Antitrust Policy

Foundation Symposium no. 194), Wiley, Chichester, UK, mission) or the European Union (The Competi-
pp. 76–85 tion Directorate) would be indistinguishable at first
Stattin H, Magnusson D 1995 Onset of official delinquency: Its sight.
co-occurrence in time with educational, behavioural, and
While this article provides a view of antitrust
interpersonal problems. British Journal of Criminology, 35:
417–49 primarily from the perspective of US policy, the review
Sternberg C R, Campos J J 1990 The development of anger that follows illustrates a theme that has worldwide
expressions in infancy. In: Stein N L, Leventhal B, Trabasso T applicability. As our understanding of antitrust
(eds.) Psychological and Biological Approaches to Emotion, economics has grown throughout the past century,
Erlbaum, Hillsdale, NJ, pp. 247–82 antitrust enforcement policies have also improved,
Tremblay R E, Japel C, Pe! russe D, McDuff P, Boivin M, albeit sometimes with a significant lag. In this survey
Zoccolillo M, Montplaisir J 1999 The search for the age of the following are highlighted: (a) the early anti-big
‘onset’ of physical aggression: Rousseau and Bandura re- business period in the US, in which the structure of
visited. Criminal BehaŠior and Mental Health 9: 8–23
industry was paramount; (b) the period in which
Zoccolillo M 1993 Gender and the development of conduct
disorder. DeŠelopment and Psychopathology 5: 65–78 performance as well as structure was given significant
weight, and there was a systematic attempt to balance
L. Pulkkinen the efficiency gains from concentration with the
inefficiencies associated with possible anti-competitive
behavior; (c) the most recent period, which includes
the growth of high technology and network industries,
in which behavior theories have been given particular
emphasis.
Antitrust Policy
The term antitrust, which grew out of the US trust-
1. The Antitrust Laws of the US
busting policies of the late nineteenth century, de-
veloped over the twentieth century to connote a broad In the USA, as in most other countries, antitrust
array of policies that affect competition. Whether policies are codified in law and enforced by the judicial
applied through US, European, or other national branch. Public cases may be brought under Federal
competition laws, antitrust has come to represent law by the Antitrust Division of the Department of
an important competition policy instrument that Justice, by the Federal Trade Commission, and\or by
underlies many countries’ public policies toward each of the 50-state attorneys-general. (The state
business. As a set of instruments whose goal is to make attorneys-general may also bring cases under state
markets operate more competitively, antitrust often law.) Further, there is a broad range of possibilities for
comes into direct conflict with regulatory policies, private enforcement of the antitrust laws, which plays
including forms of price and output controls, anti- a particularly significant role in the USA.
dumping laws, access limitations, and protectionist
industrial policies.
Because its primary normative goal has been seen by
1.1 The Sherman Act
most to be economic efficiency, it should not be
surprising that antitrust analysis relies heavily on the Antitrust first became effective in the US near the end
economics of industrial organization. But, other social of the nineteenth century. Underlying the antitrust
sciences also contribute significantly to our under- movement was the significant consolidation of in-
standing of antitrust. Analyses of the development of dustry that followed the Civil War. Following the war,
antitrust policy are in part historical in nature, and large trusts emerged in industries such as railroads,
positive studies of the evolution of antitrust law petroleum, sugar, steel, and cotton. Concerns about
(including analyses of lobbying and bureaucracy) the growth and abusive conduct of these combinations
often rely heavily on rational choice models of the generated support for legislation that would restrict
politics of antitrust enforcement. their power. The first antitrust law in the USA—the
The relevance of other disciplines notwithstanding, Sherman Act—was promulgated in 1890. Section 1 of
there is widespread agreement about many of the the Act prohibits: ‘Every contract, combination in the
important antitrust tradeoffs. Indeed, courts in the form of trust of otherwise, or conspiracy, in restraint
US have widely adopted economic analysis as the of trade or commerce among the several States, or
theoretical foundation for evaluating antitrust con- with foreign nations.’
cerns. Interestingly, however, antitrust statutes in Section 2 of the Sherman Act states that it is illegal
the European Union also place heavy emphasis on for any person to ‘… monopolize, or attempt to
the role of economics. Indeed, a hypothetical conver- monopolize, or combine or conspire with any other
sation with a lawyer or economist at a US compe- person or persons, to monopolize any part of the trade
tition authority (the Antitrust Division of the or commerce among the several States, or with foreign
Department of Justice or the Federal Trade Com- nations ….’ These two sections of the Act contain the

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two central key principles of modern antitrust policy FTC is responsible for consumer protection issues,
throughout the world—conduct that restrains trade whereas criminal violations of Sect. 1 of the Sherman
and conduct that creates or maintains a monopoly—is Act (e.g., price fixing and market division) are the
deemed to be anticompetitive. responsibility of the Antitrust Division. It is also
important to note that most enforcement activities,
when successful, lead to injunctive remedies, where the
1.2 The Clayton Act
party that has violated the law is required to cease the
Early in the twentieth century it became apparent that harmful activity. Exceptions are the criminal fines that
the Sherman Act did not adequately address com- are assessed when Sect. 1 of the Sherman Act is
binations, such as mergers, that were likely to create criminally violated, and fines that are assessed in
unacceptably high levels of market power. In 1914 certain consumer protection cases. Damages are rarely
Congress passed the Clayton Act, which identified assessed by the federal agencies, otherwise, although
specific types of conduct that were believed to threaten in principle there can be exceptions (e.g., when the US
competition. The Clayton Act also made illegal con- represents the class of government employees).
duct whose effect ‘may be to substantially lessen
competition or tend to create a monopoly in any line 2. The Goals of Antitrust
of commerce.’ Section 7 of the Clayton Act is the
principal statute for governing merger activity—in Despite considerable economic change in the economy
principle Sect. 7 asks whether the increased con- over the twentieth century, the federal antitrust laws
centration will harm actual and\or potential com- have continued to have wide applicability in part
petition. because their language was quite vague and flexible.
Other sections of the Clayton Act address particular This has led, quite naturally, to extensive historical
types of conduct. Section 2, which was amended and study of the legislative history and substantial debate
replaced by Sect. 1 of the Robinson-Patman Act in about congressional intent, especially where the
1936, prohibits price discrimination between different Sherman Act is concerned. Some scholars have argued
purchasers of the same type and quality of a com- that the Sherman Act was directed almost entirely
modity, except when such price differences are cost- towards the achievement of allocative efficiency (e.g.,
justified, or if the lower price is necessary to meet Bork 1966). Others have taken the view that Congress
competition. and the courts have expressed other values, ranging
Section 3 of the Clayton Act specifically prohibits from a broad concern for fairness, to the protection of
certain agreements in which a product is sold only specific interest groups, or more simply to the welfare
under the condition that the purchaser will not deal in of consumers writ large (e.g., Schwartz 1979, Stigler
the goods of a competitor. This section has been used 1985).
to challenge exclusive dealing arrangements (e.g., a The debate concerning the goals of the antitrust
distributor that is obligated to sell only the products of laws continues today. The enforcement agencies, for
a particular manufacturer) and ‘tied’ sales (e.g., the example, evaluate mergers from both consumer wel-
sale of one product is conditioned on the buyer’s fare and total welfare (consumer plus business) points
purchase of another product from the same supplier). of view, in part because the courts are not clear as to
The Act does not prohibit all such arrangements— which is the appropriate standard under the Clayton
only those whose effect would be likely to substantially Act. While it seems clear that the Sherman Act was
lessen competition in a particular line of commerce. intended in part to protect consumers against the
inefficiencies of monopolies and cartels, it is significant
that at the time of the passage of the Act many
1.3 The Federal Trade Commission Act
economists were in opposition because they believed
The US is nearly unique among competition-law that large business entities would be more efficient.
countries in having two enforcement agencies. In part Whatever the goals of the Sherman Act, it is notable
to counter the power granted to the Executive branch that a merger wave (1895–1905) soon followed the
under the Sherman Act, Congress created the Federal passage of the Act. It may be that outlawing various
Trade Commission (FTC) in 1914. Section 5 of the types of coordinated behavior (Sect. 1) may have
Federal Trade Commission Act, which enables the encouraged legal coordination through merger.
FTC to challenge ‘unfair’ competition, can be applied
to consumer protection as well as mergers. In addition, 3. Historical DeŠelopments
the FTC has the power to enforce the Clayton Act and
the Robinson-Patman Act. While the agencies act Because antitrust focuses on the protection of com-
independently of one another, the FTC and the DOJ’s petitive markets, it was natural to suspect other
enforcement activities have generally been consistent nonstandard organizational forms as potentially anti-
with one another during most of enforcement history. competitive. During the early part of the 1900s, most
What then are the differences between the two antitrust enforcement was public, and it was directed
enforcement agencies? A simple answer is that the against cartels and trusts. Early successes included

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convictions against the Standard Oil Company promotes competition or whether it is such as may
(Standard Oil Šs. US) and the tobacco trust for suppress or even destroy competition.’ In this and in
monopolization in 1911. subsequent cases, the court failed to provide a clear
It is important to note, however, that the Sherman statement of when and how a rule of reason analysis
Act does not prohibit all restraints of trade—only should be applied.
those restraints that are unreasonable. The distinction Antitrust enforcement agencies and the courts
between reasonable and unreasonable restraints re- continue to debate the mode of analysis that is most
mains a subject of debate today. It is significant, appropriate in particular market contexts and when
however, that the distinction between per se analysis particular practices are at issue. Both courts and
(in which a practice is deemed illegal on its face) and agencies deem it appropriate to undertake some form
rule of reason (in which one trades off the pro- of ‘quick-look analysis,’ one which goes beyond the
competitive and anticompetitive aspects of a practice) application of a per se rule, but which falls short of a
was made during this early period, and it remains full rule of reason inquiry (see California Dental
important today. Association Šs. FTC 1999, Melamed 1998). Per se rules
By its nature, a per se rule creates a rebuttal are applied to certain horizontal restraints, involving
presumption of illegality once an appropriate set of two or more firms operating in the same line of
facts is found. Per se rules have the advantage that business. Quick-look and rule of reason analyses are
they provide clear signals and involve minimal en- more prevalent when the restraints at issue are vertical
forcement costs. Yet actual firm behavior in varying (involving two or more related lines of business, e.g., a
market contexts generates exceptions that call for in- manufacturer and a supplier).
depth analyses. It is not surprising, therefore, that the Quick-look and more complete rule-of-reason
per se rule is the exception to the rule-of-reason norm. analyses have relied on a number of basic principles.
An example of the application of rule of reason is First and foremost is the market power screen. Courts
price discrimination. Viewed as an exercise of mono- have appreciated that antitrust injury necessitates the
poly power, the practice was seen as suspect. Indeed, exercise of market power. Antitrust analysis typically
the Robinson-Patman Act presumes that with barriers begins with the measurement of market share pos-
to entry, price discrimination marks a deviation from sessed by firms alleged to engage in anticompetitive
the competitive ideal that was presumed to have conduct. As many scholars have noted (e.g., Stigler
monopoly purpose and effect. Efficiency justifications 1964), in the absence of collusion, the exercise of
for price discrimination and other ‘restrictive prac- market power in unconcentrated markets is unlikely.
tices’—promoting investment, better allocating scarce Market concentration is often seen as a necessary but
resources, and economizing on transaction costs— not sufficient condition for the exercise of’ market
were overlooked during the early enforcement period. power, since ease of entry, and demand and supply
Confusion also arose between the goal of protecting substitutability can limit the ability of firms to raise
competition and the practice of protecting com- prices even in highly concentrated markets (e.g.,
petitors. At the beginning of the twenty-first century, Baumol et al. 1982). But, market concentration
however, efficiency arguments are clearly pertinent to —market power screens are not essential; witness the
the evaluation of Robinson-Patman claims. Supreme Court’s opinion in FTC Šs. Indiana Federal of
There is no doubt that antitrust enforcement is Dentists (1986).
difficult, even with the more sophisticated tools of Although courts have long recognized the import-
industrial organization that are available today. The ance of market power to conclusions about antitrust
Sherman Act does not offer precise guidance to injury, the standards by which they adjudicate anti-
the courts in identifying illegal conduct. In both the trust cases, and their willingness to apply sophisticated
Clayton Act and the Sherman Act, Congress has economic analysis, has varied significantly over time.
chosen not to enumerate the particular types of Antitrust policy once treated any deviation from the
conduct that would violate the antitrust laws. Instead, competitive ideal as having anticompetitive purpose
Congress chose to state general principles, such as and effect. Vertical arrangements were particularly
attempts to monopolize, and contracts or com- suspicious if the parties agreed to restraints that
binations that restrain trade, without elaborating on limited reliance on market prices. Over time, however,
what actually qualifies for the illegal behavior. It was the critique of such arrangements diminished as
left to the courts to ascertain the intent of the antitrust economists began to appreciate the importance of
statutes and to distinguish conduct that harms com- efficiencies associated with a range of contractual
petition from conduct that does not. practices.
In a significant early case, Board of Trade of the City
of Chicago Šs. USA (1918), the Supreme Court
reiterated the reasonableness standard for evaluating
3.1 The Structure-conduct InterŠentionist Period
restraints of’ trade. The Court concluded that ‘The
true test of legality is whether the restraint imposed is During the 1950s and the 1960s the normative analysis
such as merely regulates and perhaps thereby of antitrust was dominated by the work of Joe Bain on

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