5 ms·

How Antitrust Enforcement Can Spur Innovation: Bell Labs and 1956 (2017) [pdf]

112 points by Hooke 5y ago

deleted 5y ago
[deleted]
ravenstine 5y ago
Does antitrust law practically exist anymore? It doesn't seem like the political will exists for it the way it did back in the 90's with Microsoft.
- hmsshagatsea 5y ago
  Isnt antitrust one of the hottest issues right now? What with FB and Google just buying all their conpetition
  - georgeplusplus 5y ago
    While the FAANGs are certainly growing their monopolies , It doesn’t seem to be a big issue with the current US administration.
  - pessimizer 5y ago
    A hot topic, but with glacial action. Seeing to what extent Biden's order will be implemented will be interesting.
- redis_mlc 5y ago
  The US government has mostly retreated from corporate oversight. 1) Mergers are often denied in the US, but once a company is large enough, there's no breakup. The Bell breakup didn't really help, as some of the Baby Bells later merged into AT&T, though alernate equipment mfgs. and long-distance providers emerged. 2) The US govt. is reluctant to assess serious penalities against large companies because of the layoffs at Arthur Andersen in 2002 due to the Enron scandal. Also, the SEC will only initiate cases where the trial is affordable and predictable, partly because of the Countrywide scandal where the founder had comparable resources to the US govt., and ended up settling. The case went on from 2008 to 2016. (The SEC has actually sent letters to large companies asking them to not pay legal fees for executives - pretty desperate.) https://abcnews.go.com/Business/Decade/arthur-andersen-business/story?id=9279255 https://abcnews.go.com/Business/Decade/arthur-andersen-busin... https://www.investopedia.com/terms/b/babybells.asp https://www.investopedia.com/terms/b/babybells.asp 3) As banks become bigger, they become "too big to fail." Wells Fargo should have been shutdown after admitting millions of counts of fraud against account holders in a systemic effort to increase fees to move their stock price.
  - wahern 5y ago
    All those points could just as well explain how corporations have adapted to an otherwise consistently enforced set of oversight mechanisms and policies. I don't disagree that the government has stepped back in many ways, but part of the problem (such as it is) is that the enforcement people ostensibly want would require far more dynamism from regulators, which is not something the American system is tuned for, especially at the federal level. Moreover, given the current political factionalism, we're increasingly less likely to see the necessary legislative dynamism. And finally, there's a creeping judicial activism that is beginning to upturn decades of administrative agency law, throwing a wrench into everything but on balance reducing agency flexibility even more. Just look at what happened to the Consumer Financial Protection Bureau. I think the only practical way forward is to rely on individual states, permitting states like New York and California to extend their roles. But that, too, would require some acquiescence from all three branches of the Federal government to even approach the kinds of changes people seem to expect to see. Contemporary politics similarly disfavors that approach; in some ways even more vehemently--conservatives know that they would lose their obstructive powers, while liberals tend to only accept federal-level policies as legitimate and efficacious. For example, take the Federal Arbitration Act--conservatives would fight repeal tooth & nail, while liberals can't even contemplate the thought, preoccupied as they are with enacting positive regulations federally.
  - AnthonyMouse 5y ago
    > The Bell breakup didn't really help, as some of the Baby Bells later merged into AT&T, though alernate equipment mfgs. and long-distance providers emerged. Breakups work when they separate a vertically integrated monopoly. You separate Unix from AT&T and it thrives. Netflix is better than Cable TV specifically because it isn't the cable company, and separating TV service from the last mile provider would be useful. In general, prohibiting a monopolist from operating in any vertical markets is useful, because it prevents the monopoly from being extended into the other markets. The baby bells were separated horizontally -- and they each still had a regional phone monopoly. That doesn't work.
  - jdofaz 5y ago
    > some of the Baby Bells later merged into AT&T Kind of, the baby bells running Cingular bought AT&T and rebranded
- kall 5y ago
  It certainly does in EU countries. The political will is there. Maybe even too much of it sometimes, meaning that politicians expect antitrust regulators to object to market activity that regulators pretty clearly don‘t consider an issue.
applepple 5y ago
Innovation can harm efficiency by creating needless competition which is wasteful. That's why innovation should be in the hands of corporations. The government should introduce laws to require innovation permits to prevent wateful competition. These permits should be expensive, that way only big corporations could afford them so that will ensure maximum efficiency.
nabla9 5y ago
Bell was under incredible antitrust scrutiny already when they invented transistor. Fear of antitrust was the reason for semiconductor industry getting flying start. Not only in the US but also in Japan, Europe and elsewhere. Imagine Bell getting patent and then manufacturing their own transistors with maybe 1-2 licensed manufacturers for next 25 years or so. https://www.computerhistory.org/siliconengine/bell-labs-licenses-transistor-technology/ https://www.computerhistory.org/siliconengine/bell-labs-lice... >In April 1952, over 100 representatives from 40 companies that had paid a $25,000 patent-licensing fee came for a nine-day Transistor Technology Symposium, including a visit to Western Electric's ultramodern transistor manufacturing plant in Allentown, PA. There were participants from such electronics titans as GE and RCA, as well as from then-small firms like Texas Instruments and Sony. Published by Bell Labs and subsequently by D. Van Nostrand in a revised edition, the proceedings of the first symposium - The Transistor fondly recognized as "Ma Bell's Cookbook" - became the bible of the dynamic semiconductor industry that emerged in the 1950s.
- WalterBright 5y ago
  That sounds like more of a problem with the patent system than with free markets.
  - nabla9 5y ago
    Antitrust exists to ensure that markets function well.
    - nickik 5y ago
      Antitrust historically exists because the market was working to well. The first Antitrust act in the US was about local butcher being disrupted by 'centralized' slaughterhouses (refrigerated train cars). Antitrust was literally created to attempted to prevent that. This was on state level. On the federal level mostly the same thing happened. It was a political tool and it was used by politicians who tried to defend the losing competitors against innovated companies. Standard Oil is the poster-boy for 'look how great anti-trust is' but if you look at what politics was behind it its clear that the losers in the market were pushing it. Despite in reality Standard Oil simply standardizing and improving quality, using innovative logistics system and lowering prices.
teambob 5y ago
When I worked for Avaya labs in the early 2000s, it was also well known internally that the split made more money. Hence the subsequent voluntary splits
roenxi 5y ago
I'm not sure the interpretation of the headline is the best here. Going from the abstract, this seems to be a compelling example of patents harming innovation. The big picture story here is firstly to grant a patent to give Bell a monopoly on an idea. Then recognise that giving it a monopoly on an idea slows progress, so remove the monopoly. If patents do exactly what they are intended to do, they damage periods of rapid, cheap progress. They allow the people who were there first to capture the value.
- nabla9 5y ago
  a) Patents are alternative to trade secret. b) Patents allow separation of innovation from manufacturing. > If patents do exactly what they are intended to do, they damage periods of rapid, cheap progress. Maybe you are right, and George Washington and James Madison were wrong, but you need to make better argument considering all aspects, not just state your opinion as a fact. To convince us from your viewpoint explain what Bell would have done differently without patents. Using only trade secrets. Would Bell Labs have done so extensive basic research? Secondly explain how you allow small inventors to exist without patent system.
  - roenxi 5y ago
    Bureaucratic systems don't help the small inventors. Bureaucratic systems, without fail, are going to benefit people who can hire lots of lawyers. People with more lawyers and deeper pockets have a structural advantage in legal fights. Sticking to the case study at hand, the patent system set up Bell to do a bunch of basic research, patent it, then lock out small competition. I'm cool if you're cool with that, but the antitrust isn't the reason growth was enabled, it was that the patent system was functioning as expected and the government disabled it. When they wanted growth, they revoked the patents. Which is sensible. And revoking the patents allowed faster growth. You may not like how they treated Bell and changing the rules on half way through is indeed unfair, but them's the outcomes.
    - nabla9 5y ago
      >Bureaucratic systems don't help the small inventors. Bureaucratic systems, without fail, are going to benefit people who can hire lots of lawyers. These are blanket statements and ideological normative statements. You don't engage in argument.
kolinko 5y ago
A good book about trusts, antitrusts and monopoly in it/communication in US is “Master Switch”. https://www.amazon.com/Master-Switch-Rise-Information-Empires/dp/0307390993 https://www.amazon.com/Master-Switch-Rise-Information-Empire... It talks at length about Bell, but also other monopolists in our field.

112 points by Hooke 5y ago

deleted 5y ago

[deleted]

Does antitrust law practically exist anymore? It doesn't seem like the political will exists for it the way it did back in the 90's with Microsoft.

hmsshagatsea 5y ago
Isnt antitrust one of the hottest issues right now? What with FB and Google just buying all their conpetition
- georgeplusplus 5y ago
  While the FAANGs are certainly growing their monopolies , It doesn’t seem to be a big issue with the current US administration.
- pessimizer 5y ago
  A hot topic, but with glacial action. Seeing to what extent Biden's order will be implemented will be interesting.
redis_mlc 5y ago
The US government has mostly retreated from corporate oversight. 1) Mergers are often denied in the US, but once a company is large enough, there's no breakup. The Bell breakup didn't really help, as some of the Baby Bells later merged into AT&T, though alernate equipment mfgs. and long-distance providers emerged. 2) The US govt. is reluctant to assess serious penalities against large companies because of the layoffs at Arthur Andersen in 2002 due to the Enron scandal. Also, the SEC will only initiate cases where the trial is affordable and predictable, partly because of the Countrywide scandal where the founder had comparable resources to the US govt., and ended up settling. The case went on from 2008 to 2016. (The SEC has actually sent letters to large companies asking them to not pay legal fees for executives - pretty desperate.) https://abcnews.go.com/Business/Decade/arthur-andersen-business/story?id=9279255 https://abcnews.go.com/Business/Decade/arthur-andersen-busin... https://www.investopedia.com/terms/b/babybells.asp https://www.investopedia.com/terms/b/babybells.asp 3) As banks become bigger, they become "too big to fail." Wells Fargo should have been shutdown after admitting millions of counts of fraud against account holders in a systemic effort to increase fees to move their stock price.
- wahern 5y ago
  All those points could just as well explain how corporations have adapted to an otherwise consistently enforced set of oversight mechanisms and policies. I don't disagree that the government has stepped back in many ways, but part of the problem (such as it is) is that the enforcement people ostensibly want would require far more dynamism from regulators, which is not something the American system is tuned for, especially at the federal level. Moreover, given the current political factionalism, we're increasingly less likely to see the necessary legislative dynamism. And finally, there's a creeping judicial activism that is beginning to upturn decades of administrative agency law, throwing a wrench into everything but on balance reducing agency flexibility even more. Just look at what happened to the Consumer Financial Protection Bureau. I think the only practical way forward is to rely on individual states, permitting states like New York and California to extend their roles. But that, too, would require some acquiescence from all three branches of the Federal government to even approach the kinds of changes people seem to expect to see. Contemporary politics similarly disfavors that approach; in some ways even more vehemently--conservatives know that they would lose their obstructive powers, while liberals tend to only accept federal-level policies as legitimate and efficacious. For example, take the Federal Arbitration Act--conservatives would fight repeal tooth & nail, while liberals can't even contemplate the thought, preoccupied as they are with enacting positive regulations federally.
- AnthonyMouse 5y ago
  > The Bell breakup didn't really help, as some of the Baby Bells later merged into AT&T, though alernate equipment mfgs. and long-distance providers emerged. Breakups work when they separate a vertically integrated monopoly. You separate Unix from AT&T and it thrives. Netflix is better than Cable TV specifically because it isn't the cable company, and separating TV service from the last mile provider would be useful. In general, prohibiting a monopolist from operating in any vertical markets is useful, because it prevents the monopoly from being extended into the other markets. The baby bells were separated horizontally -- and they each still had a regional phone monopoly. That doesn't work.
- jdofaz 5y ago
  > some of the Baby Bells later merged into AT&T Kind of, the baby bells running Cingular bought AT&T and rebranded
kall 5y ago
It certainly does in EU countries. The political will is there. Maybe even too much of it sometimes, meaning that politicians expect antitrust regulators to object to market activity that regulators pretty clearly don‘t consider an issue.

applepple 5y ago

Innovation can harm efficiency by creating needless competition which is wasteful. That's why innovation should be in the hands of corporations. The government should introduce laws to require innovation permits to prevent wateful competition. These permits should be expensive, that way only big corporations could afford them so that will ensure maximum efficiency.

nabla9 5y ago

Bell was under incredible antitrust scrutiny already when they invented transistor. Fear of antitrust was the reason for semiconductor industry getting flying start. Not only in the US but also in Japan, Europe and elsewhere. Imagine Bell getting patent and then manufacturing their own transistors with maybe 1-2 licensed manufacturers for next 25 years or so. https://www.computerhistory.org/siliconengine/bell-labs-licenses-transistor-technology/ https://www.computerhistory.org/siliconengine/bell-labs-lice... >In April 1952, over 100 representatives from 40 companies that had paid a $25,000 patent-licensing fee came for a nine-day Transistor Technology Symposium, including a visit to Western Electric's ultramodern transistor manufacturing plant in Allentown, PA. There were participants from such electronics titans as GE and RCA, as well as from then-small firms like Texas Instruments and Sony. Published by Bell Labs and subsequently by D. Van Nostrand in a revised edition, the proceedings of the first symposium - The Transistor fondly recognized as "Ma Bell's Cookbook" - became the bible of the dynamic semiconductor industry that emerged in the 1950s.

WalterBright 5y ago
That sounds like more of a problem with the patent system than with free markets.
- nabla9 5y ago
  Antitrust exists to ensure that markets function well.
  - nickik 5y ago
    Antitrust historically exists because the market was working to well. The first Antitrust act in the US was about local butcher being disrupted by 'centralized' slaughterhouses (refrigerated train cars). Antitrust was literally created to attempted to prevent that. This was on state level. On the federal level mostly the same thing happened. It was a political tool and it was used by politicians who tried to defend the losing competitors against innovated companies. Standard Oil is the poster-boy for 'look how great anti-trust is' but if you look at what politics was behind it its clear that the losers in the market were pushing it. Despite in reality Standard Oil simply standardizing and improving quality, using innovative logistics system and lowering prices.

teambob 5y ago

When I worked for Avaya labs in the early 2000s, it was also well known internally that the split made more money. Hence the subsequent voluntary splits

roenxi 5y ago

I'm not sure the interpretation of the headline is the best here. Going from the abstract, this seems to be a compelling example of patents harming innovation. The big picture story here is firstly to grant a patent to give Bell a monopoly on an idea. Then recognise that giving it a monopoly on an idea slows progress, so remove the monopoly. If patents do exactly what they are intended to do, they damage periods of rapid, cheap progress. They allow the people who were there first to capture the value.

nabla9 5y ago
a) Patents are alternative to trade secret. b) Patents allow separation of innovation from manufacturing. > If patents do exactly what they are intended to do, they damage periods of rapid, cheap progress. Maybe you are right, and George Washington and James Madison were wrong, but you need to make better argument considering all aspects, not just state your opinion as a fact. To convince us from your viewpoint explain what Bell would have done differently without patents. Using only trade secrets. Would Bell Labs have done so extensive basic research? Secondly explain how you allow small inventors to exist without patent system.
- roenxi 5y ago
  Bureaucratic systems don't help the small inventors. Bureaucratic systems, without fail, are going to benefit people who can hire lots of lawyers. People with more lawyers and deeper pockets have a structural advantage in legal fights. Sticking to the case study at hand, the patent system set up Bell to do a bunch of basic research, patent it, then lock out small competition. I'm cool if you're cool with that, but the antitrust isn't the reason growth was enabled, it was that the patent system was functioning as expected and the government disabled it. When they wanted growth, they revoked the patents. Which is sensible. And revoking the patents allowed faster growth. You may not like how they treated Bell and changing the rules on half way through is indeed unfair, but them's the outcomes.
  - nabla9 5y ago
    >Bureaucratic systems don't help the small inventors. Bureaucratic systems, without fail, are going to benefit people who can hire lots of lawyers. These are blanket statements and ideological normative statements. You don't engage in argument.

kolinko 5y ago

A good book about trusts, antitrusts and monopoly in it/communication in US is “Master Switch”. https://www.amazon.com/Master-Switch-Rise-Information-Empires/dp/0307390993 https://www.amazon.com/Master-Switch-Rise-Information-Empire... It talks at length about Bell, but also other monopolists in our field.