ANTITRUST POLICY

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ANTITRUST POLICY

• Principles of Microeconomic Theory, ECO 284
• John Eastwood
• CBA 247
• 523-7353
• e-mail address John.Eastwood_at_nau.edu

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Trust

• A combination of firms that come together to act
  as a monopolist. In the legal sense, a trust is
  a form of ownership, usually where one party
  controls the property for the benefit of another.

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History

• Severe deflation following Civil War
• Some firms formed trusts that functioned as
  cartels
• Ended price competition
• Some exercised much market power

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The Standard Oil Trust (S. O. -- John D.
Rockefeller)

• A good customer of the railroads
• Standard Oil Group increased its share of oil
  refining capacity from 10 to 90
• In 1882, the partially independent companies in
  the S. O. Group formed the Standard Oil Trust.
• The Trust then performed as economic theory would
  predict.

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Three Alternatives

• Nationalization -- government ownership
• Regulation
• Antitrust law -- legislation to control monopoly
  power

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Antitrust Remedies

• Dissolution -- breaking a large firm into several
  smaller firms.
• Divorce -- separating the units of a vertically
  integrated firm.
• Divestiture -- selling a firm's assets.

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The Sherman Act of 1890

• (1) Every contract, combination..., or
  conspiracy, in restraint of trade or commerce ...
  is hereby declared illegal and,
• (2) Every person who shall monopolize, or
  attempt to monopolize, or combine or conspire
  with any other person or persons to monopolize
  any part of trade or commerce... shall be guilty
  of a

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Enactment of the Sherman Act

• Senator Sherman warned his fellow conservatives
  "Sir, now the people of the United States, as
  well as other countries, are feeling the power
  and grasp of these combinations, and are
  demanding of every legislature and of Congress a
  remedy of this evil... You must heed their appeal
  or be ready for the socialist, the communist, and
  the nihilist. Society is now disturbed by forces
  never felt before. The popular mind is agitated
  with problems that may disturb social order...."

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Enforcement of the Sherman Act

• Teddy Roosevelt
• The Justice Department
• Standard Oil and American Tobacco were broken up
  (1911)
• The Sherman Act did not curb horizontal mergers.
  A wave occurred between 1895 and 1900.

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The Clayton Act (1914)

• Practices made illegal
• Price Discrimination (section 2) -
• Exclusive Dealings (sec. 3)
• Tying Contracts (sec. 3)
• The Acquisition of Competing Companies Stock
  (sec. 7)
• Interlocking Directorates
• Exempted Labor Unions from Antitrust Laws. (
  unsuccessfully)

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The Norris-LaGuardia Act

• Removed federal court power to stop peaceful
  labor disputes (1932)

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Federal Trade Commission Act

• Established the Federal Trade Commission (FTC) in
  1914
• Empowered FTC to combat unfair methods of
  competition in commerce
• This act did not define unfair.
• Note Wave of vertical mergers in the 1920s

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The Robinson-Patman Act

• (1936) Prohibited suppliers from offering special
  discounts to large chain stores unless they also
  offered those discounts to everyone else.
• Justified by an appeal to Jeffersonian ideals,
  this law may have lessened competition rather
  than strengthening it.

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The Miller Tydings Act

• Allowed resale price maintenance contracts (1937)
  
• Such contracts bind the retailer to sell at a
  price a price fixed by the manufacturer.
• A 1951 Supreme Court decision rendered the law
  ineffective.
• Later repealed

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The Wheeler-Lea Act (1938)

• Empowered the Federal Trade Commission (FTC) to
  deal with false and deceptive trade practices in
  order to protect consumers. (Amended FTC Act)

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Celler-Kefauver Antimerger Act

• (1950) Amended Clayton Act to close a loophole
  that had permitted mergers through one company
  acquiring the physical assets of another.
• Note A wave of conglomerate mergers occurred
  from 1960 to early 1970s.

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The Hart-Scott Rodino Antitrust Procedural
Improvements Act

• required that pending mergers be reported in
  advance to the FTC and the Justice Department
  (1980)

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Judicial Interpretation

• Rule of Reason
• US vs. U S Steel (USX)
• overt acts
• The Per Se Doctrine
• US vs. Aluminum Company of America (ALCOA)
• Sherman Act prohibits all monopolization and
  restraint of trade.

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Antitrust policy varies from president to
president

• Carter
• Reagan and Bush
• Clinton

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Current policy

• A dozen relatively recent Supreme Court decisions
  have made enforcement of US antitrust law
  difficult.
• Exception price fixing

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Unsettled Points

• Definition of the Market
• Effectiveness
• Sustainable Industrial Configurations
• Exemptions
• International competition