Monopolies in the Courts
America's Gilded Age ushered in an era of unprecedented industrial growth and economic transformation, marked by rapid technological advancements and the rise of industrial empires, especially in the railroad industry. However, beneath the veneer of progress and prosperity lay a stark dichotomy: while a select few amassed staggering wealth, the working class endured abject poverty. A pivotal question arose: were these industrial leaders "robber barons" or "captains of industry?” This debate, involving the entire nation from everyday citizens to the Supreme Court, encapsulated the era's ambivalence towards its most prominent figures, questioning whether they were exploiting workers and stifling competition or s driving progress and economic growth. The growing hostility towards these monopolistic practices and the concentration of economic power in the hands of a few large corporations ultimately prompted Congress to take action, leading to the passage of the Sherman Antitrust Act as a means to protect trade, commerce, and foster fair competition.
Initially, the Sherman Act's application was narrow and largely ineffective in curbing monopolies. After the proposed acquisition of E.C. Knight Company, the American Sugar Refining Company effectively would become a monopoly, controlling over 98 percent of the US sugar-refining business. President Cleveland then directed the national government to sue the Knight Company under the Sherman Antitrust Act to stop the acquisition. However, in United States v. E.C. Knight, 156 U.S. 1 (1895), the Supreme Court ruled that manufacturing was not interstate commerce and thus beyond the reach of federal antitrust regulation, effectively limited the act's scope, allowing many similar large corporations to continue their monopolistic practices unchecked as long as engagements were intrastate. [1]
Later, the passage of the Clayton Antitrust Act in 1914, exacerbated by public outcry against these “robber barons,” was textually different from Sherman. First, it adopted far more specific prohibitions than Sherman’s vague statements of “restraint of trade” and “monopolization.” [2] Instead, Clayton detailed very specific restrictions against price discrimination, exclusive dealing, mergers and acquisitions, interlocking directorates, etc. [3] Secondly, it introduced an “incipiency” standard that allowed for earlier intervention against anticompetitive practices by setting a lower standard for violation. The Clayton Act employed the phrase "may…substantially to lessen competition" to prevent the creation of trusts and monopolies "in their incipiency and before consummation," focusing on "probabilities, not certainties." [4]
Early Supreme Court interpretations of the Clayton Act recognized the textual and material differences between Sherman and Clayton. In Standard Fashion Co. v. Magrane-Houston Co., 258 U.S. 346 (1922), the Court recognized Clayton’s incipiency standard as an expansion to Sherman– that conduct could be challenged “before the harm to competition is effected.” [5] In Brown Shoe Co. v. United States, 370 U.S. 294 (1961), the Court made this distinction even clearer, directly noting that the Clayton Act “intended to reach incipient monopolies and trade restraints outside the scope of the Sherman Act.” [6]
However, the Supreme Court wavered on drawing the line between when the probability of a practice becoming damagingly anticompetitive went from “remote” to “substantial.” [7] In Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320 (1961), the Court ruled that Tampa Electric's 20-year requirements contract with Nashville Coal to supply coal did not violate Section 3 of the Clayton Antitrust Act because the impact was not “substantial.” [8]
The ambiguity left by this decision enabled lower courts to slowly begin blurring the lines of distinction between Clayton and Sherman, eroding the strength of Clayton. Gradually, courts began to raise the burden of proof for plaintiffs, requiring greater evidence of harm associated with anticompetitive practices before ruling against them. Furthermore, the Court began applying the same framework under Sherman and Clayton, even when Clayton imposed a stricter burden on monopolies. This culminated in Brooke Group Ltd v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993), in which the Court again recognized that, unlike Sherman’s requirement for “probability” of harm, Clayton only required “possibility” of harm. However, the Court still set precedent for a single standard for claims of predatory price discrimination under Sherman and Clayton, effectively ignoring the textual difference between the two laws. [9] Ultimately, this decision highlighted the clash between legislative intent and judicial interpretation, where the Clayton Act’s role to supplement Sherman eroded over time.
Furthermore, the Reagon administration saw a fundamental dismantlement of antitrust legislation. Reagan entered office with the goal to reduce government regulation in business affairs; under his presidency, there was greatly reduced antitrust enforcement of Sherman and Clayton, more lenient merger policies, deregulation of price controls, and greater emphasis on the efficiency of natural monopolies. Such practices, continued under Clinton, set the landscape for the technology boom and the emergence of tech giants like Microsoft.
This has implications today, where there exists an unprecedented amount of monopolies, especially within Big Tech. The most egregious example is Google. In. In 2024, a district court judge ruled that the company held an illegal monopoly over the search engine space– marking the first major antitrust undertaking against Big Tech since Microsoft in 1998. The company contracted major companies like Apple and Android to be the default search engine on their devices. The company controls approximately 90% of the overall search market and 95% on smartphones, enabling Google to block competitors and create a feedback loop between search and ad revenue. The case remains under deliberation, with Google appealing the ruling by claiming it would restrict consumers from accessing their preferred search engine. [10]
However, monopolies and corporate concentration remain a growing plague within the current US business landscape. In the last decade, over 65,000 small, independent retailers including grocers and banks have shut down in the face of megacorporations. Walmart has captured “more than half of grocery sales in 43 metropolitan areas” and four big banks on Wall Street control 41% of all US banking assets. [11] Tech Giants like Amazon, Google, and Facebook have dominated the online space, controlling commerce, news, and information. Monopolies pose significant threats to both consumers and workers. For consumers, monopolies often lead to higher prices, reduced choice, and lower quality products or services. Without competition, monopolistic firms can set prices well above marginal costs, exploiting their market dominance. This results in a decline in consumer surplus and allocative inefficiency. For workers, monopolies can create monopsony power in labor markets, allowing them to suppress wages and worsen working conditions. The lack of alternative employers gives workers little bargaining power, leading to lower salaries and fewer benefits. Additionally, monopolies often stifle innovation and productivity growth, which can limit job creation and wage increases over time. The concentration of economic power in monopolies can also lead to political influence, potentially shaping policies in ways that further disadvantage both consumers and workers.
The efforts against Google reflect a step in the right direction. The Court's interpretation of antitrust laws plays a pivotal role in protecting consumers and workers alike, many of whom are unaware of this monopolistic control.
To better serve this purpose, the Court should give greater appreciation to the Clayton Act. First, returning to the incipiency standard, allowing for proactive enforcement against potentially harmful business practices. Second, the Court should recognize the distinct language of the Clayton Act, which allows for a lower threshold of proof compared to the Sherman Act. A broader interpretation of the Act's scope, beyond just consumer welfare, should be embraced to protect small businesses, maintain market diversity, and preserve economic opportunity. Revitalizing Section 3 of the Clayton Act would provide a more effective tool for challenging anticompetitive behavior. Finally, applying consistent textualism to the Clayton Act could reinvigorate its enforcement authority.
It is important to note, however, that some consolidation of corporate power is not inherently evil. The Court should distinguish between protection of the competitive process and protection of individual competitors. Protecting the competitive process is crucial in differentiating between legal and illegal unilateral conduct. While competition can harm rivals or even force them out of business, it also drives down prices, improves quality, and fosters innovation– benefiting consumers. Importantly, antitrust liability cannot be based solely on harm to competitors, as such harm is often a natural consequence of robust competition. A single competitor being harmed by this process is not a sign of monopolistic behavior– rather it may be a natural and necessary weeding out of weak businesses that provide inferior products or services.
Yet even with this caveat, it is clear to see the rampant monopolies that have gone far beyond this line in modern society. From Big Tech to massive retailers, the trend of corporate consolidation is growing more and more concerning. The Supreme Court has long remained distant from this issue, enabling interpretations of antitrust laws to deviate from their original legislative intents. Ultimately, the true harm of these monopolistic practices fall to the everyday consumer and worker in the form of hiked prices, poor employment practices, and stifled innovation. A renewed commitment to robust antitrust enforcement, in line with the original spirit of laws like the Clayton Act, is urgently needed.
Edited by Hanrui Huang
Endnotes
[1] United States v. E.C. Knight, 156 U.S. 1 (1895), Justia. Accessed December 1, 2024. https://supreme.justia.com/cases/federal/us/156/1/
[2] Sherman Antitrust Act, 26 Stat. 209, 15 U.S.C. §§ 1–7
[3] Clayton Antitrust Act, 15 U.S.C. §§ 12–27
[4] Ibid.
[5] Standard Fashion Co. v. Magrane-Houston Co., 258 U.S. 346 (1922). Justia. Accessed December 1, 2024. https://supreme.justia.com/cases/federal/us/258/346/
[6] Brown Shoe Co. v. United States, 370 U.S. 294 (1961). Justia. Accessed December 1. https://supreme.justia.com/cases/federal/us/370/294/
[7] Ibid.
[8] Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320 (1961). Justia. Accessed December 1, 2024. https://supreme.justia.com/cases/federal/us/365/320/
[9] Brooke Group Ltd v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993). Justia. Accessed December 1, 2024. https://supreme.justia.com/cases/federal/us/509/209/
[10] McCabe, David. “U.S. Said to Consider a Breakup of Google to Address Search Monopoly.” The New York Times. Accessed December 1, 2024, online at https://www.nytimes.com/2024/08/13/technology/google-monopoly-antitrust-justice-department.html
[11] Mitchel, Stacy. “America’s Monopoly Problem.” Institute for Local Self-Reliance. Accessed December 1, 2024, online at https://ilsr.org/fighting-monopoly-power/why-it-matters/