 It's an Austrian analysis of competition monopoly, and then it's a case study approach. It's 55 actual federal government antitrust cases analyzed by a top flight Austrian school economist, and so it's a real classic. In fact, at the last Austrian Scholars Conference in March, we had a whole session commemorating what was it the 40th anniversary, I guess of the original publication of that book, and Armand Hanno was here. And then also, I would read the chapter in man economy and state by Rothbard on monopoly, which is a really great exposition of the Austrian view of competition, and there's more. One of the big names in this whole area, competition monopoly, is Israel Kursner, and he's written several books. You can look up Kursner, K-I-R-Z-N-E-R on entrepreneurship, and that's a big part of the Austrian tradition. And so you'd think that economists would have the subject of competition down. You'd think they would understand it after all these years. You know, you know, especially economists, you would think would understand what competition is about. But not necessarily. The way the Austrians have long looked at competition, I could give you a sort of a simple definition, is competition is a dynamic, rivalrous process of entrepreneurial discovery, and that's what competition is. And each word is important here. I guess I'll write that down. Dynamic rivalrous process of entrepreneurial discovery. Dynamic means competition is ongoing, never ending. And that's an important point because the standard model, the new classical model, is a static model. It's a model of equilibrium. And so in an equilibrium, nothing is changing. And so the mainstream approach is to study these end states, END, end states of equilibrium, whereas the Austrians have long thought that the most interesting questions and the most important way to learn about what competition is really like in the business world is to study that process where you're going from one end state to another, from one equilibrium to another. And it's the entrepreneur that guides that in the business world. And that's one subject that is almost totally ignored by the economics textbooks. Look up any principles of economics book and look up the word entrepreneurs or entrepreneurship, and you'll usually find maybe half a page. If that, if it's mentioned, if that much, the one I use has maybe a page and a half. And so, and then rivalries. Now rivalry is never ending also in competition. And it's a process, competition is a process, not an equilibrium condition. And the word discovery is important too, because in the standard model that you're all taught in school, if you take microeconomics, there are these assumptions behind what's called the competitive model. Many firms, homogeneous products, homogeneous prices, perfect information. That all assumes away what the market actually discovers and informs us about how the economic world works. The least cost method of manufacturing something, for example, is something that is discovered. It's not something that is known by an economist and then it simply is a matter of a computation, you know, computing the equilibrium. This is something that is discovered in the market. The optimum size and scale of a firm is not something that any outside observer, like an economist or an engineer, could know. It's something that has to be discovered through the competitive process. And so, and this is very different from the old, the more modern view, more modern meaning post 1930s. As of the 1930s, this view, which had prevailed for centuries, basically from Adam Smith, at least Adam Smith's time on, was eclipsed by the so-called perfect competition model beginning around the 1920s and 30s. And I'll explain why. Now, one of the reasons why this is important is it's connected to antitrust or anti-monopoly policy is that at the time the antitrust laws were passed, the first federal antitrust law in the U.S. was in the year 1890, the Sherman Antitrust Act. There were some states in the United States that had passed state antitrust laws before that. Now, the trust was just a way of organizing a business. So it's kind of confusing trust, antitrust. Just think of it as anti-monopoly laws rather than antitrust, if you're not familiar with what a trust is in particular. But at the time, almost anybody who was a professional economist at time was opposed in principle to the whole idea of a law that would regulate competition or regulate monopoly. And the reasons they gave was that they all understood competition at the time as being a dynamic, rivalrous process of entrepreneurial discovery. They all thought of competition like Adam Smith did and like the Austrian school did. And I wrote an article that was published quite a few years ago with Jack High. It was called Antitrust and Competition, a comma historically considered. You could read my awful handwriting. And it was in a journal called Economic Inquiry way back in July 1988 when I was 10 years old, 1988, if anybody wants to look it up. And what Jack High and I did in this article was that we did, we read everything that you could read about what economists in the 1880s and 1890s were saying about two subjects, competition and antitrust. And it was possible to read every single one of them because there weren't that many professional economists back then. There's an old article in the American Economic Review by a man named Coates, AW Coates, spelled just like Coates, like I have two Coates. This is one of them. And it was called the American Economics Club. It was about how there was a kind of a club of a couple dozen people that were professional economists at this time. So we were able to read the entire population of opinion and professional economists in the United States and in Germany actually also. And what we found was it was almost unanimous. There was only one person who was in favor of an antitrust law and all of them were against it. And I'll give you some of the reasons. I'll quote a couple of them. There were two founders of the American Economic Association. Richard T. Ealy is one of them. And at the time they were discussing, well, what is the effect of large scale manufacturing? Is it creating monopoly? That was the ostensible reason for the anti-monopoly law. Large scale production supposedly meant monopoly. And here's what he said. And Ealy was quite a statist. The founding document for the American Economic Association condemned laissez-faire as unsound in practice and unsafe in morals. That was the actual founding document of the American Economic Association. And people used to question why Ludwig von Misi has always refused to join. He's a crank. He's an outsider. That was a pretty good reason. Well, here's what Ealy himself said, who wrote that. He said, you wrote that large scale production is a thing which by no means necessarily signifies monopolized production. And he was against the anti-trust law. He was against the Sherman Act. His co-founder of the American Economic Association was John Bates Clark. His name is up here somewhere on one of the walls. And he wrote that the notion that industrial combinations would destroy competition should not be too hastily accepted. And then he came out and said he's opposed to the anti-trust laws. And on and on, one of the early founders of the Chicago School of Economics was Herbert Davenport. And he said this, that only a few firms in an industry where there are economies of scale does not require the elimination of competition. And so what these economists were saying is they were studying the real world. They weren't sitting around, they were not mathematical whizzes who sat in swivel chairs and worked out impressive looking mathematical models of unreality, which is what you do when you get a PhD in economics these days. They were actually observing the real economic world in their studies. And what did they see? Well, they saw a big merger wave that had been occurring. They saw fewer and fewer firms in a lot of industries and maybe three, four, five companies dominating some industries where there used to be maybe 20 or 30 that seemed to be, you know, with nobody dominating. But at the same time, they saw for 10 or 20 years declining costs, declining prices, better quality products and innovation, the creation of dozens of new products. And so that's why they came to these conclusions. They saw, on the one hand, industrial concentration increasing, more mergers. And on the other hand, everything's getting cheaper. The whole post-Civil War era in the United States was a period of price deflation. And so just that fact, I'll give you a pause of the suggestion that there was rampant monopolization in this period. And therefore we needed an antitrust law. There wasn't rampant monopolization. And I proved that in another old article of mine even older than this when I was six years old. It was in the International Review of Law and Economics in, I think, 84. I think it was published. It was called The Origins of Antitrust, An Interest Group Perspective. And being a skeptic about this whole story, you know, if you look up the standard story in the economics books about the origins of antitrust, why we needed an anti-monopoly law, it'll say something like, in the late 19th century, there was rampant cartilization. That's what Richard Posner said in his book on antitrust. And he's now a judge. He's been a judge for a long time. So there was supposedly rampant monopolization or rampant cartilization. But, you know, I had been an economics major in college and I got my PhD and I was a professor. And it struck me that I had never seen any data to confirm that. I'd read this a hundred times, but I'd never seen any evidence that there was rampant monopolization. And so I dug up what evidence there was. And I got the sort of time series data on prices in those industries that Congress was accusing of monopolizing in the late 19th century. And I found that even though this was a period of price deflation, that those industries that were accused of being monopolies for 10 years prior to the Sherman Act, 1880, 1890, some of them were dropping their prices as much as 10 times faster than the price level was dropping. I think the price level dropped by about 7% during that period, the CPI. And so these were the most vigorously price cutting industries for 10 years before and 10 years after the Sherman Act. They continued doing this. They were the most innovative. And then I looked up the data on these industries on what were they doing to production because the mainstream says, well, monopolies, what do they do? They restrict production. They restrict output. That's how they get away with raising prices above competitive levels. And so this was a period in American economic history that was known as the Second Industrial Revolution. The first was sort of the pre-Civil War era and then after the Civil War it was the historians call it the Second Industrial Revolution. And there was tremendous change going on. Manufacturing was being invented basically in the railroad industry, the steel industry, and elsewhere. And so GDP was expanding pretty well about 4% or 4.5% a year for during this period. And so I looked up these industries that were accused of being monopolies and what were they doing? Well, they were expanding production faster than GDP in general was again for 20 years, this whole 20 year period. And so the facts tell us that these industries that were targeted as being monopolies and therefore they should be broken up by the government and regulated and controlled. They were the most vigorously innovating price cutting and production expanding companies in America at the time. And the people who didn't like that were not the consumers. The consumers were not saying, what do you mean you're going to cut the price of corn? I demand that you raise the price of corn again. There's never any complaint. Whenever you see complaints about monopoly that come from anybody but a customer, hold on to your wallet. Because inevitably it's the sour grapes competitors who are either incapable or unwilling to cut their prices. And that's usually how it works. That's who the instigators are for these things. When I looked up in another article that's published in the review about Austrian economics, it's called antitrust before Sherman. Co-authored with Don Boudreau back, I think I was four years old back then. It was even earlier than this one a long time ago. We looked into these state antitrust laws. The instigators were local merchants who all of a sudden, I'll give you one example, the meat packing industry was invented in Chicago. They figured out how to ship all the cows to Chicago, cut them up, chop them up, dress them and put them in refrigerated train cars and ship them all over the place. And it was very, very economical, very cheap to sell meat that way because of economies of scale. So all of a sudden, all these local merchants who were selling meat for five dollars a pound have one dollar a pound meat coming in by freight train. And they're the ones who went to Senator George Vest of Missouri and said, Senator Vest, you need to do something about this. And so they passed, they had a senatorial commission in Washington headed by Senator Vest of Missouri. And they came to the conclusion that something must be done about the low and declining price of meat, among other things. And so there you have it, the real origins of antitrust laws was the desire to do something about declining prices. So they always were, from the very beginning, a protectionist racket. That's why no one, if you understand this, you would not be surprised at all. If you read Dominic Armantano's book, Antitrust and Monopoly, you will find that he picked, during his time, the 55 most famous federal antitrust cases. He found that in every single one of them, beginning in the early 20th century and every single one of them, the companies accused of violating the antitrust laws were either cutting their prices, expanding their product, inventing new products, or some combination of the three. And for that they were prosecuted. One of the most famous dumb statements by a federal judge was the judge in the famous Alcoa antitrust case in the 1950s. The judge had the perfect name for a judge, his name was Learned Hand. If you're going to be a judge, Learned Hand is a good name. If you ever become a judge, you might consider changing your name to something, maybe Hand Learned or something like that, maybe since that's already taken. But he condemned Alcoa for having the cream of the crop of management, for taking advantage of every opportunity to cut their cost and to innovate. And because he kept others out of the market, the judge Hand said, well, they kept others out of the market by being so innovative and so cost cutting. And, well, yeah, that's the whole idea behind competition, isn't it? So that you can sell at a lower price compared to the other guy. And so there were many, many cases like that. And I recommend that you read Armand Tano's book. I think the larger copy is for sale downstairs. But the shorter version of it is online, also, Mises.org. Now, the theoretical apparatus that was used for beginning really around the 1930s to justify what I consider to be a lot of antitrust witch hunts was the perfect competition model of competition. And like I said, the economists up until around the 1920s thought of competition like the Austrians did. Rivalry, price cutting, product differentiation, mergers were consistent with competition because they were an attempt to cut costs and cut prices, especially if you consider that there's always been some degree of international competition. So if two American firms compete in the steel industry, well, they've still got the Russians and the British and the Germans and the Japanese to compete against. It's not as though they could conceivably raise the price of steel to the sky and get away with it. They would lose out to international competition if not some other domestic competitors by doing that. So that the real purpose of mergers, more often than not, is to attempt to cut prices through economies of scale, not to capture the market or anything that foolish. And so the perfect competition model, which has been around, took over around the 1930s. I mentioned the 1930s because there's a famous book by Frank Knight, Risk, Uncertainty and Profit, that is considered to be the first place where this new theory of competition was just laid out by Frank Knight. This is the new theory of competition back in the 1930s. And the assumptions, there's some version of this in all the textbooks, many firms, homogeneous products, homogeneous prices. There are other assumptions and then perfect information. There are other assumptions that have been added, but those are the main ones, the original assumptions. The idea was that the kindest way to look at the perfect competition model is that they wanted to study price competition only. They didn't want to study any other kind of competition. And so in keeping with the scientific method, we just sort of assume away all these other complications such as heterogeneity in products and prices and so forth and perfect information. Now this model, the perfect competition model, this was the benchmark for, you know, we derived this equilibrium from this. And those of you who have taken microeconomics where price is equal to marginal cost everywhere at the minimum of average cost, they all come from these assumptions. And so the assumptions guarantee that result. But what Friedrich Hayek says about this in his famous article on the meaning of competition is that what this meant was that in perfect competition, there is no competition. And so what the ordinary person on the street thinks of as competition is, well, product differentiation, not homogeneity. Businesses are constantly experimenting with different types of products to see what catches on. Businesses often have sales or buy one, get the second one half off and all sorts of pricing gimmicks or changes to try to entice you to try their product. New businesses that enter markets very often will intentionally take a loss for a short period of time because they need to get people in the door to understand that they exist, that their business is out there. When I used to live in downtown Baltimore many years ago, I lived in a townhouse that had one of these mail slots in the front door. And every night when I'd get home from work, there would be a huge pile of junk mail there because I noticed that some of the local merchants, the pizza joints and the restaurants and the laundromats, dry cleaners, they would hire people. They would get these guys in a van, a van would pull up, the door would slide open, and out would jump all these guys with big sacks. And the first time I thought, I said, well, where's the bank? They're robbing a bank or something. No, they had advertising brochures. They were going door to door sticking all this stuff in there. And there would be something like large pizza, 32 ounce Coke in a sub sandwich for $5.99 or something like that. And they would do that for a couple of weeks because it was a brand new pizza joint in downtown Baltimore. And if they didn't get you in there, how would you ever know what it tastes like? How could they compete with all the other pizza places in Little Lily and elsewhere in Baltimore? And so that's routine for businesses that charge different prices for all sorts of reasons, but that's assumed the way also. Perfect information. When you study the perfect competition model in microeconomics class, well, it's all a matter of we assume that a business firm will minimize costs in a certain way by pricing, wages are equal to marginal product and the prices are equal to marginal products of all the inputs and so forth. But that's all assumed to be known. We know this. It's just a matter of computing the optimum there. It's also assumed that the consumers know what they want. And if the consumers all know what they want, of course, there's no role for advertising. Why advertise if consumers already know what they want? And so that's what Hayek meant when he said the perfect competition model assumes away all competition. And so let's take a slightly closer look at this, the many firms assumption. This has probably been the most mischievous of all the assumptions, the many firms assumption, because this was never thought of by Adam Smith or anybody else that followed him, the Austrians, the early Austrians or today's Austrians thought that the benchmark should be many firms. And what came out of this was a paradigm in a study of the field of industrial organization that is known as the Structure Conduct Performance Model. Structure Conduct Performance Model. And this is what guided the economics profession roughly from the 1930s until it began to be attacked in the 1970s, mostly by the Chicago school and the Austrian school scholars. But the Structure Conduct Performance Model said that market structure is all important. That is how many firms in an industry. And in particular, they came up with all these so-called concentration ratios, such as a four firm concentration ratio. That would be the percentage of sales in an industry of the four largest firms by sales. And if that number happened to be say 70%, something like that, then the government, the Federal Trade Commission or the Justice Department would probably investigate and then prosecute. Because they assumed that if you had a high market share among only four firms that there must be collusion among those four firms. So without any proof or evidence, it was more or less an assumption that that would have to be the cause of why it is those four firms are so profitable and have so much of the market share. But if you think about it, who can think of an alternative reason why a couple of firms, three or four firms within an industry might have a big market share compared to everybody else? Anybody want to offer an example of another reason? What's that? Well, yeah, they might have economies of scale that other firms don't. What else? They just might be more innovative and serve the customers better. They might have better products. Well, that's always true at any one point in time. At any one point in time, somebody is at the top. You know, I'm a Baltimore Ravens fan and so right at this point in time, my team is the Super Bowl champions. And so, but they probably won't be next year. They weren't two years ago in the same in business at any one time, somebody is at the top and it might be some three or four or five, but somebody's that's at the top. But if you look at competition as dynamic, you see a very different story. You don't see that you don't see the same companies at the top all the time. You know, IBM was sued by the federal government for violating the antitrust laws based on the bigness assumption in 1968 and they dragged it out until 1983. And so they started harassing them in 1968 until 1983. Finally, the judge in the case died and the government just said, oh, the heck with it. But in the meantime, but in the meantime, they had been eclipsed by tiny little companies like Microsoft. And I didn't bring my laptop with me here, but I've looked up some time. You know, you probably all have your iPods and all that stuff with you. You know, Google picture of Microsoft founders and it looks like the cast of Revenge of the Nerds 2, the movie. So you see these geeky nerdy little kids, Bill Gates with hair down his shoulders. And I do this in my classes. I show them this picture and I say, these are the people who toppled the largest corporation in America and the IBM, which is true. Because IBM famously thought at the beginning that nobody would be interested in a personal computer. It was the main frame, the big main frame computers the size of this room, that's what they were selling. And so they were, and so they lagged behind by just a couple of years and they were losing at 1.400 million dollars a day IBM. And it was because of these geeks in the picture. I'm sure somebody has probably has the picture up on their computer by now. You can show it around. But that's an example of what is meant by competition being dynamic and rivalrous process. And so there are many, many which has been made on a basis of these just a mere concentration ratio alone and nothing else. And but so there are many reasons for why just a few firms will be superior economies of scale, superior products, superior innovation. When Microsoft itself was finally sued by the federal government, what was it 10 or 12 years ago? The antitrust case the government came up with was the government never made a claim that Microsoft harmed any consumer. Even though the antitrust laws are supposedly consumer protection laws, the government in the antitrust case never argued that any consumer was harmed. They hired an MIT economist named Franklin Fisher to write up a hundred page paper that it was all dense mathematics that I'm sure no lawyer could ever understand or no judge could ever understand. But since it was Franklin Fisher from MIT, I guess it's supposed to have weight, but the gist of his theory of why Microsoft should have been prosecuted and possibly broken up. What they wanted was to force Microsoft to share the source code for Windows with everybody. That would be like forcing Coca-Cola to share the recipe for Coca-Cola, something like that. That's what they wanted to do. But Franklin Fisher's theory was this, Microsoft spends so many billions of dollars a year on research and development. And is so successful at research and development on new software that it will take market share away from its competitors inevitably so that in the future, the overall level of research and development in the whole industry might be lower. It might be lower because Microsoft is so darn good at it, therefore they need to be punished. That was the government's case against Microsoft. And eventually not much happened with that because the judge didn't die, but he got fired. His name was Thomas Penfield Jackson and he gave an interview to, I think it was Harper's Magazine, one of the big magazines at the time before the case was over, while the case was ongoing. And he compared Bill Gates to Al Capone. That would be like the judge in the O.J. Simpson trial going on television and saying, yeah, that guy's a murderer before the verdict came in. And so he was fired and to save face, the government made them pay a small fine. But again, I brought up this sort of anecdote to illustrate the example of the dynamic process of competition and how the mere number of firms in market share doesn't necessarily mean anything in terms of monopoly competition. Homogeneous products, that assumption became popular when in the 1930s there were two famous books written on monopolistic competition. One was written by Edward Chamberlain and the other one by Joan Robinson. And they were essentially the same books on monopolistic competition. And I always thought of that as sort of very similar to jumbo shrimp or military intelligence. You know, if you don't like country music, you would say country music or whatever kind of music you don't like with that music. You know, an oxymoron, in other words, monopolistic competition. So the markets hadn't changed. There hadn't been, there was not rampant monopolization in the 1920s any more than there was rampant monopolization in the 1880s, in the period that I studied in my older publications. But what changed was the theory of competition. And so all of a sudden the economists started saying, well, there's monopoly everywhere, even though the markets didn't, there was no abrupt change in the markets. They were the same as they had been. The market process hadn't changed in any fundamental ways. But the theory of monopolistic competition basically says, well, yes, you can have many firms. You can look at any industry and have many competitors out there. But because of product differentiation, if they all differentiate their product either physically or through advertising and through advertising, they could differentiate their product in the mind of the consumer, if not realistically and physically in the mind of the consumer. Therefore, everybody is a monopolist in everything, because no two things are different, absolutely identical. Even two pairs of black tires for your Model T automobile, if one company is better at advertising than the other, in the minds of consumers, they're different. And so Chamberlain and Robinson came up with the model of monopolistic competition that is in the textbooks. And they claim that because there's an element of monopoly, there's a downward sloping demand curve all of a sudden. And so with a downward sloping demand curve, it's impossible for an equilibrium, they said, to be at the minimum point of average cost. Here's average cost. And so that is supposedly a great inefficiency that requires government regulation in the form of forcing product homogeneity. So the problem was to regulate advertising and to regulate product homogeneity, to try to force product homogeneity on us. And so if you've taken microeconomics, you've seen some version of this graph. And of course the equilibrium under competition, there's a horizontal demand curve under competition. So it's possible for the equilibrium to be at the minimum point of average cost. And so here's the waste. The waste is, here's average cost under competition, here's average cost under monopolistic competition. And so that is said to be a great social waste under the monopolistic competition model because of that. And this was an example of what not just the Austrians but a lot of market oriented mainstream economists called the Nirvana fallacy. I'll write that down, the Nirvana fallacy. And the basic approach of studying markets ever since the advent of the perfect competition model is to create a model or a theory of Nirvana or Utopia. You know, a perfect world where there are many firms, homogeneous products, homogeneous prices and perfect information. And then you look at the real world, and I used to call it AHA, AHA Enomics, AHA. You look at the real world and you say, AHA, the real world is not the same as Nirvana. We don't have heaven on earth. However, the corollary though is with enlightened government regulators, we can achieve heaven on earth. All we need to do is to get them to force onto us homogeneous products, homogeneous prices. Everyone prices exactly equal to marginal cost, many firms break up all the big companies and on and on. And even, you know, Robert Bork, who was, he wrote one in the 70s and 80s, there were a lot of Chicago school economists who wrote a lot about critically about antitrust regulation. Robert Bork was one of the most prominent. And he was a Yale law school professor at the time when he was doing this. And he wrote a book called The Antitrust Paradox. And I mentioned him because there was a memorable line in there where he critiques the perfect competition model, he wasn't an Austrian, he was a Chicago school economist. But he said, I can paraphrase him, he said, if the government tried to force perfect competition on us, it would have roughly the same effect on GDP as several strategically placed nuclear explosions. So he thought it'd be horribly destructive to try to actually force this. But that's, I think it was probably Harold Dempzitz, the UCLA economist who coined the phrase Nirvana fallacy. And his article where he mentions this, it's called Information and Efficiency, another viewpoint. It was in Journal of Law and Economics, I think way back in 1969. Everything's online, everything in the world is online today. So if those of you are interested in this, you can find it right there. He was in a debate at the time with Kenneth Aro over the nature of competition. And he coined the phrase Nirvana fallacy. And the Austrians have written about this quite a lot. And another problem with this model that says basically the product differentiation causes monopoly problems. Well, what you do, they're saying is that here's the monopoly diagram from the textbooks. Here's demand, marginal revenue, marginal cost, constant cost industry, it's equal to average cost. And the basic model says, well, if there was competition, here's the quantity that would be produced under competition and price. But you have monopoly. So here's the lower quantity under monopoly. And here's the higher price, they'll charge all the market will bear. And so what the monopolistic competition people were saying is because of product differentiation, there's a restriction of output from Q-comp to Q-mon, Q-monopoly here. And so there's a deadweight loss and all the other problems associated with monopoly. And so this is a good example of the Nirvana fallacy though. So let's say I invent the new products and no one else has invented it yet. And it catches on, people like it. I am a monopolist for a short time. This is what happens in the software industry every single day. Someone comes up with a new twist on the latest iPhone. It's a brand new product. Your monopolist for a short while until the competition overwhelms you and forces you to drop your prices. And so, but what they're saying is that there's a social loss attached to innovation because innovation creates monopoly profits. But the Nirvana fallacy is they're making the wrong comparison. They're comparing the ideal world of Utopia where maybe a thousand people had the same idea at the same moment for the new product. So yes, we have perfect competition. We have a thousand competitors. They're comparing that with the actual real world idea with for now only one person had the idea for the new product and innovate it. But the real comparison is the level of output by the innovator Q-monopoly to zero. That's the real comparison. So you're you're expanding output. You're not productive when you invent something you're you're putting more stuff on the market. You're not restricting output in any way. And besides that on the whole the whole topic of output restriction being a bad thing. Who's who's a fan of ultimate fighting? Who watches the ultimate fighting guys? Somebody how often did these guys fight per year? Would you say three times you think? Well that's obviously an output restriction isn't it because in that movie Fight Club Brad Pitt fought every night just every night. Brad Pitt was not restricting output. Shouldn't the government shouldn't the government force these guys to fight at least 300 nights a year? Where's the Federal Trade Commission when we need it? And so you know and and I'm sure all of you who have jobs work at least what 200 hours a week. You know if not you're restricting output. And so when you think about it the government the alternative to what the government says is a restriction of output is forced labor. What's the government to do to force these people to work more hours? If they're if they're not fighting only fighting three times a year. Why does Major League Baseball only have 166 games? Why don't they have a thousand and 66 games? They're restricting output aren't they? They could they should play a double header seven days a week. You know for the money they these guys make you know why shouldn't we make them play a double header? I did when I was in Little League I had fun too. And I wasn't a professional athlete but I could handle it. I had the stamina to play play baseball all day long. I did not even get paid for it. And so I don't know why these guys can't. And so so yeah when you think about it it's absurd to think that to think that there's someone out there an economist who knows what the optimal level of output is. And who and who looks at the real world and says oh you're not you're not fighting enough nights of the year Mr. Ultimate Fighter. Although most economists are nerves they would never have the nerve to say something like that to one of these guys. And so and so and this is one of the points that Rothbard makes in his chapter on monopoly by the way in man economy and state. When he takes on this idea of output restriction it is kind of absurd. And one anecdote I'll give to you a real world anecdote of how shows how the government regulators really do take this seriously is I was at an antitrust conference some years ago. And there was a person from the Federal Trade Commission bragging that they were they were about to regulate automobile dealerships in Detroit. This is when there still was a city in Detroit. So this is many years ago. There's there's there's nothing in Detroit anymore. Is there is Detroit isn't there anymore. It's just disappeared. But but he was saying you know in downtown Detroit in the winter and and and I believe it's kind of cold in the winter in Detroit. He said the dealerships were all closing down at five or six o'clock at night. And they were convinced that they should stay open till nine o'clock at night because they were all colluding to restrict the output of automobile sales services. And that was because he was bragging about what we're up to. Here's our latest things. This is what we're up. This was a Washington D.C. audience. And everybody was just you know they had tingles going up their legs listening to what the latest harassment of capitalism was coming from the Federal Trade Commission. And and I did ask I did call I do call standing up and asking this guy does this mean that if economic efficiency requires forced labor. Because what else would you call it if you tell these people who are in their showrooms and for the past three months not one person has showed up because it's cold and dark and scary in downtown Detroit at night in the winter. You're going to make them stay there till nine o'clock. Why that's not forced labor and isn't that uncommon. Then the 13th Amendment abolished forced labor. What is this. And so and that's a good point and it is forced labor. Now another those of us who study these things there's a famous antitrust case in history that took this seriously and the economists call it the cereals case as in breakfast cereal. When the Federal Trade Commission in the late 70s sued Kellogg's General Mills and General Foods for what they called was a shared monopoly. It wasn't a wasn't a real monopoly. It was a shared monopoly. So they invented just like Franklin Fisher invented this bogus reason to sue Microsoft shared monopoly. There was a another economist that the Federal Trade Commission hired this one from Harvard. It's always either Harvard or MIT where they find these characters to dream up bad ideas. You know one of the other or or a Harvard guy who you who went to school at MIT usually usually that's the case. And this was Friedrich Scherer and he was he was a real big shot in the field of industrial organization back in those days. And he invented this theory of shared monopoly. So apparently you know in the 50s and 60s the cereal companies pretty much made corn flakes and maybe wheaties and a few other things. But then they started experimenting. They started they started expanding and experimenting experimenting with all sorts of brands. People became more health conscious. They started making all kinds of brand cereal and granola and all these things and a few of these brands really caught on big time. And so they captured 70 percent of the dry cereal market these companies at that one point in time. So therefore the government sued them for violating the Sherman Antitrust Act just on the basis that they had achieved a 70 percent market share among those three companies. The companies eventually won the lawsuit. But but in antitrust you never win when even when you win you don't win because you had to spend many millions of dollars. You had to divert management talent for years to complying with governmental edicts and requests instead of managing your business and making money. And so and of course that's usually the purpose of why the competitors get their congressmen to get the Federal Trade Commission to start a lawsuit against your competitor to tie them up in knots and get them away from beating your pants off in business and divert their attention. And so but the judge in the case they're not going to paraphrase me famously said something to the effect that I don't even like dry cereal. I eat bacon and eggs in the morning. And of course he was he was recognizing that there are a lot of substitutes to dry cereal out there. So so even if there was some sort of James Bond conspiracy to raise the price of cereal people could easily eat bagels or oatmeal or muffins or something else. And that fact alone the ease of substitutability would have forced the cereal companies to drop their prices. They couldn't have gotten away with it. The demand was too elastic in other words to do that. And so so legally they won the case. But but that's that's what happened. I brought a little another little handout here to show you there was an interesting I don't like to top the Fed very often. But there was a the annual report of the Federal Reserve Bank of Dallas. You can't see that very well. It's kind of fuzzy isn't it. They did it. They did an annual report the 1998 annual report of Dallas Fed was on something called mass customization. And what this was about was the integration of manufacturing and computers where in the old days to make money in manufacturing. You produce the standardized homogeneous product and you produced a lot of it to achieve economy to scale so you could sell it very cheaply. But with the integration of computers and manufacturing you could you have Taylor made everything. If you want to buy a new car tomorrow you go online and you pick exactly all the trinkets you want on your car. You can finance it online and a week later the nearest dealer will have your new car for you. But in the old days you had to wait. You had had pretty much the standard model. Everybody had the same thing because they're mass produced. And this this so this article about mass customization gave lots of examples of the proliferation of products. And by the way that lawsuit the serial lawsuit Friedrich Scherer invented another phrase he called it. He said these companies were guilty of brand proliferation. That's how they can't that's how they monopolize the serial market. Not brand proliferation but that they did that too. But they are Andy brand proliferation. And so this is brand proliferation. This is how the mass customization has vastly increased the variety of choices people have. And this was just as of 1998. You know laundry soaps 12 versus 48 health drinks for versus 70 just from 1980 to 1998. Beer and ale 25 brands in the battle days versus 100 187. There's probably you know what 10,000 or more now as far as that goes. Pain relief 29 versus 70 79. You know everything nail products 39 versus 1063 and on and on and on. And so the Austrian perspective on this is that the reason why companies would experiment with such a wide product differentiation. Is it's the never ending struggle to please consumers. That's what they're trying to do here and that's what's efficient. It's efficient when you have a competitive system where businesses are constantly striving. They're spending money on R&D. They're innovating and trying to find products that benefit their customers. And then they don't all work out of course because no one is omniscient. But that's that's what this is a manifestation of is competition not monopoly. But in under the perfect competition model this is all suspect. Even the mainstream economists have mostly come around on this if you read the textbooks. They'll give you the standard story but they're a lot of them now have a little section. They'll say well on the other hand brand proliferation is not such a bad thing. Although at my university last year some law professors brought in some guest speaker who made up gave a speech on the horrors. Of large menus at restaurants. It's a horror of the waste of the waste of it all. And why we need to regulate the size of menus in restaurants because we spend. This person added up the number of hours people supposedly spend staring at a menu and just trying to decide what the what the order for dinner. And that's a social waste. They should be they should be maybe cracking rocks and paying taxes on their labor. So we can build build build more monuments to Chief Justices of the Supreme Court or something. And so now the perfect information assumption that that's always been a part of the standard model the perfect information assumption. And of course that this is at the heart of why there have been so many models economic models that critical of advertising over the years. And because after all if the ideal world is a world where there's perfect information who needs advertising consumer already knows what you have to sell. And so automatically it's suspicious. And there are there are hundreds of mathematical economic models of of advertising that pretty much say this this type of story all sorts of cartel and oligopoly models. They're holding advertising and suspicion because of this. And of course this this became an essential part of the structure conduct performance paradigm that I mentioned earlier. And the standard story that is still in the books is that advertising is an additional expense that creates a barrier to entry. Because not even if you do have a good product that can compete that people like and you can compete with the existing ones. Well since you're the newcomer you might not have a million dollars to hire an advertising firm to nationally advertise your product. Therefore the requirement to advertise is said to be a barrier to entry. And that leads to monopoly and all the welfare losses of monopoly and the social cost of monopoly and all these bad things that happen out there. Well the alternative view of advertising is that advertising is an essential tool of competition. How awesome even the silly ads. I think there was an ad that one of the beer ads had some years ago had the Swedish bikini team advertising the beer. And so all the guys during the football games would watch the ad. But even you know even silly ads like that they at least tell you the product is there. You know you may not be aware at all that there was a new product out there. And of course that ad may not have been successful. I don't know if I'm going to flop. A lot of the advertisements are unsuccessful because no one is omniscient. But the point is in a competitive process the companies that do produce smart ads that are persuasive and are successful well then they succeed. Those are the companies that succeed by selling their products. And you know you I think it was Israel Kersner who said that you know you could have the best gas station and the lowest gas prices in town. But if you're located behind a big row of pine trees you're not going to do very well in business. You have to let people know you're there. And that's that's what advertising does. And there have been a whole bunch of studies by the way of the effects of advertising on prices. And but you can think about it in a simple way. Here's an old anecdote that I think brings the point home is that some many years ago holiday ends hotel chain teamed up with some of the environmentalist groups to argue or lobby for bands on roadside advertising. You know the Sierra Club and the Friends of the Worms and all these environmental groups they were saying it's ugly. You know you're driving down this beautiful highway down the Shenandoah Valley where you live. And then there's this big ugly sign that says Motel six nineteen dollars. We don't need that holiday and says it's ugly. And so they gave money. You know they gave a lot of money to the environmentalist groups who lobby senators and congressmen and state legislators to beautify our highways. And so you could you could believe them. You could take their word for it that holiday and just became they all became environmentalists all of a sudden. But an economist would probably think well let me see. Holiday and has a brand name. You know what you're going to get the holiday and you know you're going to pay a moderate price that's not an expensive hotel chain. You'll get a room with not too many roaches. A swing pool filled with little kids who you're crazy if you would jump into it for obvious reasons. Some stale doughnuts at breakfast but it's fifty nine dollars. OK so you know what you're going to get. But the newcomers like Motel six is not such a newcomer anymore. The newcomers or even the old the old businesses have been around for a while like Motel six. If you didn't know there was a Motel six five miles down the road and where you could get a clean bed and a shower for twenty dollars. You're not going to get off that exit. You're going to see oh there's a holiday inside. You're going to go there. So obviously it was it was the ban on bans on advertising restrictions on advertising that create monopoly power that create monopoly power and higher prices because you have you have incidents like this of where companies are always wanting to restrict the advertising of their competitors but to allow their own. And so so it's really just the opposite. The reason why you can make this argument that advertising is an expensive creates a buried entry is the Nirvana fallacy. Misunderstanding that that competition is a dynamic process and it takes money to be in business and compete. But the bottom line is what happens to the consumer. What does this process do to consumer. The prices go up or down. And yeah you spend money on advertising. It is costly but it's bans on advertising that cause prices to go up. That's that's what causes it. OK. One other I have about five minutes left. I guess the final thing I'll mention here is that you know historically when the whole world the word monopoly that came down through the British common law and it always meant a government grant of monopoly because in the mercantilist era monopoly meant a government grant of monopoly. If you were a soap manufacturer in London and you were a friend of the king then the king would give you a soap monopoly and you would share the loot with the king. That's what you would do. It was called tax farming in some circles where and so that was an indirect way of taxing the public indirectly by sort of contracting out with monopolies that the so-called public utilities in America and elsewhere were mostly like this. Another article of mine you might be interested in is called the myth of natural monopoly. It was written in the the quarterly the Quarter Journal of Austrian economics some years ago and where I looked into the origins of public utility monopolies and the standard story again that you're taught in the text books is that because of economy of scale in electricity natural gas water supply cable television bills like this. One big firm was achieving economies of scale first low cost and therefore was underpricing everybody and therefore was a monopoly but government came in. You know writing in on its white horse and save the day by doing what by creating monopolies they created monopolies by law and then they regulated them in the public interest in the public interest. Well anyway what I found in this article is that one this was not happening. This is this is a fable invented by economists in the 20th century but this never happened. There was vigorous competition in electric power or telephone natural gas all over and the way in which monopolies were established was a classic example I gave my book was in Baltimore, Maryland the Baltimore Gas and Electric Company as it's called today. They struck a deal whereby they would be given a monopoly franchise but in return they had to pay the they had to pay the state legislature $25,000 plus 15% of revenue. And so it was just like the old kings of Europe who granted monopolies to their friends in return for a share of the loot. That's how the public utilities became monopolies in most American cities but not all. There have been competing electric companies in several dozen American cities forever. There's a book on it called Direct Utility Competition by Walter Primo, P-R-I-M-E-A-U-X. If anybody is interested in this topic I cited in my article on natural monopoly and so that's one of the things that was going on. And so government has always been a source of monopoly. Protectionism has always been a source of monopoly. Grants of monopoly. Occupational licensing is another form of creating monopoly in any occupations and so forth. And even raising rivals costs. You often find large corporations being in favor of more government regulation because they've already got an army of lawyers who can handle the regulators. But the smaller upcoming rivals who don't have an army of lawyers on the payroll, they're screwed. They can't comply. And so you often see big companies advocating more government regulation because they know it will impose a disproportionate burden on their smaller competitors and it will deter future competitors by creating a real buried entry. You really do have to come up with big bucks to deal with the state once your industry is regulated like that. And so I think that's all I can cram into an hour on this big topic of competition and monopoly in antitrust. Thank you.