ANTITRUST POLICY
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Principles of
Microeconomic Theory,
ECO 284
John Eastwood
CBA 247
523-7353
e-mail address:
John.Eastwood@nau.edu
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Trust:
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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
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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
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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)
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Practices made illegal:
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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
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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
1920’s
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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
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Allowed resale price maintenance
contracts (1937)
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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)
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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 1970’s.
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The Hart-Scott Rodino Antitrust
Procedural Improvements Act
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required that pending mergers be
reported in advance to the FTC and the
Justice Department (1980)
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Judicial Interpretation
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Rule of Reason
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US vs. U S Steel (USX)
overt acts
The Per Se Doctrine
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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
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