2. Antitrust, Mergers, and Competition Policy
Chapter 10
Antitrust, Mergers, and Competition Policy
The Dilemma of Corporate Power
Antitrust Regulation
Corporate Mergers
Global Competition and Antitrust Policy

3. Corporate power Corporate power
The strength or capability of corporations to influence government, the economy, and society, based on their organizational resources and size.

4. The 10 largest global corporations,
Figure 10.1
The 10 largest global corporations,
Rank 1 2 3 4 5 6 7 8 9 10
By Sale
(billions of U.S. $)
Wal-Mart
$244.5
Exxon Mobil
204.5
General Motors
184.2
Royal Dutch/Shell
179.4 BP
178.7
Ford Motor
162.6
Daimler Chrysler
156.8
Toyota Motor
134.2
General Electric
131.7
Allianz
126.8
By Profits
(billions of U.S. $)
Citigroup
$15.3
General Electric
15.1
Altria Group
11.1
Exxon Mobil
11.0
Royal Dutch/Shell
9.4
Bank of America
9.3
Pfizer
9.2
Wal-Mart
8.0
Toyota Motor
7.9
Microsoft
7.8
By Market Value
(billions of U.S. $)
General Electric
$286.1
Microsoft
264.0
Exxon Mobil
244.9
Pfizer
Wal-Mart
232.2
Citigroup
210.9
Johnson & Johnson
161.4
Royal Dutch/Shell
158.5 BP
153.2
AIG
151.0

5. Figure 10.2
Comparison of transnational corporations’ sales and the gross domestic product of selected nations
ExxonMobil
Indonesia
Wal-Mart
Turkey
General Motors
South Africa
Ford
Thailand
DaimlerChrysler
Finland
General Electric
Portugal
Toyota
Singapore
$ Billions of Sales (2000)
Gross Domestic Product $ Billions (2000)

6. Antitrust laws Antitrust
Laws that promote competition or that oppose trusts, monopolies, or other business combinations that restrain trade.

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

8. Major federal antitrust laws
Figure 10.3a
Major federal antitrust laws
Sherman Act
Clayton Act
Federal Trade
Commission Act
Antitrust
Improvements Act
Forbids restraint of trade and monopoly
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

9. The Sherman Act
Prohibits contracts, combinations, or conspiracies that restrain trade and commerce.
Prohibits monopolies and all attempts to monopolize trade and commerce.
Provides for enforcement by the Justice Department, and authorizes penalties for violations.

10. The Clayton Act Prohibits price discrimination by sellers.
Forbids tying contracts that require someone to buy a related and perhaps unwanted product in order to get another one produced by the same company.
Prohibits companies from merging through purchase of shares or assets if competition is lessened or a monopoly is created.
Outlaws interlocking directorates in large competing corporations.

11. The Federal Trade Commission Act
Created the Federal Trade Commission to help enforce antitrust laws.
Prohibits all unfair methods of competition.
Gives more protection to consumers by forbidding unfair and deceptive business practices.

12. The Antitrust Improvements Act
Requires large corporations to notify the Justice Department and the Federal Trade Commission about impending mergers and acquisitions.
Expands the Justice Department’s antitrust investigatory powers.
Authorizes the attorneys general of all 50 states to bring suits against companies that fix prices and to recover damages for consumers.

13. Federal antitrust enforcement
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
Lawsuits
Investigation
Lawsuits
Consent decrees
Court opinions
and decisions

14. 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?

15. Corporate mergers Corporate merger
A combination of one company with another.
Vertical mergers
Occur when the combining companies are at different stages of production in the same general line of business.
Horizontal mergers
Occur when the combining companies are at the same stage or level of production or sales.
Conglomerate merger
Occurs when firms that are in totally unrelated lines of business are combined.

16. Forces driving mergers in
the 1990s and 2000s
Technological change: Major companies in telecommunications and media industries jockeyed for a favorable position on the emerging information superhighway. The need to keep ahead of advances in biotechnology
drove many mergers in the pharmaceutical and chemical industries.
Changes in the regulatory environment: Telecommunications deregulation
led to a wave of mergers among long-distance phone companies, cable
operators, and regional carriers. Mergers also resulted in anticipation of
regulatory changes in the health care industry. Many financial services firms
merged in response to changes in federal law.
Globalization: Many companies found it difficult to compete on the world
stage as a result of globalization and subsequently merged.
Stock price appreciation: The long bull market of the late 1990s contributed
to the merger wave.

17. Value of mergers and acquisitions,
Figure 10.4
Value of mergers and acquisitions,
Billions of dollars
Source: “M & S Profile” published annually by Mergers and Acquisitions.

18. 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 with 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?