Antitrust PoliEssaycy ⋆ Political Science Essay Examples ⋆ EssayEmpire

This example Antitrust PoliEssaycy is published for educational and informational purposes only. If you need a custom essay or research paper on this topic please use our writing services. EssayEmpire.com offers reliable custom essay writing services that can help you to receive high grades and impress your professors with the quality of each essay or research paper you hand in.

Antitrust polices are government regulations prohibiting abusive monopolistic practices of market power. A significant number of countries have developed antitrust statutes and maintain an active program of antitrust enforcement. Countries based on a market economy generally enforce policies that prevent uncompetitive businesses and discourage dishonest policies within an industry, in addition to other policies that do not benefit the public. In various forms, these policies represent a vital means of regulating competition and form the basis of many public policies in regard to business.

The primary intent of competition policy is the general protection of the market economy. Antitrust policies in Europe were a primary focus of discussion following World War II (1939–1945) to restrict anticompetitive agreements and practices and some noncompetitive mergers. They were enforced through international agreements and national laws. The European Commission has filed thousands of decisions involving company agreements and practices for trade in the Common Market. The decisions of the European Commission are based on Articles 85 and 86 of the 1957 Treaty of Rome, which address typical competition restrictions. Article 85 provides a nonexhaustive listing of anticompetitive practices that will be automatically void for “companies aimed at fixing prices, sharing markets, or exchanging confidential information in defiance of the elementary rules of competition and of the interests of the citizens of the European Union.” Whereas Article 85 has a provision for exemption if specific conditions are satisfied, Article 86 does not. Article 86 prohibits abuse of a dominant position (i.e., economic strength preventative of effective competition) that may affect trade between member states and provides a nonexhaustive listing of abusive practices, such as “unfair purchase or selling prices” and “limiting production markets or technical development to the prejudice of customers.”

Governments in the European Union and the United States may intervene to restrict or dissolve a monopoly (a single firm that sells output for which no close substitute exists) because the unregulated profit-maximizing monopoly model demonstrates output reduction and increased market power. The argument against monopoly is based on efficiency; some monopolies are believed to create inefficient use of resources as compared to a competitive equilibrium.

To prevent an incipient monopoly, governments regulate mergers to avoid concentration of the market and to allow new competitors to enter into the market. The merger of two companies, or the acquisition of one company by another, may be proposed for two reasons. The merger may have the favorable outcome of creating lower prices, which would increase capital of the two companies and make the combined company a stronger competitor. Or the merger could reduce competition, giving the combined company an opportunity to sell at higher prices.

Background Of Trusts

During the industrialization of the United States, the emergence of railroads afforded industries and individuals the ability to conduct business and travel in spite of distances that previously had prevented such efforts. As transportation competition increased, the railroad industry consolidated finances. In the late 1880s and early 1900s, powerful and influential financiers, such as Jay Gould, Edward H. Harriman, James J. Hill, Leland Stanford, and Cornelius Vanderbilt, consolidated their corporations, as competition during the age of industrialization increased. The outcome essentially was a for m of monopolization. When these trusts obtained a controlling share of an industry, they formed a monopoly that could dominate the industry, preventing other companies from competing against the monopoly. By 1890, the oil and railway industries in particular were restricting competition and establishing price controls, organizing their networks of businesses in trusts that concealed the extent of the monopoly.

U.S. Antitrust Legislation

The U.S. government enacted the Sherman Antitrust Act of 1890 against the large monopolistic trusts of the late nineteenth century. The law prohibited monopolization and trusts, as well as restrained trade. The vague language of the law ineffectively discouraged anticompetitive business practices. Further more, the act did not create an independent commission to investigate allegations of antitrust law abuses. U.S. presidents Theodore Roosevelt and William Howard Taft strictly enforced antitrust laws on the basis of the Sherman Act.

Congress later passed the Clayton Act of 1914 (a supplement to the Sherman Act) to assist the government in preventing monopolies. The Clayton Act listed specific illegal practices— several that were not prohibited specifically by the Sherman Act—such as the practice of tying contracts, which required a consumer to purchase another product before being able to purchase the desired product, and price discrimination, or selling the same product at different prices to different customers (though some industries, such as air travel, are allowed to practice price discrimination). Other prohibitions of the act included exclusive dealing (selling of a product if a consumer agrees not to buy from other producers of the same product) and interlocking directorates, in which at least one director serves on two boards of directors of competing companies.

The Federal Trade Commission Act of 1914 created a federal body whose purpose is to oversee markets, with the intent of enforcing antitrust laws. The Federal Trade Commission (FTC) has the power to block horizontal mergers (merging of firms that produce similar products or services) and vertical mergers (merging of firms that produce different products or services with an input-output relation in the production of one specific product. Input-output relation is a circular dependency of capital, entrepreneurship, labor, and land resources (input), and the sale of goods and services to consumers (output).The two 1914 acts established a solid foundation for modern antitrust law enforcement. The intent of antitrust legislation is to discourage abuse of the market economy through practices such as exclusive dealing arrangements, exclusive territories, predatory pricing, price discrimination, refusals to deal, resale price maintenance, and tie-in sales. Antitrust laws enforce competitive limitations upon firms for the benefit of the public (e.g., labor laws) and to be fair to consumers (e.g., regulating the sale of inferior products at higher prices) and potential competitors (such as small businesses).

Developments In U.S. Antitrust Policy

Not until the mid-1960s did antitrust economics undergo vast reform in the American postwar industrial economy. The conglomerate merger wave in the 1960s—the “Go-Go Years” of the stock market that inaugurated an era of company acquisitions beyond their central industries—involved firms that were entirely disparate in business activities. Many of these conglomerate firms were unsuccessful in managing companies within different countries and markets.

Throughout the late 1970s and early 1980s, there were substantial developments in antitrust enforcement and research into strategic business practices. New antitrust thinking emerged that countered the long-held idea that conglomerate firms were anticompetitive. Both England and the United States essentially witnessed a rebirth of laissez-faire philosophy regarding government regulations. An unprecedented number of merger and acquisition activities occurred in the 1980s, and they generally involved using debt capital to purchase a firm, then selling certain components of the firm to pay the debt. The outcome was a sudden increase of buyouts executed without consideration of corporate strategy and at a relatively high cost of capital, which in turn resulted in the early 1990s in widespread bankruptcies of companies unable to pay the inflated interest of high-leverage costs. The sectoral mergers of the 1990s primarily affected banking, defense, health care, and telecommunications. In the 1990s, government regulation demonstrated a more aggressive attitude against anticompetitive mergers and practices. The twenty-first century has been characterized by increased government regulation of the accounting, power utility, and security industries.

Governments enforce antitrust laws in the interest of maintaining an efficient society by ensuring competitive markets. Government enforcement of these laws necessitates identifying and banning those corporate practices that may discourage competition. The U.S. Department of Justice and the FTC, for instance, review all potential mergers of companies that may become monopolistic or anticompetitive; legal approval must be granted before the merger is completed. If the primary reason for a proposed merger is a favorable outcome of lower prices (as in the cases of XM and Sirius Radio), which will be efficient for society and fair to consumers and potential competitors, the merger will be granted legal approval. If the merger will result in less competition and an opportunity for the merging firms to increase prices, then it will not be granted legal approval. (An example of this is the proposed Staples and Office Depot merger, which was blocked by the FTC because it would allow the companies to control prices.) Antitrust laws grant the government power to ban anticompetitive practices, and even to divide a monopoly into two companies. Such decisions can be overturned by federal appeals court, sometimes with new stipulations (as was the case with Microsoft in 2001–2002).

Bibliography:

American Bar Association. ABA Section of Antitrust Law, Antitrust Law Developments, 6th edition. Chicago: ABA Book Publishing, 2007.
Armentano, Dominick T. Antitrust and Monopoly: Anatomy of a Policy Failure. New York: Wiley, 1982.
Bain, Joe Staten. Barriers to New Competition: Their Character and Consequences in Manufacturing Industries. Cambridge: Harvard University Press, 1956.
Berle, Adolf A., Jr., and Gardiner C Means. The Modern Corporation and Private Property. New York: Macmillan, 1932.
Brozen, Yale. Concentration, Mergers, and Public Policy. New York: Macmillan, 1982.
Chamberlain, Edward H. The Theory of Monopolistic Competition. Cambridge, Mass.: Harvard University Press, 1933.
Howard, Marshall C. Antitrust and Trade Regulation. Englewood Cliffs, N.J.: Prentice Hall, 1983.
Lai, Loi Lei, ed. Power System Restructuring and Deregulation: Trading, Performance and Information Technology. New York: Wiley, 2001.
Letwin, William. Law and Economic Policy in America: The Evolution of the Sherman Antitrust Law. New York: Random House, 1965.
Mason, Edward Sagendorph. Economic Cooperation and the Monopoly Problem. Cambridge, Mass.: Harvard University Press, 1957.
Posner, Richard A. Antitrust Law: An Economic Perspective. Chicago: University of Chicago Press, 1976.
Robinson, Joan. The Economics of Imperfect Competition. London: Macmillan, 1933.
Stigler, George J. The Organization of Industry. Homewood, Ill.: Richard D. Irwin, 1968.
Williamson, Oliver E. The Economic Institutions of Capitalism. New York: Free Press, 1985.