Antitrust law is a complicated and obscure area of the law, sometimes called competition law or anti-monopoly law, that has risen to global preeminence. Although the field has typically been for only the most niche individuals, someone who enjoys both law and economics, today, it is almost impossible to avoid. Indeed, the news headlines are full of op-eds and stories about the need to break up Big Tech, Big Pharma, and the dangers of rising corporate concentration. 

It should be no surprise that the Biden Administration named antitrust enforcement as one of the main planks of “Bidenomics.” One of the President’s first reforms was appointing Lina Khan as chair of the Federal Trade Commission, one of the two primary antitrust enforcement agencies. As the youngest person to ever lead the commission, she is constantly in the news for bringing aggressive and unprecedented enforcement actions against corporations like Microsoft, Amazon, Twitter, and many others.

As a result, antitrust law will likely affect you personally, either targeting a company you patronize or even your employer. Admittedly, this article will not offer any concrete reforms or ground-shattering insights. What it aims to do is offer a primer on how to think critically about a technical area of law that is becoming increasingly popularized. With big changes on the horizon for competition enforcement, here are five popular misconceptions surrounding this dynamic area of law.

Myth #1: Antitrust law is about breaking up all monopolies

Yes, antitrust law targets monopolies and monopolistic conduct, but only illegally obtained or maintained ones. It is not illegal to create a monopoly by making a product that is better or more popular than others. America’s two primary antitrust statutes are the Clayton Act, which governs mergers, and the Sherman Act, of which two sections are especially important: Section 1 and Section 2. 

Section 1 specifically outlaws multi-party arrangements such as cartels, which is when multiple companies conspire to restrict competition, fix prices, and otherwise attempt to control the market.

Section 2 of the Sherman Act penalizes individuals who “monopolize, or attempt to monopolize” trade or commerce, often through unilateral schemes such as exclusive dealing contracts and other contractual restraints. However, competition law does not penalize companies that dominate the market by being an innovative first mover or creating a superior product.

Myth #2: Big is bad

Big companies, particularly those that control large segments of the market, tend to have the ability to create illegal monopolies and exert more power than some might be comfortable with. 

But being big in and of itself does not harm society, and having a large degree of corporate concentration isn’t bad in and of itself. American antitrust law ultimately focuses on consumer welfare and preserving competition, not penalizing corporations for being too successful. 

Competition analysis understands that consumers can benefit more from larger corporations, which can offer lower prices, have greater research capacity, and more expansive services. A merger may reduce the number of firms competing, but their combined resources may lead to better products and more intense competition that lowers prices and increases quality. 

Therefore, we shouldn’t take issue with a company getting “too big” but rather if it attempts to do so through unproductive methods like creating cartels or using the government to shut down its rivals.

Myth #3: There can always be more companies

Economic competition brings out the best in firms. However, there are instances when a market functions most effectively with fewer companies; sometimes, consumers naturally gravitate toward a single platform; and at times, we just don’t know what’s the best composition for the market.

American antitrust law focuses on specific and immediate harms to competition, such as fixing prices or creating contracts that force consumers to stick to one company. What it doesn’t do is engage in speculative, “what if” experiments. What if there was more than one Amazon in the online retail space? What if there were three Facebooks? 

Former FTC (Federal Trade Commission) Commissioner Orson Swindle summarized the danger of such speculative thinking by stating, “We should be wary of reaching the conclusion that markets that are already creating tremendous benefits for consumers would have done even better.”

Splitting large companies into smaller ones may remove their ability to offer services with the same quality, price, or depth. Large companies can provide the network, experience, and product development that smaller firms often can’t. 

Furthermore, allowing the government to engage in such intimate central planning of the economy will slow innovation and stifle growth, as no investor would want to put their money into such a volatile regulatory environment. In theory, breaking up companies like Amazon into multiple platforms may produce more competition. In practice, it could not only fail miserably but chill investment across the economy.

Myth #4: Consumers always benefit from having more choices

Similar to myth #3, even if it were possible to have more companies in a marketplace, that doesn’t mean more is better. Modern antitrust law employs sophisticated economic analysis that considers multiple factors such as potential effects on prices, output, and innovations that spur competition. When companies merge, they can consolidate resources, align incentives, and compete more aggressively against their rivals. In the end, consumers win.

Think of it this way: Would you rather have 20 different small deodorant brands that are mediocre or five excellent brands created by the combined resources of the original 20? Even a one-brand monopoly can be better if that company constantly worries about an innovative competitor entering the market. Companies like Amazon and Facebook may seem invincible, but remember that they are the direct replacement of monopolies once thought invincible, eBay and My Space. 

Furthermore, in the case of digital platforms like Google and Facebook, consumers benefit from having more users on the same product, rather than being scattered amongst competitors. This is due to a phenomenon called network effects, where every consumer using the product increases its value. 

A Google Search algorithm is more accurate the more people use it. Networking sites like Facebook or LinkedIn work best when everyone is on the same platform. In this case, having too many equal competitors may degrade consumer welfare, not improve it.

Myth #5: Antitrust law is always for the public good

Antitrust enforcement is intended to curb the excesses of corporate power. However, just like any powerful tool, competition law can be abused. Most antitrust lawsuits are brought by private companies (a ratio of 10:1 for every government action) that are just as greedy as the alleged monopolists, oftentimes trying to use litigation to hamper a competitor instead of competing in the marketplace. 

Case in point, in a recent headline antitrust case, FTC v. Microsoft, the private opponent of Microsoft’s acquisition of Activision was its main competitor, Sony. In this case, Sony, the maker of the PlayStation gaming console, wished to prevent Microsoft, the maker of the rival Xbox console, from obtaining ownership of Activision’s popular gaming franchise Call of Duty. The court ultimately ruled in favor of Microsoft, finding that its resources would improve the video game and make it more accessible to more consumers.

Closing thoughts

Although antitrust law is full of contradictions and inconsistencies, its importance has never been greater as countries around the world bolster their competition regimes. However, much like any government policy, protectionist and corporatist influences are always present. 

In the U.S., over 70 percent of private lawsuits are dismissed without trial, meaning they failed to meet the standard of proof required to argue before the court. This suggests that many plaintiffs might just be looking to harm a company with the law, rather than bring a serious case. 

Even if a defendant never loses, being the target of litigation is expensive and chills investment. Although scholars from diverse economic traditions have much to debate regarding the future of antitrust law, there is no doubt that its current state is full of contradiction and uncertainty.

Fortunately, lawsuits are not the only way to bolster competition. Antitrust scholars, often from the Austrian economic tradition, have long argued that streamlining freedom of market entry is the ultimate check on excessive corporate power. Reforming restrictive regulations and licensing regimes, which are often captured by incumbent businesses, can be a powerful tool to enable greater competition without disruptive litigation.

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This piece solely expresses the opinion of the author and not necessarily the organization as a whole. Students For Liberty is committed to facilitating a broad dialogue for liberty, representing a variety of opinions. Furthermore, the views expressed are the author’s own and do not necessarily reflect the position of the Federal Trade Commission.