Economic objectives of antitrust laws 1. The protection and preservation of competition. 2. To protect the consumer’s welfare by prohibiting deceptive and unfair business practices. 3. To protect small, independent business firms from the economic pressures exerted by big business competition. 4. To preserve the values and customs of small-town America.

Figure 10.3a Major federal antitrust laws Sherman Act Clayton Act Federal Trade Commission Act Antitrust Improvements Act Forbids restraint of trade and monopoly (although monopolies not illegal per se) Forbids price discrimination, tying contracts, anticompetitive mergers, and interlocking directorates Forbids unfair competition and deceptive business practices Requires premerger notification and permits state suits on behalf of consumers against price fixing

Figure 10.3b Federal antitrust enforcement Federal Trade Commission Justice Department Private Persons and Companies State Attorneys General Federal Courts Investigation Guidelines Advisory opinions Informal settlements Lawsuits Investigation Lawsuits Consent decrees Court opinions and decisions

Key antitrust issues Monopoly:  Does domination of an industry or a market by one or a few large corporations necessarily violate antitrust laws?  Critics claim that economic concentration can eliminate effective price competition, reduce consumer choices, inhibit innovation, and concentrate profits in too few hands. Others claim the opposite is true. Innovation:  Focus in antitrust policy.  In today’s economy, regulators have increasingly promoted competition to foster technological innovation. Thus, the rationale for bringing antitrust actions is to spur innovation in many cases. High technology business:  Economy has changed in the information age from when antitrust laws were crafted.  Are the basic principles of antitrust law applicable today?

New challenges for antitrust enforcement Should the government permit mergers, joint ventures, or other cooperative arrangements among companies if they enhance the ability of American businesses to compete internationally? Should the government break up monopolies within the United States if the global marketplace for the products or services offered by these companies is highly competitive? Should federal regulators and the courts try to enforce U.S. antitrust laws against foreign companies if these companies operate subsidiaries in the United States? What steps can the government take to create a level playing field for U.S. corporations, so that U.S. and foreign firms operate under a common set of antitrust rules and regulations?

“Whirlpool Faces Antitrust Fight on Maytag Deal” Federal antitrust enforcers are preparing possible court challenge to Whirlpool’s acquisition of competitor Maytag, to prevent combined companies from dominating home-appliance market Combining Whirlpool and Maytag would create market giant producing half of U.S. dishwashers and more than 70% of clothes washers and dryers Deal has been seen as bellwether for antitrust enforcement by Bush administration, which has challenged few mergers Consumer groups contend Bush Justice Dept has not been tough enough in reviewing mergers Justice Dept approved to giant telecommunications mergers (purchase of AT&T by SBC and Verizon’s acquisition of MCI) w/ no conditions, despite concerns expressed by consumer groups that it would lead to higher prices for customers Whirlpool and Maytag say merger should be approved to create stronger competitor against international competition, esp from China But Justice Dept staff has been skeptical of this argument, has tentatively concluded that any economic efficiencies claimed by cos are outweighed by their ability to raise prices if deal were to proceed Source: Wall Street Journal, 2/13/06

“EU’s Key Point Against Mergers Is Dealt a Blow” European Court of Justice, Europe’s highest court, rejected central argument that European antitrust regulators have used to stop mergers Held that regulators hadn’t done enough to prove competitors would be harmed by proposed merger Court set high standard for European Commission’s argument that companies shouldn’t be allowed to join because combined entity might more easily leverage its increased market power to engage in illegal competitive behavior Companies don’t plan to restart merger efforts, but they appealed so as to set precedent – argument is that assessment was speculative Commission had argued that GE’s aircraft engine business, combined w/ Honeywell’s avionics business, would put combined entity in dominant position for airplane engines European Court of First Instance upheld rejection of merger on grounds that competition in certain niche markets, including engines for corporate jets, would be reduced, but held that regulators made error in assuming, wo/ more evidence, that combination would crush competition in several markets European Commission has pledged to make Europe more friendly to business to help end region’s economic stagnation Source: Wall Street Journal, 2/16/05; 12/15/05