The Failure of Structural Remedies in Sherman Act Monopolization Cases

Abstract

Considerable controversy has arisen around the recent U.S. District Court decision that ordered vertical divestiture of Microsoft as a remedy for its violation of Section 2 of the Sherman Act. In this paper, I look back over more than a century of Sherman Act case law to see how frequently structural relief has been imposed in monopolization cases that involve a single firm that has not attained its market position through merger or from conspiring with other firms. I conclude that there are only four or five such cases in the history of Sherman Act enforcement. I then examine intensively the effectiveness of structural relief-vertical or horizontal divestiture-in seven of the most important Section 2 cases and two others. I conclude that with one exception, the break up of AT&T in 1984, there is very little evidence that such relief is successful in increasing competition, raising industry output, and reducing prices to consumers. The exception turns out to be a case of overkill because the same results could have been obtained through a simple regulatory rule, obviating the need for vertical divestiture of AT&T.

JEL Classification: L4