AEI-Brookings Joint Center

Costly Exercises in Futility: Breaking Up Firms to Increase Competition


Executive Summary

U.S. antitrust policy began in earnest almost 100 years ago with attempts to create competition by breaking up dominant firms, such as Standard Oil and American Tobacco, into a number of smaller, competing companies. In later years, the government would succeed in requiring divestitures in the shoe machinery, motion picture, network television, and telecommunications industries. There is no evidence that any of these extreme measures, other than the AT&T divestiture, had salutary effects, and even the AT&T divestiture could have been avoided if the Federal Communications Commission had adopted a simple rule of requiring equal access to AT&T's local facilities for all long distance carriers. Now, some telecommunications industry participants are advocating further "structural separation" of the country’s large local telecommunications carriers because they believe that a new divestiture would contribute to greater local competition. Given the history of earlier government-mandated break-ups, this proposal is not only unlikely to succeed, but it is likely to impede network investment at a time when major network innovations are occurring.