Supply-Chain Antitrust and Being Too Big in the Context of AT&T’s 1984 Breakup

In 1984, due to a US Department of Justice antitrust lawsuit, AT&T, the U.S. telecommunications monopoly, split into eight entities, including long-distance and local service providers known as Regional Bell Operating Companies (RBOCs). Vertical integration of suppliers typically benefits consumers by avoiding the issues associated with successive monopolies, where prices may be excessively high. The separation of long-distance and local services by the Department of Justice may seem counterintuitive, potentially driven by concerns over AT&T's size rather than economic rationale. This paper suggests that integrated monopolies have more willingness to build demand rigidity due to an absence of the free-riding problem, leading to higher prices. The implications extend to regulated firms and social media, highlighting the complexity of antitrust actions and their economic consequences on market dynamics and consumer welfare.