 This is a competition monopoly and antitrust in 45 minutes and and so what I'm going to do is compare the Austrian view of competition, the theory of competition with the sort of the mainstream view, the theory of perfect competition that was developed in the 20th century, and also talk about the implications of this these differences in outlooks of what competition is to antitrust policy or anti-monopoly policy and this is my definition, my version of the Austrian definition of the meaning of competition. Competition is a dynamic rivalrous process of entrepreneurial discovery and this is basically how anybody who studied research and wrote about competition in the economics literature thought of it from from before Adam Smith until about the 1930s and in the world, all throughout the world, competition meant, just look at the word, it's dynamic, it's ongoing, it's not a static situation, it's not an equilibrium, in other words, it's rivalrous and what does that mean? Well, it means price-cutting, advertising, product differentiation, mergers, all these things that we see businesses doing and they create new techniques of competing every single day and so and this is rivalry and it's a process, it's an ongoing process of entrepreneurial discovery. Even, for example, even in the literature on mergers there's a school of thought that there is something such an idea as the optimal size of a firm and there are all sorts of theories to tell you what this optimal size would be and they're in the textbooks but really the only the only way to know what the optimal size of a firm is, meaning the most profitable is trial and error in the marketplace. So the market reveals to us, the market process reveals to us this information such as the optimal size of a firm, the market participants discover these things but these things are all assumed to exist under the so-called perfect competition model. That's why Friedrich Hayek, the one article I recommended on the reading list, said in his famous article, the meaning of competition, which is online and if you're interested in this particular area of Austrian economics, you should read that article. I remember when I was a student and I first ran across this article, I must have read it 20 times because Hayek is not the easiest person to read for one thing and so but I knew this was a very important article so I remember reading it over and over and over again to make sure I understood what the heck he was saying about it maybe it's just because I had a low IQ but you might take five minutes and it'd be okay but he had this famous line that in perfect competition there is no competition which is absolutely true. But at the time around the late 19th early 20th century when we had the first antitrust laws, the first anti-monopoly laws in the United States, the first one in the United States was the Sherman Act named after Senator John Sherman in the year 1890. There were state antitrust laws before that but this is the first one. Sherman was the brother of the famous Civil War general, John Sherman. He was senator from Ohio but at the time a co-author and I surveyed what the economics profession of the day was saying about this, about the fact that there were mergers. There was a merger wave in the late 19th century in the United States and we had this anti-monopoly law which really was an anti-merger law at the time, the Sherman Antitrust Act and my co-author at the time was Jack Hayek. We published this article in the journal Economic Inquiry way back when in 1988 in ancient history. I was only five years old at the time when this was published but we surveyed the entire economics profession of the day of the day and that might sound like kind of crazy today but there was an article by an economist named A.W. Coates in the American Economic Review who determined that there were only 10, there were only 10 people who earned a living at the time as professional economists and it was called the American Economics Club and so and they were all like the founder of the Wharton School of Finance and a few people at the University of Chicago, University of Pennsylvania and Columbia, people of that sort where the economics profession was just getting started in the late 19th century and here are some of the things they said about this, about this merger wave that was the ostensible reason for the Sherman Act. Herbert Davenport, sort of the founder of the University of Chicago Economics Department in 1919 that only a few firms in an industry where there are economies of scale it does not require the elimination of competition so they were all saying that you know they weren't worried about these mergers because they were seeing the mergers happening and industrial concentration was increasing but they saw prices going down year after year after year new products coming on the market and they're improving the quality of the products. That was Herbert Davenport, James Lachlan of Chicago, said when a combination is large a rival combination may give the most spirited competition. E.R.A. Seligman, another old figure in the history of economic thought, he said that without large-scale production the world would revert to a more primitive state of well-being and would virtually renounce the inestimable benefits of the best utilization of capital. Simon Patton, the founder of the Wharton School, said that the combination of capital does not cause any economic disadvantage to the community at all. Combinations are much more efficient than were the small producers whom they displaced. He's talking about the benefits of economies of scale through merger and so what Jack High and I found at the time was that the economics profession such as it was was pretty much unanimously opposed in principle to the whole idea of antitrust regulation. They didn't say we don't like this law. I would have a different kind of law. They said that antitrust law was per se inherently incompatible with competition and we argue in this paper that the main reason for that was that they viewed competition then like the Austrians always have viewed competition and how they view it today as a dynamic rivalrous process of entrepreneurial discovery and they were noticing that this new thing, this merger wave in the newly industrialized America, was leading to good things, expansion of production, declining prices, new products, better quality products, more employment, and this was going on for a long, long time, 10 years, 15 years, 20 years, so they didn't see this as a problem. And by the way, I wrote down a few books. If you want to follow up in this whole area, here's a little bit of reading. One of my favorites is an old classic by Dom Armentano, Antitrust and Monopoly, The Essay by Hayek, The Meaning of Competition, Chapter 10 of Man Economy and State on Competition and Monopoly. And I'm going to talk about industrial concentration and all these studies that were done over the years of the link between industrial concentration of mergers and profitability and competitiveness. And an old, I consider this an old classic too, Yale Bros and concentration mergers and public policy. It's a really nice piece of economic history, work of economic history. I think it was published in the early 80s, but if you want to understand the history of economic thought aspect of this transformation in the theory of monopoly, that's a good book to read. And this was all eclipsed. This type of thinking was eclipsed by the perfect competition model that came into being in the, I put it in the 1930s, in the 1930s. And in Frank Knight's famous book, Risk, Uncertainty and Profit, I think he was the first or among the first to just lay it all out with what perfect competition meant. And Knight is known for other things, his theory of risk and so forth. But also in that book, it was this was sort of a new thing, this new theory of competition that the economics profession embraced in the 1930s. And all of a sudden competition no longer meant rivalrous discovery and entrepreneurship. It meant these things. These are the things that Hayek refers to when he says perfect competition, there's no competition. Many firms, homogenous, these are the standard assumptions that were in all the textbooks of what constitutes a perfectly competitive industry, homogeneous products, homogeneous prices, perfect information, free entry and exit. There are a few other ones depending on which textbook you look at, certainly today. So this is, I'm speaking sort of historically here for now about when this came into being. And so the idea of these assumptions was the theory was only supposed to primarily explain price competition. So you hold product quality constant. That way you don't have to deal with quality competition. Okay, we're going to assume that away because we're going to focus. And then they develop this competitive model that you, if you've ever taken microeconomics, you've gone through the whole business of the competitive model. And Robert Bork, who taught, he was a federal judge, he taught anti-trust law at Yale Law School for many years. Yeah, he was actually the teacher of Bill and Hillary Clinton at Yale Law School. They took his anti-trust course, but he wrote a book called The Anti-Trust Paradox, which is a pretty good critique of anti-trust. And he's not, he's never considered himself to be an Austrian, but a lot of his arguments were very Austrian like in this book, The Anti-Trust Paradox. My favorite line in the book though was that if the government ever tried to impose this competitive perfection on the country, then it would have the same effect on the economy as several strategically placed nuclear explosions. That's my favorite line in Robert Bork's book about this. So why would he say that? Why would he say that? Well, it's because it's true. Now, I imagine. So originally, this was only supposed to be a theory. The economists were aping the scientific method of physics. And they were holding all these things constant and focusing on price competition. But it almost immediately became a tool of policy. You read some of the earlier writings, they said, oh yeah, we don't really mean the government's going to force everybody to produce the same thing. But they did. They eventually went, took that route and developed this. And at the same time, economists became more finely tuned, more favorably, looked toward antitrust regulation. The late George Stigler said in one article in the American Economic Review, the reason for that was that they learned that they could make significantly more than the minimum wage as antitrust consultants. That was George Stigler. But Jack High and I took, we cited him in this article of ours, an economic inquiry. But then we said, no, we think their theory of competition had a lot more to do with it than just being paid by somebody to be sort of intellectual prostitutes for big business or whoever. Not that there's anything wrong with that. Okay. So let's take a look at this. You know what happened with the many firms assumption? You know, what does many mean? Well, this led to in the field of industrial organization, this led to what was called the structure, conduct, or in sideways, their performance paradigm, where competition no longer meant rivalry and entrepreneurship. It was based on market structure, how many firms in an industry, and they developed concentration ratios, like a four firm concentration ratio, for example, would be the percentage of sales by the four largest firms in an industry where there might have been 10, 20, or 50 firms, something like that. And supposedly, and then there were all these studies of the supposed correlation between concentration and measured with concentration ratios and profitability. And whenever they would find a positive correlation, it was just assumed that it must be cartel behavior, must be monopolistic behavior for many years in the 50s and 60s. There were many, many statistical studies done that said this. And when I learned this, and when I was in your seat, your age, it always seemed awfully fishy to me because here we have all these supposedly scientific researchers, you know, the economics profession, and they would find a correlation. And you know, the first thing you're taught in statistics is correlation does not causation. And then they would just assume the theory. The theory was price fixing cartel. And I remember learning all these oligopoly theories, you know, there's a thousands, there seem to be thousands of them out there about in theory, this is what they might be doing. But at the same time, I understood that if entry occurs, then the oligopoly theories aren't worth a damn. You know, there's entry, it's not, it's not monopolistic, there's competition there. And that busts the whole thing apart, doesn't it, if there's entry into the industry. And so I was always deeply suspicious of this whole thing. Even as a student way back when the dinosaurs were still roaming the earth, we still had a couple, one or two in my college town where I went to school, and they were called Professor, this or that, or Professor, you know, somebody or Professor Smith, something like that. So but anyway, this all changed, you know, because the understanding that mergers do, guess what, they do what the old timers, what these economists that I cited a few minutes ago said they did. They created economies of scale and lower cost and lower prices for the most part. They created a type of synergy, not in every single instance. But in most instances, they created economies of scale. So if the government comes in and breaks up these companies, because it wants to pursue many-ness in industry, you know, less concentrated industry, it'll, it risks sacrificing the economies of scale. Now here's a long, long run average cost. You know, as you move down along the long run average cost curve, if an industry is producing here at this average cost, and they're breaking up into 10 firms all this size, Q2 instead of Q1, well, you're going to sacrifice, you're going to have higher cost and then higher prices at the same time. And the Yelp-Rosen's book that I mentioned contains a summary of just dozens, maybe hundreds of these empirical studies at the time that did this. But this was all turned around in the 60s and 70s, mostly by University of Chicago researchers who did a lot of research on this whole area of the relationship between industrial concentration and profitability, Harold Demsets was a big name in this literature, and this was all very Austrian-like. They started looking at the market as being more dynamic, but they didn't call themselves Austrians, I guess, for career reasons, the Chicago schoolers. But all of this literature in Yelp-Rosen's book is really very Austrian, and if you look at the way they look at competition. In Demsets, one of the things he's known for is he found that he looked at some of the very first studies that were always cited that found a correlation between industrial concentration and profitability. And he convinced the economics profession, I think really, that the cause of that has to be looked at, one. And the cause was invariably just better performance by one or a few firms in the industry. That's why you found these statistical outcomes, that there are one or a few firms in all these industries that are just doing it better than everybody else. Lower cost, better quality. And what he found, for example, to put it simply, if you had an industry with a number of firms, you might have the low-cost firms that have an average cost like this, and then there are the marginal firms up here. There's firm one and firm two. Well, if there's a, you know, there's a market price, there's a going price in the market. Let's say the going market price is here, determined by supply and demand. What these studies were picking up was the exceptional profitability of just one, two or three firms in an industry where there might have been 10 firms. So the gap between price at average cost, in other words, the profit gap for the big firms here, was huge. Whereas this marginal firm here, you know, their profitability was much smaller. And so Demsets and his statistical studies found that this was what was causing this positive correlation between concentration and profitability. It wasn't a price-fixing conspiracy or a cartel. It was just, there were two or three or four firms in this industry that were just super competitive, which is almost always the case. It's almost not the case. And then another piece of literature is related to this, is if you're interested in this area, you should look up the article by Henry Manny on, it's called Mergers in the Market for Corporate Control. It was in the Journal of Political Economy in 1965. It's online somewhere. And the late Henry Manny was here. He gave a talk here a couple years ago. Peter Klein invited him. He was sort of a feature speaker at the Austrian, the research conference that we have in March. And what Henry was best known for, he did a lot of things. He was the founder of the Law and Economics movements in America pretty much, first at University of Miami, then at Emory, then at George Mason. But what he's most known for was this article, I think, in the academic world. And it was an article that explained, for the first time, from an economic perspective, what corporate takeovers were about. And basically, I'll explain it by telling you an anecdote about there was an old television show, PBS of all things, years ago. And they had, as guests, some corporate CEOs on one side of a table here and some other people on the other side of the table that were corporate takeover specialists, people who specialize in corporate takeovers. So it's sort of like the foxes on one side and chickens on the other side of the table. So these takeover specialists were people who would literally call up the CEO and say, your company is in play. We're buying up shares. And if we buy up enough shares, we're going to fire you and put a better management team in place because we think your firm is undervalued and poorly run. And we think if we become the owners and we put a new management team in there, we can increase the profits and we will make a killing because we will own a lot of the stock. And so anyway, the moderator was some dean from Harvard somewhere and he asks one of the big Fortune 500 CEOs, he said, what if Mr. Pickens over here, it was T. Boone Pickens was one of the guys on the show, he was a corporate raider. You know Mr. Pickens, he's waving her. Anyway, I met T. Boone once. I was at Washington University in St. Louis for one year and he came in and to donate money for a conference on takeovers to Murray Wiedenbaum, who was my colleague there at the university. And I'm standing there talking to Murray and here comes T. Boone Pickens anyway. But big bundles of cash in his hands, I guess, to finance a conference on takeovers. But anyway, he was on this show and he said, what if Mr. Pickens calls you up and says, your company is in play, we're buying up shares and you know what that means. And the CEO, he huffed and puffed and he said, well, I would call a meeting of the board of directors and we would decide which of our plants factories we had to close down because they're unprofitable and shift those resources to the more profitable and hit his big long list of things he would do so that we could go to the shareholders and say, this is what we're doing. We're going to make money for you. And of course, that begs the question of, well, why wasn't he doing that already? You know, he wasn't doing it already because he didn't have a fire under his butt that Mr. Pickens lighted. That's why, you know, it's human nature to take the easy way of life, isn't it? And so the market for corporate control is really a competitive market for management. And it helps to reduce the slack, the managerial inefficiency. There was an old Harvard economist years ago, his name was Harvey Leibnstein. He invented probably the ugliest term in economics, X inefficiency. How unimaginative is that? He had this thing. It means managerial, motivational inefficiency, laziness. I always thought it was, you know, how unimaginative is that X? You know, couldn't you think of something better? But that's what it was. So for a while there was a literature in economics about X inefficiency. And well, what the market for corporate control does is to discipline that, to eliminate that to some extent. And so that's what Henry Manny is most known for. And so the many firms assumption was really went down the tubes as something to worry about. The whole structure conduct performance paradigm was very successfully attacked in the academic world, mostly by the Chicago school economists, but also by the Austrians. Dominic Armintano's book was very influential in that regard, in my opinion. And so the government, even to this day, the U.S. government is not quite as zany as it once was with respect to regulating mergers. It does a lot of bad things. It's government after all, but it's not nearly as out of control. It was so out of control in the Carter administration that the Democratic Congress defunded the Federal Trade Commission as an act of protest because there were just, you know, there was a recession, unemployment was what, 13% or something like that. And here's the Federal Trade Commission suing companies trying to become more competitive by merging and not allowing them to do that. While the Japanese competitors were doing the exact same thing and becoming more competitive and cleaning their clocks. And so that's what they did. Okay, the second, you know, there's other assumption, homogeneous prices and homogeneous products rather, homogeneous products. This led to the monopolistic competition revolution, which is one of my favorite oxymorons monopolistic competition. It's kind of like jumbo shrimp military intelligence. You know, if you if you don't like country music country music, if you don't like hip hop music hip hop, you know, you get you get the idea, two words that are the opposite moment monopolistic competition. And so and this was developed by Edward Chamberlain and Joan Robinson, two British economists wrote pretty much the same book at the same time in the 30s. And of course, the idea was, well, you could still have many firms, but if they all differentiate their product a little bit, they're all really monopolies because they're that's what a monopoly is a single firm producing a single product. And so they they came up with the theory of monopolistic competition. And there was and that translated into a lot of government regulatory policy that became very suspicious of product differentiation. And so product differentiation, it was, you know, in the world of the Austrians, it's just a natural type of competitive advantage trying to differentiate your product, making it a little better, making making it a little more appealing. You don't know it's going to be better, but you try it out and see what works, you know, you use your best your best knowledge that you can you can gather. Okay. And so there was always a suspicion. So what what there was what was being said theoretically was, I guess I already drew this graph, I don't need to draw it again. Here's a sloppy rendition of the monopoly graph from from your principles textbook with demand and marginal revenue and a constant cost industry, marginal cost, average cost. And what the theory was, what what was being said here is that, well, you know, if you if you do differentiate your product or invent a new product, you're a monopoly, you're going to produce, you're going to produce at the monopoly price, and you're going to produce this quantity output right here with them circling. Whereas if this was competitive, here's the competitive level of output, marginal cost would be the supply curve. And here's the quantity of output. So there's going to be an output restriction and a deadweight loss, standard story, and monopoly profits created by innovation and product differentiation. Okay, this is not the monopolistic competition graph, but this is this is the same idea of what they're they're talking about. And so anyway, what what what what the Austrians would see at this, look at this, if you use this graph, sort of the mainstream neoclassical economics graph, this is an example of the what's known as the nirvana fallacy, nirvana fallacy. Because this equilibrium here, this the competitive equilibrium can only be achieved if everybody had the same idea at the same time about this new product, the new product we're talking about, they create the newly innovative product. If everybody had the idea at the same time, this would be the quantity of output, but only one company or only one entrepreneur had the idea. So this is the the level of output. So what the fallacy is, is when you compare the real world to some utopian ideal that is never achievable, and then you condemn the real world for being imperfect. Okay, it's a fallacy. Okay, you can always you can condemn it, you can condemn everything about the free market by doing that, because it's not perfectly competitive. As Robert Bork said, if we try to do that, then you might as well blow up the country with nuclear bombs, maybe the same effect. And so the real comparison here is how much output did you have before the invention, before the new product was created? Well, here's the answer right here. You had zero. They create the new product, and you get this much. Okay, now, since we're measuring quantity in this direction, to me that looks like an output expansion, not an output restriction, doesn't it? It looks like there's more consumer surplus, not less consumer surplus, there's more benefit to the customer who voluntarily buys this product. And then, of course, competition will eventually rush in, and this price will fall and be more competitive, more products will be created. And so if you take the Austrian view of competition being a dynamic rivalrous process, you wouldn't buy into this. But this became a part of government policy in the United States, in the antitrust area, there's a famous antitrust case that's known as the cereals case. This was in the late 1970s, in the early 80s, where the Federal Trade Commission sued general mills, Kellogg's, and general foods for what they said was brand proliferation. It was also brand proliferation at the same time. And they claimed that that created a shared monopoly. So it wasn't a regular monopoly, it was a shared monopoly by these three big companies, so the government said, and they hired a prestigious Harvard University economics professor whose textbook, his name is Friedrich Scherer, whose textbook was widely used in all the courses at the time, an industrial organization all over the play, all over the world, to be there. He's the one who came up with this theory of brand proliferation. So what had happened was these three companies, they just experimented with all different types of dry cereal, and some of them really caught on, and they made a lot of money, and they had 70% market share among these three companies. And so just that fact that they had a 70% market share was enough for the government to sue and drag them into court for years and make them spend many millions of dollars on legal fees on this. In the end, the companies won the lawsuit, they went all the way up to the Supreme Court, they prevailed. But with any trust, even when you win, you lose because you had to divert management talent for years away from running your business to dealing with the government and lawyer, and you had to hire lawyers and more, you had tons of lawyers instead of managers and engineers and marketing people and finance people, and you had to do that. And so in the judge in the case, I can paraphrase them, made the common sense statement as, I don't even like dry cereal. I ate bacon and eggs in the morning, and he was saying, well, even if they did raise the price, there are a heck of a lot of substitutes for dry cereal. So how could they be monopoly? And that's sort of a pedestrian way of saying what he said. So these theories, these aren't just theories that are harmless and in the textbook, they've caused some real problems. Homogeneous prices, that assumption, of course, that supposedly is an equilibrium, even though the world is never an equilibrium. And there are a lot of reasons for why firms charge different prices at different times. Intensity of demand. When I first moved to Baltimore many, many years ago, I was teaching at Loyola. I lived downtown on Federal Hill in the city, and I lived in a townhouse. And every night when I get home from work, there'd be a ton of junk mail in my mailbox. And I marveled at it because half of it would be really great food deals from somewhere in Baltimore. It'd be like the latest pizza joint that opened up. It would be large pizza, sub sandwich, and 32-ounce coke for a dollar. It's not a dollar, but it would be like six bucks or some ridiculously low price. Feed a family of 10 for $6. And they would do that for a couple of weeks. I'd get this. And so you could easily put on 20 pounds in a couple of weeks if you went to all these places over there like this. But then after a while, you'd find that they charge the same price as everybody else. And so what they were doing is if you're the new one on a new kid on the block, how do you get people in your pizza shop or your sub shop? Well, you have to offer them an enticing deal. And so that's one reason why you often see different prices at different times. You don't see homogeneous prices. And there are a lot of reasons for that. The perfect information assumption has also led to a lot of mischief. Because after all, if you had a world, if you took that seriously, there would be no such thing as advertising. You wouldn't need advertising, would you? Because in a perfect competition, there's perfect information. And so advertising was always looked at as being suspicious or a barrier to entry. Although in economics, in this whole field of industrial organization, there were many studies that were on the same time when the Chicago school was real active with the merger studies in the 70s and 80s, beginning in the 60s. There were a bunch of very interesting studies that looked at what happens to prices of products when advertising is temporarily banned for some reason. For example, there's one study that looked at a newspaper strike in New York City where you could no longer, this was before the internet, where you could no longer shop for groceries by just picking up the newspaper and seeing what hamburger costs at this versus the other grocery store and things like that. And they did an event study and found that lo and behold, during the newspaper strike, prices of all these groceries shut up and then as soon as the strike was over and you could read the advertised prices again, prices went down. One of the first studies was by an economist named Lee Benham, B-E-N-H-A-M. He found that optometrists in some states could advertise for eyeglasses and in other states it was illegal to advertise for eyeglasses. This is the old days. That's no longer true, but it was once like that. And so he had a natural experiment there where about 20 some states banned the advertising of eyeglasses. And so he looked at this theory. Well, is advertising a barrier to entry which therefore causes higher prices or not? Or is advertising a source of information that helps us shop? It helps us comparison shop? And if it does that, it's likely to lead to lower prices even though it's expensive to pay for advertising. It's cost of doing business like everything else is. And what he found was that in those states that banned advertising, all other things equally controlled for all these other variables, prices were higher as a result of the ban. Just think of how much harder it would be for you to shop for things if you couldn't go online and use Amazon, for example, and compare the prices offered on Amazon to the prices offered everywhere else and all the retail stores all have their own websites now. And so in the world today where we have advertising has gone wild now because you can you can compare us and shop on the web. But 30, 40, 50 years ago, that wasn't true. And so that assumption to the nevertheless still create a lot of mischief in attempts to regulate advertising, banning billboards. A lot of the banning of billboards and things was sort of insidious because it was sort of a bootleggers and baptists type of political coalition. And our friend Bruce Yandel coined that phrase, I think, bootleggers and baptists. During prohibition, the bootleggers were for it because they made money selling booze illegally. And the baptists were for it because they believed you would go to hell if you drank alcohol. And so bootleggers and baptists, but in examples of advertising, you had such things as the Holiday Inn Corporation teaming up with environmentalist organizations to ban roadside advertising billboards because it made the interstates ugly, the billboards. Okay, now you could either Holiday Inn's was being environmentally sensitive or they were being greedy as usual with the understanding that if you're on the interstate, you're on your 500 mile trip to visit mom and dad, and you're looking for a hotel and you see a sign that says, sleep in 1995 a night. Okay, you might give it a try, but if there are no signs and you can't, and this is before the internet, by the way, I'm talking now that you can just get on your phone and find out what's out there. Then at the Holiday Inn, you basically know what you're going to get. You're going to get a reasonably clean room with not too many roaches and stay away from the pool. There are too many kids in it and you get your stale breakfast, and it's moderately 59 bucks, something like that, but still that's more than 1999, isn't it? And so it was obviously in the interest of the Holiday Inn acting as the bootleggers to ban billboard advertising and the environmentalists, well, for their reasons, yeah, they didn't want billboards. They just wanted you to look at grass as you drive. No, I'm not advertising. Look at the grass, how nice it is. And so it's the banning or regulation of advertising that is uncompetitive, not advertising. And of course, the free entry and exit, I always saw it even as an undergraduate. I thought there's something screwy about that because I was taught in chapter one of Micro that there's no such thing as a free lunch because of scarcity. How could anything be free because of economic scarcity? And so that has always been problematic, free entry, free, there's nothing free. Now, another one of my favorite points that Murray Rothbard makes about the mainstream model of competition is his discussion of output restriction. In that graph, that's the great condemnation of monopoly, output restriction. Monopolies produce this where my thumb finger is here instead of this amount of output because they restrict output. But not really. If one industry does restrict output below what it would have been, then those resources that are no longer being used will be used in some other industry. So there's going to be an expansion of output somewhere else, but not even if there is a reduction in output in this one industry. So you cannot say on a global level that there has been an output restriction. And beside that, here's a question. This might be on the written exam. How many times a year does the average ultimate fighter fight? Who watches ultimate fighting? Any of these people watch this where these guys break each other's legs and arms and things? I've never watched this one fighter. A couple times a year. You think maybe five? Three times? Three times a year? Well, they're obviously restricting output, aren't they? Because if you ever saw that movie Fight Club with Brad Pitt, they fought every night, every single night. And so three times a year, they're restricting output. Why does Major League Baseball only play 161 games? They could play a few more, pro football. What a bunch of loafers, 16 games a year. And these guys make 25 million dollars a year in salary. And so they're obviously restricting output. And I only teach two courses a semester. I could probably teach five if I had to, but I only teach two a semester. I'm restricting output. And we're all restricting output. And so when you look at this output restriction as the definition of what you should look for in monopoly, it can become absurd. When I gave him this talk before, I mentioned a conference I was at, an antitrust conference in Washington, D.C., where a Federal Trade Commission economist was giving a talk bragging about what they were doing. And at the time, he said they were about to prosecute the Detroit automobile dealers because in the wintertime, they closed down at 5 p.m. And he said they suspected that was an output restriction and they were colluding to restrict the supply of automobile sales services by closing at 5 p.m. But I don't know about you, but how many of you would think that in the winter in Detroit, downtown Detroit, you would feel comfortable walking around looking for a car, looking to buy a car, to snow and the cold and all that? How many customers do you think they would have had to justify paying all the people, all the mechanics and everybody to be at work until nine o'clock, all the salespeople, the lights are on and everything else? And so I did ask this guy, does that mean that economic efficiency requires forced labor? Because what else would you call it if the government told these people you have to stay open until nine o'clock other than forced labor? And didn't we outlaw that with the 13th Amendment to the Constitution in 1866, forced labor? And he didn't say anything. He didn't know what to say, but it's true. It's true. Let me give some examples of what armed with these theories and worse we've seen with antitrust. Some of the more famous cases, one of the most famous early antitrust cases was the Standard Oil case where John D. Rockefeller's Standard Oil was sued in 1895 and they were in court until 1911. So 16 years, he had to hassle with the government. But what was he guilty of? He was guilty of dropping the price of refined petroleum from 30 cents a gallon in 1869 to 8 cents a gallon. And even Rockefeller's harshest critics, such as Ida Tarbell, who wrote the history of the Standard Oil Company, she called the Rockefeller organization a, quote, marvelous example of economy. And it was. So Rockefeller became the richest man in the world by dropping the price of refined petroleum for decades, certain decades, inventing new products. They created hundreds of new products from the residue from petroleum employed hundreds of thousands of people at the early 20th century. And for that, his company was broken up by the federal government. General Motors for years instructed its managers to not ever get more than a 40% market share for fear of being sued by the federal government for violating the antitrust laws. So the managers were told, don't make the cars that good, so good, and so inexpensive that we'll get a 50% market share because we don't want to be like John D. Rockefeller and spend 11 years in court with the government. Pan American Airlines was bankrupted by the government because the government refused to allow them to have domestic routes, feeder routes. Pan Am flew internationally and they wanted feeder routes. So if they had a flight from Miami to London, they wanted to have a feeder flight from Atlanta to Miami to bring customers to go to their international flight. The government prohibited them from doing that. They went out, they went out of business. The famous Alcoa case, Aluminum Company of America, they were sued in 1937 for supposedly monopolizing the aluminum ingot market. The judge who issued the decision against them was named Learned Hand. If you ever become a judge, this is a great name for a judge, Learned Hand. So if you ever become a judge, you might want to consider changing your name to that. He's long dead, so he doesn't need that name anymore. But here are some of the things he said in his decision to find Alcoa guilty, even though they had hundreds of competitors at the time. They were guilty of, quote, having superior skill, foresight, and industry. And all of this was exclusionary. They excluded their competitors from making money because of their superior skill, foresight, and industry. He also condemned them for, quote, efficiently supplying a demand. And also, quote, embracing every new opportunity that came along. So just like with Rockefeller, this judge said that they were just super competitive and just the best, better than anybody. It's serving their customers. Therefore, we need to find them. And you know, with any trust laws in the United States, the penalties are called trouble damages. So if some judge decides that Alcoa inflicted $100 million worth of damage, quote, damage on competitors, then the fine would be $300 million that they would have to pay. And as far as that goes, IBM was sued in 1968 for monopolizing the computer industry. They were in court until 1983 when the judge died and the government said, the hell with it. But in the meantime, Microsoft and Apple and all these other companies had totally eclipsed IBM and had just eaten their lunch competitively. So the whole thing was moot. And so they just gave up altogether with it. American Tobacco in 1911, they were sued. This was a company formed by James Duke, the founder of Duke University. You know, you'd probably, if I were to give this talk at Duke, I would probably have to first inform the students of where the nearest safe room was to let them know that the founder of their university was a tobacco baron. But here's what the court said when they condemned American Tobacco, quote, there has not been any increase in the price. And quote, there's been no unfair competition. Still quoting, the volume of output had enormously increased. And I'm no longer quoting, but they had thousands of competitors producing cigarettes, thousands. And the actual price of cigarettes fell. They were sued in 1895. And the price was $2.70 curtain, and it went down to 220. And that's what that's what created the lawsuit. The price had gone down that much. And that generated the lawsuit. So what you often see with the antitrust cases is sour grapes, competitors or the instigators. Whenever you see a government lawsuit, it's the competitors who are unable or unwilling to compete and lower their prices, who instigate their member of Congress to get the Federal Trade Commission or the Antitrust Division of the Justice Department to step in and sue their competitors. You know, I had MBA students who have told me who worked for real estate developers who told me, you know, whenever they build a golf course on one of their developments, it's guaranteed they're going to be sued for unfair competition because their competitors don't have a golf course on their on their housing developments. Things like that. This was in Maryland when I taught MBA students in Maryland. And so it's routinely used to reduce competition, to attack competition. Okay, that's why, you know, Dominic Armantano in his great book, so eloquently trashed antitrust regulation, he looked at the 55 most famous Federal cases and found that in every single one, every single one, no exceptions, companies were doing what mainstream economists say is competitive. There were dropping prices, expanding output, inventing new products and just competing, every single one. And they were all sued for violating the antitrust laws. And this theory, the perfect competition theory and the structured conduct performance model that came from it was used as has been used for decades as the theoretical justification for all this just as Keynesianism is used as the theoretical justification for deficit spending and fine tuning and central planning with fiscal policy and monetary policy. This is the sort of the the industrial organization version of Keynesianism, the perfect competition model. And it came about at the same time in the 1930s, the 1930s when capitalism was blamed for the Great Depression. And this is what this is how the economics profession responded by inventing Keynesianism and the perfect competition model to justify all this massive interventionism.