either in the manufacturing sector or in the economy
as a whole.
Intriguingly, even as large firms consolidated their positions, the public’s view
of them became increasingly accepting. Galambos (1975) analyzed references to
big business in a sample of periodicals read by various segments of the middle class
over the period 1890–1940 and found that the antipathy of the late nineteenth
century had greatly diminished by the interwar period. Auer and Petit (2018)
conducted a similar analysis, searching the Proquest database of historical newspa-
pers to find articles that included the word “monopoly.” Even though Auer and Petit
were selecting on a word with generally negative connotations in American culture,
they found that unfavorable mentions dropped from about 75 percent of the total
in the late nineteenth century to a little over 50 percent starting in the 1920s.
This process of accommodation was probably furthered by the government’s
response to popular concerns about the dangers of bigness. In addition to the new
Figure 2
Four-Firm Concentration Ratios, Selected Years, 1947–2012
50
45
40
35
30
25
20
15
10
5
0
1947 1954 1958 1963 1972 1982 1987 1992 1997 2002 2007 2012
% of value added by the top four firms in each four-digit manufacturing industry, weighted by
value added (Scherer)
% of domestic product by the top four firms in each four-digit manufacturing industry, weighted
by value added (Pryor)
% of trade-adjusted product by the top four firms in each four-digit manufacturing industry,
weighted by value added (Pryor)
% of revenue by top four firms in each four-digit manufacturing industry, averaged across
industries (Autor et al.)
% of employment by top four firms in each four-digit manufacturing industry, averaged across
industries (Autor et al.)
% of revenue by the top four firms in 893 industries, weighted by revenue (Economist)
Source: The author, using data from Scherer (1980, p. 69), Pryor (2001, p. 320), Autor et al. (2017, p. 34),
and the Economist (2016). For details of this data and some other related data sources, see the Data
Appendix available with this article at the Journal of Economic Perspectives website.
Notes: All series are for the manufacturing sector, except the one from the Economist, which covers
the whole economy. Manufacturing’s share of total output declined over this period from about 25 to
12 percent.
antitrust laws already discussed, Congress took a first step toward limiting business
influence in politics by passing the Tillman Act in 1907, prohibiting corporations
from contributing money to political campaigns for national office. The act was a
reaction to a particular set of revelations—that large mutual insurance c ompanies
were using their members’ premiums to lobby for measures that weakened members’
protections (Winkler 2004)—but it built on pervasive fears that large-scale busi-
nesses were using their vast resources to shape the rules in their favor. By the end
of 1908, 19 states had enacted corporate campaign-finance legislation of their own,
and they had also begun to restrict lobbying expenditures by corporations (McCor-
mick 1981, p. 266). Congress would write an expanded version of the Tillman law
into the Federal Corrupt Practices Act in 1925 (Mager 1976).
The new antitrust regime seems to have been similarly reassuring, even though
the 1920s are generally regarded as a period when antitrust enforcement was rela-
tively lax (Cheffins 1989). The Federal Trade Commission got off to an inauspicious
start in the early 1920s—most of the complaints it filed were dismissed by the courts—
and in the late 1920s it was essentially captured by business interests (Davis 1962). By
1935, however, the agency was showing renewed vitality. The number of complaints it
filed increased sharply, its dismissal rate fell to about one-quarter, and it was winning
the vast majority of cases that proceeded to judicial review (Posner 1970, p. 382). At
the Department of Justice, there was no significant fall-off in the number of cases
during the interwar period, with the exception of the early years of the Great Depres-
sion. Prosecutors seem to have targeted fewer large firms during the 1920s, but the
department’s win rate increased from 64 percent in 1920–1924 to 93 percent in
1925–1929 (Posner 1970, pp. 368, 381; Cheffins 1989). Although most antitrust cases
still involved horizontal combinations or conspiracies, by the 1930s about one-third
of the cases filed by the Department of Justice were targeting abuses of market power,
and the FTC’s proportion was closer to one-half (Posner 1970, pp. 396, 405, 408).
One of the activities that increasingly concerned antitrust officials during
the 1930s was patenting. After World War I, large firms had stepped up both their
investments in research and development and their efforts to accumulate patent
portfolios. According to surveys conducted by the National Research Council,
the number of new industrial research labs grew from about 37 per year between
1909 and 1918 to 74 per year between 1929 and 1936, and research employment
in these labs increased by a factor of almost ten between 1921 and 1940 (Mowery
and Rosenberg 1989, pp. 62–69). Large firms generated increasing numbers of
patents internally, but they also bought them from outside inventors. To measure
both streams, Nicholas (2009) collected information on patents assigned at issue
during the 1920s to companies that the National Research Council reported as
having at least one research lab. Because he was not able to observe assignments
that occurred after the patent was granted, his numbers underestimate the stock
of patents held by these firms. Nonetheless, he was able to match 17,620 patents to
companies listed as having labs in 1927.
The competitive advantages to large firms that broad portfolios of patents could
bring, in terms of both what they could achieve technologically and how they could
forestall competition, were becoming increasingly apparent—not least to the firms
themselves (Reich 1985). As early as the 1920s, valuations on the securities markets
began to mirror the size and quality of large firms’ patent portfolios (Nicholas 2007).
Federal antitrust authorities began to pay attention as well, especially during the late
1930s, when the administration of President Franklin D. Roosevelt displayed renewed
interest in the problem of monopoly (Hawley 1966). In 1938, a specially created
commission, the Temporary National Economic Committee, launched a three-year
investigation into the “Concentration of Economic Power.” The Temporary National
Economic Committee began its hearings by examining large firms’ use of patents to
achieve monopoly control, focusing in particular on the automobile and glass indus-
tries. In 1939, the committee held a second set of hearings to solicit ideas about how
the patent system could be reformed (Hintz 2017). It also commissioned a book-length
study by economist Walton Hamilton, Patents and Free Enterprise (Hamilton 1941).
According to Hamilton, large firms had perverted the patent system. The system’s
original purpose had been to encourage technological ingenuity, but now large firms
were instead deploying patents as barriers to entry and using licensing agreements to
divide up the market and limit competition among themselves (Hamilton 1941, pp.
158–63; John 2018).
The Temporary National Economic Committee’s patent investigation was
headed by Thurman Arnold, assistant attorney general in charge of the Depart-
ment of Justice’s antitrust division. Arnold’s views about the abuse of patents were
similar to Hamilton’s, and at his insistence, the committee’s final report recom-
mended compulsory licensing—requiring firms to license their technology at a fair
royalty to anyone who wanted to use it. The recommendation went nowhere in
Congress (Waller 2004), but Arnold nonetheless pursued it at Justice. As early as
1938, for example, he pushed Alcoa to license a set of its patents as part of an anti-
trust settlement, and the company agreed in a consent decree entered in 1942. By
that time, Arnold had already secured three other compulsory licensing orders, and
many more were to follow. Barnett (2018) compiled a complete list of such orders
and their terms from 1938 to 1975. By the latter year, the total had risen to 136,
one-third of which did not permit the firms to recoup any royalties at all for their
intellectual property.
This move against patents was part of a more fundamental shift in antitrust
policy that began with Arnold during the late New Deal and then acquired broader
intellectual support in the 1950s and 1960s with the spread of what has been called
the structure-conduct-performance paradigm, sometimes known as the “Harvard
School” (Phillips Sawyer 2019). Most often associated with the work of economist
Joe S. Bain (1959), the paradigm’s core idea was that the market power of large
firms tends to be both self-perpetuating (because size itself confers advantages that
operate as barriers to entry) and inimical to consumers (because size is associated
with higher profits). The implication was that antitrust authorities should abandon
what Bain called their “conduct orientation” and attack the problem of market
power directly (p. 607).
Even before the development of this academic rationale, however, a federal
appeals court had arrived at essentially the same conclusion in a landmark 1945
decision in the ongoing antitrust suit against Alcoa.8 Justice Learned Hand’s
opinion found Alcoa in violation of the Sherman Act because it produced the lion’s
share (Hand estimated 90 percent) of the country’s aluminum ingots and because
it was not simply the “passive beneficiary of a monopoly.” Alcoa’s “crime” was that it
continued to behave entrepreneurially and actively seek new business:
8
The case was heard by the Second Circuit because four of the Supreme Court justices had been associ-
ated with prior antitrust litigation against Alcoa and had to recuse themselves. Congress passed a law in
1944 permitting cases where the Supreme Court could not muster a quorum to be certified instead to
one of the circuit courts of appeal (Smith 1988).
True, it stimulated demand and opened new uses for the metal, but not with-
out making sure that it could supply what it had evoked. . . . It was not inevi-
table that it should always anticipate increases in the demand for ingot and be
prepared to supply them. Nothing compelled it to keep doubling and redou-
bling its capacity before others entered the field (United States v. Aluminum
Company of America, 148 F.2d 416 [1945], pp. 430–31).
Anticompetitive conduct of the sort that had led to the breakup of Standard Oil
was not an issue. As Justice Hand admitted, “We need charge [Alcoa] with no moral
derelictions after 1912,” the year the company had settled an earlier antitrust suit.
“[W]e may assume that all it claims for itself is true”—that the company “won its way
by fair means” (pp. 430–31). Alcoa was in violation of the Sherman Act because it
was big and successful, not because it had done anything wrong.
The shift in judicial thinking signaled by the Alcoa case stimulated major new
antitrust initiatives against AT&T, IBM, and other large innovative firms during the
post–World War II era. It also justified the imposition of compulsory licensing orders
even in cases where there was no evidence that patents were being used anticom-
petitively (Barnett 2018). In levying such an order on the United Shoe Machinery
Corporation, for example, the court admitted, “Defendant is not being punished
for abusive practices respecting patents, for it engaged in none, except possibly
two decades ago in connection with the wood heel business. It is being required to
reduce the monopoly power it has, not as a result of patents, but as a result of busi-
ness practices” (United States v. United Shoe Machinery Corporation, 110 F. Supp. 295
[1953]). Drawing a line between actions that improved efficiency and those that
harmed competition can always be difficult, and it is perhaps especially difficult in
the area of patents. But the courts had effectively decided that it was not necessary
even to make the attempt.
The new focus on market share in turn provoked a backlash. Economists such
as Demsetz (1973, 1974) challenged the structure-conduct-performance paradigm
on theoretical grounds, arguing that the observed relationship between size and
profits was just a correlation that was more reasonably explained by the likeli-
hood that the most efficient firms would both earn high profits and have a high
market share. Legal scholars such as Bork (1965, 1966, 1978) argued that antitrust
policy had strayed from its original objective, which was to protect consumers. Like
devotees of the structure-conduct-performance paradigm, these “Chicago School”
scholars rejected the focus of earlier policymakers on conduct.9 They simply
applied a different test to assess whether a large firm had violated the antitrust
laws: instead of measuring the firm’s market share, they asked whether the firm had
made consumers worse off (Posner 1979).
9
As Posner (1979) explained, the Chicago School’s view of antitrust grew out of a series of studies arguing
that predatory pricing, tying contracts, and similar types of bad conduct were economically irrational and
so not likely to occur.
The Resurgence of Concerns about Bigness
By the late 1970s, the Chicago School’s views were having a major impact on
antitrust policy and on the courts (Phillips Sawyer 2019). At this time, inflation was
rampant, growth was low, and the US manufacturing sector seemed to be collapsing,
transforming what had once been vibrant industrial cities into rust-belt wrecks. The
decline had many sources, ranging from external developments such as rising foreign
competition to internal problems such as changes in managerial practices that under-
mined product quality, but regardless it did not seem to be a good time to target the
most innovative firms and largest employers in the economy (Hannah 1999; Lamor-
eaux, Raff, and Temin 2003; Cheffins 2018). Some giant enterprises, including the
meat-packers Swift and Armour, disappeared into mergers. Others, like the big three
automakers, General Motors, Ford, and Chrysler, struggled to maintain the profit-
ability of their core business; Chrysler survived only with the help of a government
bailout. A few successfully reinvented themselves by pursuing different business
models. General Electric largely abandoned its consumer electronics business in favor
of a strategy of conglomerate mergers. IBM moved away from computer manufac-
turing and focused instead on business information services and consulting.
Although overall levels of concentration in the economy dipped for a time
as a result of these changes (as shown in Figures 1 and 2), they soon began to
rise again as new behemoths emerged in the most rapidly growing sectors of the
economy, particularly those exploiting cutting-edge computing and information
technologies where there were important network externalities (Peltzman 2014;
Autor et al. 2017; Gutiérrez and Philippon 2017; Grullon, Larkin, and Michaely
forthcoming). In such industries, consumers stood to benefit from using the same
products that many others were using, so firms that pulled ahead in the competition
quickly acquired dominant market shares. Google, Apple, Amazon, and the other
new “superstar” firms (the term comes from Autor et al. 2017) grew primarily by
innovating—by offering consumers desirable new products or new ways of buying
familiar ones. Nevertheless, their rapid rise set off waves of anxiety about the growth
of monopoly power in the American economy reminiscent of the late nineteenth-
century reaction to Standard Oil (Lynn 2010; Khan 2018; Wu 2018).
The increase in the market share of these superstar firms does not necessarily
mean that the economy had become less competitive, as Carl Shapiro observes in
his companion article in this issue. Indeed, evidence to the contrary comes from the
simple fact that the identity of the firms singled out as objects of concern changed
as technology continued to evolve. In the first decade of the twenty-first century,
for example, critics decried Wal-Mart’s detrimental effect on competing retailers
and the monopsony power it exercised over suppliers and workers (Lichtenstein
2009). By the next decade, however, the spotlight had shifted to Amazon, as internet
sales challenged the profitability of brick-and-mortar retailers. According to New
Brandeisian Lina Khan (2017, pp. 709–10), for example, Amazon’s 46 percent share
of e-commerce in the United States does not begin to capture the extent of its domi-
nance. As Khan sees it, Amazon has cut prices and sacrificed profits in a predatory
drive to position itself as the indispensable provider of infrastructure services to a

broad range of businesses, including those with which it is in competition. Although
so far Amazon has generally refrained from exploiting its market power over rivals,
it has used its muscle to force down prices charged by its suppliers and by providers
of transportation services. In Khan’s view, the potential for worse is there, and she
argues that the antitrust authorities should take preventive action. However, it is also
plausible that ongoing technological progress will give rise to new enterprises that will
contest Amazon’s hegemony, just as Amazon previously challenged Wal-Mart’s.
As the example of the meat-packers makes clear, companies that grow large
through innovation are no less likely than those that grow large by merger to turn to
anticompetitive practices to maintain their advantages. Microsoft is a recent case in
point. The company rose to bigness on the success of its operating system for personal
computers and its popular word-processing software. But when faced with new threats
to its dominance from computer makers using other operating systems (most notably
Apple) and from the growth of the internet, it took steps that even C hicago-influenced
antitrust authorities regarded as anticompetitive. According to a lawsuit filed by the
Department of Justice, Microsoft promoted the use of its own internet browser by
integrating it into its Windows software, negotiating exclusive dealing contracts with
internet service providers and software producers, cutting deals with computer makers
to install the browser on all the new computers they sold, and threatening those who
made similar arrangements with other browser companies with a loss of business. A
federal district court found Microsoft in violation of the Sherman Act and ordered the
company broken up. An appeals court vacated the breakup order and reversed some
of the lower court’s findings, but it affirmed other findings and remanded still others
for further consideration. Microsoft then settled the case (Cohen 2004). Although
the settlement did not completely end the company’s legal problems, its executives
absorbed the same lessons from the experience that large firms had learned in the
early twentieth century: they had to change their ways to avoid antitrust problems.
Once again, the line between actions that improved efficiency and those that
aimed “to cut off [rivals’] air supply,” as Microsoft’s executives were alleged to have
threatened (Chandrasekaran 1998), was difficult to draw. Scholars disagreed vehe-
mently about whether Microsoft had transgressed (see, for example, Bresnahan 2001
as well as the symposium in the Spring 2001 issue of this journal, including Klein 2001;
Gilbert and Katz 2001; Whinston 2001). Moreover, we can never know what the coun-
terfactual outcome would have been in the absence of litigation. After the settlement,
Microsoft’s browser sank into obscurity, but so did the competing browsers that were
the main beneficiaries of the antitrust action. In 2008, Google introduced Chrome, a
new browser that quickly swept away the competition. Ten years later Chrome had a
63 percent share of the global browser market, with Apple’s Safari a distant second at
14 percent (Awio Web Services 2018). The browsers involved in the antitrust suit had
been completely left in the dust. Would Chrome have been so successful if Microsoft
had not been chastened first?
Google now stands accused of using its popular search engine to give pref-
erence to its own vertically linked services (Edelman 2015; Phillips Sawyer 2016).
The Federal Trade Commission conducted an investigation of these charges and

dismissed them in 2013, deciding that “Google’s display of its own content could
plausibly be viewed as an improvement in the overall quality of Google’s search
product” (US Federal Trade Commission 2013, p. 3). By contrast, the European
Union’s Commissioner for Competition, Margrethe Vestager, found that the biases
in Google’s search results “artificially divert[ed] traffic from rival comparison shop-
ping services and hinder[ed] their ability to compete” (European Commission
2015). The diversion was detrimental to consumers, the European Commission
found, because “users do not necessarily see the most relevant results in response
to queries.” The European Commission brought formal charges against Google
in 2015, and two years later the company was found guilty and fined a record
$2.7 billion (as reported in Scott 2017).
Was the Federal Trade Commission too meek, or the European Commission too
harsh? The Wall Street Journal got a peek behind the curtain of the decision-making
process at the FTC when it (accidentally) gained access to scattered pages of an
internal FTC staff report on the case through a Freedom of Information Act request
(Wall Street Journal 2015; Phillips Sawyer 2016, p. 12). Although staff members recom-
mended that the FTC not take action on the charge that Google’s search results were
biased against competitors, they did encourage the commissioners to sue Google for
several other antitrust violations. Moreover, the FTC staff regarded the search engine
recommendation to be a “close question”: “the evidence paints a complex portrait of a
company working toward an overall goal of maintaining its market share by providing
the best user experience, while simultaneously engaging in tactics that resulted in
harm to many vertical competitors, and likely helped to entrench Google’s monopoly
power over search and advertising.” The recommendation not to move forward with
the charge was driven not only by staff members’ sense that the line between actions
that enhance efficiency and those that are anticompetitive in purpose and effect is
difficult to draw, but also by their perception that there was no interest in drawing it
in the current antitrust legal environment. Such a determination “would require an
extensive balancing of these factors, a task that courts have been unwilling—in similar
circumstances—to perform” (Wall Street Journal 2015, p. 86 of memorandum).
The Federal Trade Commission promised in its 2013 statement to “remain vigi-
lant and continue to monitor Google for conduct that may harm competition and
consumers,” and in 2016 it announced that it was expanding its investigation into
Google’s use of Android to foreclose competition (as reported in Nicas and Kendall
2016).10 However, critics remain convinced that its focus on consumer welfare is
blinding it to the broader range of problems that bigness can entail (Wu 2018).11
There is renewed concern, moreover, that the tech firms’ enormous wealth is giving
10
As of this writing, it has not yet issued a report, whereas the European Commission recently levied
another record fine on Google in the Android case, this time for $5.1 billion (as reported in Satariano
and Nicas 2018).
11
Responding to critics, the Federal Trade Commission announced in 2018 that it would hold public
hearings on competition policy, including “whether technology firms are undermining competition.”
One of the Democratic FTC commissioners also announced that Khan would join his office for a
them undue influence on policy. The Supreme Court’s dismantling of restrictions

on corporate political contributions (Citizens United v. Federal Election Commission,
558 US 310 [2010]) has fueled worries about flows of money that citizens cannot
observe. These anxieties have been exacerbated by what they are able to observe—
the enormous resources that Google and other tech giants have been pouring into
lobbying the federal government. Google spent less than $50,000 on lobbying in
2002. In 2017, it spent more than $18 million, and Amazon, Apple, and Facebook
were not far behind, with expenditures by these four tech companies totaling nearly
$50 million (as reported in Taplin 2017; Bach 2018). In the first three-quarters
of 2018, Google spent more on lobbying in Washington ($16.5 million) than any
other business corporation, more than the American Medical Association or the
American Hospital Association, and considerably more than twice as much as the
National Rifle Association (for a list of the firms and organizations that spend the
most on lobbying, see Ackley 2018).
The New Brandeisians are raising concerns about the threat that monopoly
power poses to the economy and our democracy. These concerns are not new. Indeed,
they echo fears aroused by the rise of the Standard Oil Trust and other big businesses
at the turn of the last century. Then, as now, the fears were not only about—nor even
primarily about—the effect of monopoly on consumers, but rather about the exclu-
sion of competitors from the market and the manipulation of the political system for
economic ends. The worries, then as now, had a substantial basis in fact, but they also
posed difficult questions of interpretation. How can one determine whether an action
was taken to improve efficiency or exclude a rival? What if an action did both?
In response to the rise of Standard Oil and other trusts, lawmakers put in
place a complex of institutions that had at their core two basic principles: that firms
could grow large by innovating as well as by combining with their competitors, and
that even the most innovative enterprises might resort to anticompetitive tactics
to preserve their market position. The institutions that early twentieth-century
lawmakers created were by no means perfect, but the balance they struck between
these competing principles underpinned a long period in which fears of big business
abated and large firms learned to stabilize their industries and compete on dimen-
sions other than price without running afoul of the antitrust authorities. Striking
the right balance was difficult, however, and policymakers lost their commitment to
the effort over the long run, swinging first to the extreme that bigness in itself was
bad and needed to be countered, and then to the opposite extreme that bigness
was never a problem so long as it brought gains to consumers. Perhaps now would
be an opportune time to return to the task of assessing the conduct of large firms.
How else can we avoid the twin perils of attacking firms that are large and successful
because they are innovative and allowing large, successful firms to block innovative
challengers?
few months to advise him on antitrust policy toward Amazon and other tech giants (as reported in
McLaughlin 2018).
■ I’m grateful to Gerben Bakker, Brian Cheffins, Daniel Crane, Richard Daniels, Louis
Galambos, Gary Gerstle, Leslie Hannah, Ron Harris, Gordon Hanson, David Lamoreaux,
Noam Maggor, Enrico Moretti, Laura Phillips Sawyer, Timothy Taylor, Francesca Trivellato,
Heidi Williams, and Mary Yeager for helpful comments and suggestions, and to participants
in the Safra Seminar on Law and Ethics at the Tel Aviv University Law School, the Economic
History Seminar at the London School of Economics, and the University of Cambridge
American History Seminar.
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Journal of Economic Perspectives—Volume 33, Number 3—Summer 2019—Pages 94–117

The Problem of Bigness: From Standard

Standard Oil and the Rise of Antitrust

“Good” versus “Bad” Trusts: The Case of Meat-Packing

The meat-packing industry provides a good example of the difficulties that

To Balance or Not to Balance

% of national income in monopolized industries (Nutter and Einhorn)

The Resurgence of Concerns about Bigness

drive to position itself as the indispensable provider of infrastructure services to a

The Federal Trade Commission conducted an investigation of these charges and

them undue influence on policy. The Supreme Court’s dismantling of restrictions

com/2017/06/27/technology/eu-google-fine. the Commissioner of Corporations on the Petroleum

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