Earlier this week, a federal court threw out an antitrust case against Facebook. The lawsuit filed by the Federal Trade Commission, along with 48 state governors, sought to force Facebook to divest itself of WhatsApp and Instagram, but the court said the FTC failed to prove that Facebook holds monopoly power. In his podcast, Peter Schiff said whatever problems Facebook may present, the only monopolies we should really be afraid of are the government-protected monopolies.
Peter said Facebook isn’t a monopoly and doesn’t need to be broken up.
Antitrust laws were ostensibly passed to protect consumers. If a company achieves monopoly power, it can jack up prices and take advantage of the public. The consumer is served best in a competitive market because competition tends to keep prices low. Therefore, the government needs the power to break up these monopolies and preserve a competitive environment. Peter said the argument that Facebook is gouging consumers falls a little flat given they give their base product away.
If a company is giving its products away for free, by definition, it’s not gouging anybody. So, even if Facebook had a monopoly, which it doesn’t, but even if it did, who cares? It’s giving away the products. They’re free. So, nobody is being harmed by this so-called monopoly.”
You could argue that the public isn’t really the customer. In a sense, people with Facebook accounts are the product. Advertisers pay Facebook to reach those account-holders. But Facebook clearly doesn’t have a monopoly on advertising. Peter said the advertising market may be more competitive than at any time in history.
Peter said if you look at the history of anti-trust, it has never benefited consumers, nor the broader economy. And in fact, there have never been real-world examples of a monopoly naturally forming in the economy that has wielded enough power to charge these predatory prices that everybody worries about. The only time this happens is when the government gets involved. Economist Murray Rothbard made this very argument and said “natural monopolies” don’t even exist.
The only time monopolies have ever been able to engage in the type of pricing that everybody is worried about is when the government comes in and grants them a legal monopoly and then uses the power of the state to quash their competitors and to keep other people from entering the market. So, absent government intervention, there will not be any predatory monopolies.”
Peter said that’s not to say a private sector couldn’t become so dominant that you might call it a monopoly. But consumers don’t have anything to fear.
In a free market, the only way that you can maintain your dominance in a market is by giving the consumers high-quality products at a low price. Because if you don’t do that, you will lose your monopoly to a competitor.”
Proponents of government antitrust action argue that once a company achieves monopoly power, it can drive competitors out of business with predatory pricing. It will temporarily slash prices and the upstart won’t be able to compete. Once the competitor is out of business, the monopolist will reassert its high prices. This sounds plausible, but it doesn’t happen in practice, as Peter explains.
The way the monopolist keeps the competitors away is by being so efficient by offering prices that are so low and quality that is so high that it doesn’t make any sense for anybody to compete.”
Why do we want competition in the first place? To get low prices.
We don’t want competition for the sake of having competitors. Well, if we get low prices without competition then we don’t need it. Because the fear of potential competition in many cases can be just as good as actual competition.”
What we’ve seen throughout history is when the government gets involved in breaking up so-called monopolies, it’s not the customers who are complaining. It’s the competitors of the so-called monopolist because they can’t compete.
Peter gave an example of the absurdity of government antitrust in the case of a proposed merger of Blockbuster and Hollywood video.
Think about the absurdity of the US government, in 2005, worried about companies having monopoly on home video rental, when within a few years, nobody was renting videos for home.”
Nobody considered that a company formed in 1997 would totally revolutionize that market — Netflix. The US government couldn’t see that. This illustrates the absurdity of empowering the government to insert itself into the marketplace. It has no idea what it is doing.
Peter goes on to talk about the story of John D. Rockefeller’s Standard Oil. The narrative you probably learned in school doesn’t hold up to scrutiny.
In this podcast, Peter also talks about a government-protected monopoly that price gouges consumers indirectly – labor unions.