The Mises Institute monthly, free with membership
Volume 16, Number 1
Reno and the Potato
by Llewellyn H. Rockwell, Jr.
Competition is a process, the Austrian economists have long
said, not a
moment frozen in time. Today's dominant company could be
Whether the winner can stay on top is dependent on its
management, its ability to
innovate, and, above all, the will of the consuming public.
But since the turn of the century these insights have been
government's antitrust enforcers. Successful businesses have been
sued and smashed by
regulators working in cahoots with special interests. Whole
industries have been turned
upside down, with consumers as the ultimate losers.
Today's antitrust enforcement reduces tragedy to farce. A
judge recently upheld the Federal Trade Commission's charge that
Toys R' Us conspired to prop up the price of Mr.
Potato Head. Why? Because the retail outlet liked to make
Toys R' Us told
manufacturers: if you sell to discount stores, we won't buy your
manufacturer then makes a choice, based on speculations about the
most profitable path, to
go with Toys R' Us or its competitors.
According to the FTC, this was an illegitimate use of "market
muscle." Yet the company holds only 20 percent
of the market, and is constantly under the gun from its
It was the success of Toys R'
Us that led discount toy stores into the market in the first
place. The company started
negotiating exclusive deals in a desperate attempt to shore up
its position. Some
manufacturers go along, others don't. The company is always
taking a risk: if it
doesn't carry a product, it could lose even more market share.
Its so-called power is
ephemeral and speculative. It's here today and gone tomorrow.
And who benefits from this struggle to get to the top and stay
consuming public, which has every toy retailer falling all over
itself to win the
public's loyalties. Whoever serves people the most and makes the
best use of its
resources enjoys profits, while those who do not suffer
This is the way market competition is supposed to work. It's a
glorious system that combines the best of man's competitive
spirit with his ability
to cooperate to achieve excellence.
The Toys R' Us case
reached its low ebb when the FTC accused the company of "spying"
on its competition. What did this spying
consist of? Sending out employees to see what the competition had
on its shelves and what
prices they charged. It's called market research, potato
The irony is bracing: lifetime government judges and
conspiring to tell real-world entrepreneurs how to conduct their
business. It's a
violation of the free enterprise ethic, and also a self-evident
fraud. No bureaucrat knows
the proper configuration to which this or that sector should
Yet Janet Reno gets on national television to proclaim that
she is 100
percent sure that a computer's web browser should not be sold
with its operating
system. This constitutes an illegal tie-in agreement. Microsoft
must cease, or hand her $1
million per day, stolen from shareholders.
This "tie-in" claim is a very old excuse for trust busting.
Regulators say that the sale of one product at a price cannot be
conditioned on the sale
of another product. Some years ago, for example, a fishing tackle
company came under
investigation for selling reels with its rods.
But this principle cannot be applied consistently, since
tie-ins are all
around us. Gas stations sell low-priced soccer balls with a tank
of gas. Is that unfair
competition with the Wal-Mart down the street? Is it an attempt
to "restrain trade"?
No, it is competition itself, an efficient arrangement to sort
resources in the most
socially beneficial manner.
Another tie-in we see every day: meal deals at fast-food
you want the special price, you have to buy a burger, fries, and
drink. For that matter if
you want to buy the meat, you have to buy a bun. Even the
government doesn't call
Whether a web browser should come with or without an operating
for the market to sort out. If Microsoft pursues the wrong
strategy, it will be punished.
Its market "power" is only as good as its ability to do the best
for its customers and stockholders.
If it's competition we want, we can't depend on government,
inventor of the monopoly. Competition exists in the absence of
Mr. Potato Head, Microsoft Explorer, their makers and
distributors and consumers, can get
along just fine without Reno.
Llewellyn H. Rockwell, Jr., is president of the Mises Institute.
FURTHER READING: Dominick Armentano, Antitrust and
York: Homes and Meier, 1990).