Antitrust Laws Essay ⋆ Business Essay Examples ⋆ EssayEmpire

Though its earliest forms were enacted by the Roman empire, antitrust law is largely a product of the post– Adam Smith age of capitalism. Antitrust is the American term for this form of legislation, referring to the trustbusting of the Progressive Era when legislation was enacted to counter the anticompetitive effects of trusts and collusion, especially in the aftermath of the Panic of 1893 and attendant decline in demand and prices. Internationally, the legislation is better known as competition law, which reflects the broad focus of it: that class of legislation that exists to protect and regulate competition in the marketplace. This includes not only the repression of monopolies, cartels, and industry collusion, but the regulation or criminalization of predatory pricing, price gouging, and other abusive acts performed from a dominant position in the market, as well as the regulation of mergers and acquisitions.

The earliest acts of competition law were aimed principally at the support of local production. Tariffs were imposed on foreign goods to various ends, including offsetting the price difference if those imported goods were significantly cheaper than what could be found locally. This was a common practice in Rome during both the Republic and Empire periods; Rome was also known to seize the property of trade monopolies or collusive trade combinations which acted against the interest of the people or the state.

The rise of trade guilds in the Middle Ages required legislation to prevent their abuse, and in many European countries attempts were made to directly control prices, especially for household necessities like bread or ale, or commodities like grain. Various acts sometimes dictated the wages of specific types of laborers while fixing prices of the common items everyone was expected to purchase, thus preserving for those laborers a specific balance of income and outgo. Traders who overcharged for these items not only faced a penalty from the state, but paid punitive damages to the customer—a concept that was carried through English common law and adopted into American antitrust law in the form of the treble damages paid for certain violations of antitrust law or infringement of intellectual property rights.

Anti-competitive laws of the Middle Ages and Renaissance were called “combination laws,” because they regulated or forbade the cooperation between combinations of merchants or businesses. Bohemian mining companies, for instance, were forbidden to cooperate in jointly raising their prices. Other combination laws targeted labor unions, as in the British Combination Act of 1799, which outlawed unions and collective bargaining; the idea of conflating monopolies and labor unions is today a foreign one, demonstrating the degree of change in those two centuries.

Modern Antitrust Law

Modern antitrust law began in the United States, where the Industrial Revolution, the railroads, 19th-century banking panics, and the tendency of the Gilded Age to shift thinking and activity from the regional to the national level—with the institution of nationwide professional organizations like the American Medical Association, nationwide newspaper and magazine distribution, and a growing number of firms attempting to do business nationally—colluded, as it were, to create an environment in which businesses could enjoy tremendous success and had the opportunity to abuse the power they attained.

The period from 1895 to 1905 saw more mergers than any other time in American history. To an extent, this was an organizational activity, as small local stores joined together to form chains and larger firms. There were practical and non-objectionable considerations at work, largely inoffensive to capitalist needs and nonharmful to the consumer. But there were also significant and increasingly common abuses of power, with businesses using these mergers and the creation of trusts in order to gain an advantage and be able to increase prices.

Trusts themselves are not the target of antitrust law, confusingly enough. A trust is simply the management of a property or business by a trustee or trustees, on behalf of the beneficiary—most people are familiar with them through the institution of trust funds, in which money is managed by a trustee, especially if the beneficiary is a minor. Trustees are accountable to their beneficiaries. The trusts formed in the 19th century, though, were legal entities formed in order to engage in anticompetitive practices—they were in essence cartels, groups of businesses colluding for the purposes of monopoly-like behavior.

The Sherman and Clayton Acts, passed in 1890 and 1914 and more or less bookending a particular era of pre-Depression trustbusting, codified and streamlined a body of common law and attempted to clarify various acts of abusive conduct. It was not nearly as effective as hoped, though Presidents Theodore Roosevelt and William Taft got a lot of political mileage out of Sherman Act prosecutions. In the reorganization of European institutions following World War I, American antitrust law was used as the basis for similar bodies of legislation across the west, and after World War II, these antitrust ideas were enforced externally on Germany and Japan, both of which were cartel-friendly during and in the years leading up to the war. In the United States, antitrust laws have been responsible for the break-up of companies like Standard Oil in 1911 and AT&T in 1982, as well as the source of a prolonged battle between the federal government and Microsoft.

The American model of antitrust law has been the essential core of antitrust law adopted around the world, and enforced by organizations like the World Trade Organization.

Because of its origins, antitrust law distinguishes between the actions of an individual company and the actions of companies working together; this in fact was one of its weaknesses in the Progressive Era, when the Sherman Act failed to prohibit the existence of a single-company monopoly, unless the actions taken to create that monopoly were themselves prohibited. Multi-company monopolies, on the other hand, were criminalized so long as intent—in the form of some kind of agreement among the companies, some form of collusion—could be demonstrated. Since the Progressive Era, restrictions of monopolies of any sort have been strengthened, though some exemptions, notably for labor unions and professional sports leagues, have also been granted.

Certain activities attract the attention of the federal government, and an examination of whether there are anticompetitive practices in play. Price fixing is the classic example of this; while goods will tend to reach a particular price because of market forces, the deliberate agreement among companies to set a price is in defiance of those forces. Likewise, agreements between potential competitors to limit their activities to particular geographic areas in order to avoid competing are potential violations of antitrust law.

Since the 1970s, the enforcement of American antitrust law has focused more and more on the effect on the consumer, rather than absolute standards of corporate behavior. The shift is the result of a distrust of government intervention in the economy, as new conservative factions came to power in the aftermath of Watergate’s impact on the Republican Party. A particularly influential thinker in the matter is Robert Bork, who reframed the issue as a matter of consumer welfare—and both his supporters and his opponents have largely continued to do so.

Enforcement of antitrust legislation falls to various bodies. At the state level, the state’s attorney general can file a suit against a corporation in violation of either state or federal antitrust laws; the Microsoft antitrust case involved various states acting in a coalition with the Justice Department. Private suits can be brought in either state or civil court. Both the Federal Trade Commission and the Antitrust Division of the Department of Justice can bring federal civil suits against companies in violation, but only Justice can bring a criminal suit. The most famous successfully prosecuted federal antitrust case remains the United States vs. AT&T, a suit brought by Justice in 1974 and settled in 1982 with the Baby Bell divestiture: effective 1984, in exchange for being allowed to branch out into computers, AT&T retained its long-distance services but divided its local exchange services into the seven Regional Bell Operating Companies.

Criticism

Though Bork’s take on antitrust law is still fairly conservative, there are some who go much further than simply reframing the matter. Economist Milton Friedman has changed his mind on antitrust legislation over the course of his career, and believes that they have wrought more harm than good, despite the seemingly sound principles on which they are based. Former Fed chairman Alan Greenspan believes that the subjectivity of antitrust legislation, in particular, has dissuaded a good deal of legal and beneficial business activity out of the fear that it could violate the letter of the law.

One of the targets of antitrust law is predatory pricing, the pricing of a good so low as to constitute an anticompetitive action, with the goal of driving away existing competitors or preventing new ones from entering the market. The problem, antitrust critics point out, is that this is not rational behavior to begin with, and market forces are generally sufficient to prevent irrational business behavior if you give them sufficient time to do so. By its nature, predatory pricing can’t be permanent—in order for the company to benefit from driving away its competitors, it has to bring the price back up, and once it has done so, the market is again safe for other companies to participate in. There are few incontrovertible cases of predatory pricing occurring over a significant period of time, and the anticompetitive motive is a difficult one to establish.

As game theory has become a more prominent part of economic thought, it has been used to demonstrate that certain anticompetitive practices like predatory pricing may be beneficial in the long run. The problem here, in part, is that it is difficult to institute a system of law in which the legality of actions depends in part on the expectation of how consequences will turn out “in the long run.”

Bibliography:

Dominick T. Armentano, Antitrust: The Case for Repeal (Ludwig von Mises Institute, 2007);
Robert H. Bork, The Antitrust Paradox (New York Free Press, 1993);
Jay Pil Choi, ed., Recent Developments in Antitrust: Theory and Evidence (MIT Press, 2007);
Einer Elhauge and Damien Geradin, Global Competition Law and Economics (Hart Publishing, 2007);
Milton Friedman, Capitalism and Freedom (University of Chicago Press, 2002);
William H. Page, The Microsoft Case: Antitrust, High Technology, and Consumer Welfare (University of Chicago Press, 2007);
Tony Prosser, The Limits of Competition Law (Oxford University Press, 2005);
Edwin S. Rockefeller, The Antitrust Religion (Cato Institute, 2007);
Richard Wilberforce, Alan Campbell, and Neil Elles, The Law of Restrictive Practices and Monopolies (Sweet and Maxwell, 1966).

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