Does the market need protection from a dominant player?

The question is often asked: What if a large, rich company kept buying out its smaller competitors or kept forcing them out of business by means of undercutting prices and selling at a loss—would it not be able to gain control of a given field and then start charging high prices and be free to stagnate with no fear of competition? The answer is: No, it could not be done. If a company assumed heavy losses in order to drive out competitors, then began to charge high prices to regain what it had lost, this would serve as an incentive for new competitors to enter the field and take advantage of the high profitability, without any losses to recoup. The new competitors would force prices down to the market level.

—Nathaniel Branden. Capitalism: The Unknown Ideal, 1966.

Antitrust laws are based on the false notion that if a company reaches a certain size or market share, it will then be in a position to exploit and pillage society. This is contradicted by the reality that every company, large or small, tries to exploit and pillage society to the maximum extent possible by:

  1. Charging as much as it can for its product;
  2. Maneuvering to obtain as much of the market as it can.

The fact that 1 & 2 are always in conflict means the best products and services are always delivered at the lowest prices. Thus, the market regulates itself by reducing the market share of those companies that fail to provide the best service at the lowest price. Even if a company supplies 90 percent of the market (like Microsoft, Google or Walmart), it can only achieve that market share by producing the best product at the lowest price. Selfish corporate scheming for market domination is therefore in the best interests of everyone.

Why is competition good?

Competition does not allow a moment’s complacency. This is a constant spur to innovation and improvement. A company like Microsoft, with over 90 percent market share of the world’s operating systems, cannot cease innovating and improving for a moment. It succeeds only by delivering more of what the market wants at a price better than anyone else. Therefore, far from harming the market, a company with a 90 percent market share is most likely providing a superlative service while clearing away uncompetitive underperformers.

When is a company too big?

The most effective size of the individual firm is as much one of the unknowns to be discovered by the market process as the prices, quantities or qualities of the goods to be produced and sold. There can be no general rule about what is the desirable size since this will depend on the ever-changing technological and economic conditions; and there will always be many changes which will give advantages to enterprises of what on past standards will appear to be an excessive size.

—Friedrich Hayek. Law, Legislation and Liberty, Vol. III, 1979.

The market alone is fit to judge when a company is too big. Big companies like Sony, HP, Microsoft, Google, P&O, Johnson & Johnson and Ikea have brought countless good to billions of people.

A company that uses its vast revenues to harass its competitors, spy on their development, or entangle them in litigation is not too big—it is simply behaving illegally. The solution is not to break such companies up, but to keep them within the bounds of the law by prosecuting them for injuring others—not for being too successful.

Antitrust laws undermine the rule of law

The concepts propounded by antitrust laws are so slippery that they do not allow for solid principles or strict rules of conduct to emerge. They are dedicated to penalizing successful businesses, yet we would starve if all successful businesses were persecuted. So the bureaucrats charged with enforcing these laws, and the courts charged with giving them meaning, instead engage in ritualistic, random persecution of successful companies. The following extract from an antitrust judgment demonstrates the malice and irrationality of laws designed to persecute business for being too diligent:

It was not inevitable that [Alcoa] should always anticipate increases in the demand for ingot and be prepared to supply them. Nothing compelled it to keep doubling and redoubling its capacity before others entered the field. It insists that it never excluded competitors; but we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every new-comer with new capacity already geared into a great organization, having the advantage of experience, trade connections and the elite of personnel. (U.S. v Aluminium Co. of America (ALCOA), 148 F.2d 416 (2d Cir. 1945).)

This legal reasoning is irrational. A businessman will quickly fail if he cannot “anticipate increases in demand,” “embrace opportunities as they arise,” or take “advantage of experience, trade connections, and the elite of personnel.” A company cannot comply with this law because there is no law; it is simply a vaguely articulated hostility toward successful businesses that must be sated with occasional sacrifices. Ayn Rand described the impossible contradiction created by antitrust laws:

Under the antitrust laws, a man becomes a criminal from the moment he goes into business … if he charges prices which some bureaucrats judge as too high, he can be prosecuted for monopoly, or, rather, for a successful ‘intent to monopolise’; if he charges prices lower than those of his competitors, he can be prosecuted for ‘unfair competition’ or ‘restraint of trade’; and if he charges the same prices as his competitors, he can be prosecuted for ‘collusion’ or ‘conspiracy.’. (Capitalism: The Unknown Ideal, 1966.)


In a free trade an effectual combination cannot be established by the unanimous consent of every single trader, and it cannot last longer than every single trader continues of the same mind.

—Adam Smith. An Inquiry into the Nature and Causes of the Wealth of Nations, 1776.

If two companies decide to merge or agree to fix their prices, it is not society’s concern. Such agreements concern the exercise of property rights and do not harm or coerce other people. They may lead to higher prices, but companies have the right to charge whatever price they want. Customers do not have a right to buy goods at a low price. Instead they have the right to shop around to get the best price at which someone is willing to sell to them.

When the only two glaziers in town agree to pay hooligans to run through the streets one night smashing all the shop windows, that agreement is immoral. The reason is because it breaches the rights of others. However, when the only two glaziers in town agree to fix their prices, they infringe no one else’s rights. A customer cannot claim to be harmed by a price-fixing agreement any more than he could claim to be harmed by a single company passing a resolution to fix its own prices.

This principle extends to agreements among workers. Thus, it is perfectly moral for engineers, screenwriters, pilots, coal miners and others to agree to withhold their labor unless employers pay them a certain price. This right does not extend to conspiracies to breach existing contracts, coercing others to join their agreement, or to government passing laws that force others to deal with these unions. Only voluntary agreements are moral.

Making competition work

When the government decides to ‘stimulate competition’, it produces the ridiculous spectacle of European Union commissars deciding what software should and should not be bundled with the Microsoft Windows operating system. Consider this 2006 news report:

The European Commission forced the world’s largest software maker to offer a product no one wanted and no one bought, Microsoft Corp told a European Union court on Monday as it began trying to overturn a landmark antitrust ruling. Microsoft lawyer Jean-Francois Bellis said in his opening statement that the Commission made ‘fundamental errors of fact and reasoning’ in its decision two years ago that the company abused its dominant market position to muscle into media software.

The Commission’s order that Microsoft offer customers a version of its Windows desktop operating system without Media Player—intended to give people a free choice of media software—has been a spectacular failure, he said. In its core market, no computer maker had shipped a PC or laptop with the media-free Windows XP N version. “Not a single one,” Bellis told the 13 judges. Some 90 percent of Windows sales come from being pre-installed on computers when they are sold. XP N sales represent 0.005 percent of overall XP sales in Europe, Microsoft told the court, and many of the ones produced may remain unsold, it said. French retailer FNAC, the single largest retailer to order XP N accounting for 46 percent of the orders, has said that it sees no consumer demand for the product, Microsoft said.

“The failure to offer a product that nobody wants cannot be an abuse,” Bellis said. Bellis also said the Commission was wrong to predict that its media player would quash rival software. Economist David Evans told the Court of First Instance that the success of Apple Corp.’s iTunes and the Macromedia Inc.’s Flash Player did not bear out EU forecasts. More than 87 percent of computer users now play media on non-Windows software, Evans said, and PC manufacturers have doubled the number of media players pre-installed on personal computers in Europe over the last two years. (“Microsoft: No One Wants EU Windows,” CBS Money Watch, February 11, 2009.)

When the government undertakes to dictate what is good and bad economic behavior, it creates a planned economy. And the extent to which an economy is planned determines the extent to which its people must endure austerity. Thus, these laws are repugnant in both principle and outcome.

Harmful monopolies can only be created by government

There is only one way to forbid entry into a given field of production: by law. Every coercive monopoly that exists or has ever existed—in the United States, in Europe, or anywhere else in the world—was created and made possible only by an act of government: by special franchises, licenses, subsidies, by legislative actions which granted special privileges (not obtainable on a free market) to a man or a group of men, and forbade all others to enter that particular field. A coercive monopoly is not the result of laissez-faire; it can result only from the abrogation of laissez-faire and from the introduction of the opposite principle.

—Nathaniel Branden. Capitalism: The Unknown Ideal, 1966.

The largest company in the world cannot maintain anything like a monopoly unless it is constantly reinventing itself. Only when the government intervenes can harmful monopolies exist. In the United States the railroads, long haulage road freight, and airline businesses were formed into cartels when competition ceased because of government intervention.

This article is an extract from the book ‘Principles of Good Government’ by Matthew Bransgrove