This paper is a draft chapter from an ongoing book project I am calling The Corporation and the Twentieth Century. In The Visible Hand, Alfred Chandler explained the rise of the large vertically integrated corporation in the United States mostly in terms of forces of technology and economic geography. Institutions, including government policy, played a quite minor role. In my own attempt to explain the decline of the vertically integrated form in the late twentieth century, I stayed true to Chandler’s largely institution-free approach. This book will be an exercise in bringing institutions back in. It will argue that institutions, notably various forms of non-market controls imposed by the federal government, are a critical piece of the explanation of the rise and decline of the multi-unit enterprise in the U.S. Indeed, non-market controls, including those imposed in response to the dramatic events of the century, account in significant measure for the dominance of the Chandlerian corporation in the middle of the twentieth century. One important form of non-market control – though by no means the only form – has been antitrust policy. This chapter traces the history of antitrust and argues that, far from being a coherent attempt to address an actual economic problem of monopoly, the Sherman Antitrust Act emerged from the distributional political economy of the nineteenth century. More importantly, the chapter argues that the form in which antitrust emerged would prove significant for the corporation, as the Sherman Act and its successors outlawed virtually all types of inter-firm coordinating mechanisms, thus effectively evacuating the space between anonymous market transactions and full integration.The last couple of sentences of the abstract are interesting. An unintended(?) consequence of competition policy is an all-or-nothing approach to firm organisation. It's either a market transaction or a fully integrated organisation with little between them being legal. This removes many options in terms of organisational form for entrepreneurs to use to structure a transaction. This can result in an loss of efficiency in those cases where coordination of activity is most effectively carried out by an organisation that is not neither a fully integrated firms or a market transaction. Developments in competition policy in the US during the period around 1900 sent a clear signal that coordination through inter-firm agreements would surely face legal scrutiny whereas coordination within the boundaries of a single legal entity likely would not. This created a palpable incentive for firms to integrate.
Langlois notes an irony in all of this,
Here we begin to glimpse the great irony of American antitrust policy at the turn of the twentieth century: legislation pushed in part by small independent businesses to ward off the threat of the giant corporation actually harmed the small firms, which relied on coordination through contract, and reduced the relative cost of coordination within boundaries of large enterprises.But such unintended consequences are so often the outcome of government intervention in economic activity.