Forced divestiture does not work. That is, government action to break up a firm under the Sherman Act (antitrust law) does not increase competition, raise industry output, or reduce prices to consumers according to a new study by Robert W. Crandall published by the AEI-Brookings Joint Center for Regulatory Studies.
In plain English, a prominent economist associated with leading public policy research organizations does not believe that the government – through the regulatory or judicial process – should determine the organizational structure of firms in the marketplace.
As a result of his interest in the landmark, and ongoing, Microsoft antitrust lawsuit Crandall undertook a study of all major cases over the course of more than a century where structural remedies were implemented. Barring one exception, in no case did he find evidence that a government-planned structural re-organization made consumers better off. The lone exception includes an important caveat. Crandall found that the positive results of the 1984 break up of AT&T could have been “obtained through a simple regulatory rule.”
Dr. Crandall does a fine job providing a thorough and compelling argument against the radical proposal now before the federal appeals court to break up Microsoft. At CSE, we are happy to continue to talk to grassroots political activists. Plain and simple, we do not want to see the government involved in making decisions about software development.