Antitrust regulation is accomplished through legal statutes that proscribe anticompetitive conduct and unfair business practices. Its major role is to protect consumers against anticompetitive behavior that raises prices, reduces output, and hinders innovation and economic growth (Baker 2003). Antitrust laws originally were formulated for the purpose of combating business trusts. A trust was a legal form of business entity that was created during the nineteenth century in the United States in which the shareholders of the companies in an industry transferred their shares to a board of trustees in exchange for dividends. That process led to the formation of giant monopoly firms such as John D. Rockefeller’s Standard Oil Trust. Eventually the term antitrust was used to refer to government regulation of monopolies in general.
The impact of antitrust regulation on the economy has been the subject of long-standing debate. Critics of the concept argue that excessive competition endangers the functioning of industries with high fixed costs and low marginal costs such as railroads and public utilities. In this case engaging in monopoly practices such as price discrimination may enable firms to recover fixed costs and realize economies of scale and scope (Kovacic and Shapiro 2000). There are also concerns about the way competition policy is designed and executed. Some corporate leaders feel that the laws are vague and ambiguous, whereas others think that antitrust statutes give too much power to politicians. Public choice theorists emphasize the idea that antitrust enforcement may not always serve consumers’ interest but instead favor private corporate or political interests.
Despite those criticisms competition generally is thought to be desirable for a variety of reasons: It stimulates individualism and innovation, guarantees wider product choices for consumers, and promotes economic efficiency as market participants strive for business success. Competition, however, cannot sustain itself. Without regulation competitors inevitably will agree to raise prices, and the victims of that conduct will be unable to protect themselves.
The first federal antitrust law in the United States, the Sherman Act, was passed by Congress in 1890. It outlawed “every contract, combination or conspiracy in restraint of trade” as well as “monopolization.” The legislation made illegal collusive arrangements such as price-fixing, bid rigging, resale price maintenance, and territorial and structural division agreements that would tend to establish a monopolistic practice. The Sherman Act gave federal judges substantial discretion in court, and that led Congress to pass in 1914 two other laws to substantiate the original statute: the Clayton Act and the Federal Trade Commission Act. The Clayton Act outlined particular practices that were deemed illegal, such as price discrimination (Section 2), exclusive dealing and tying contracts (Section 3), and corporate mergers when they were intended to create a monopoly (Section 7). The Federal Trade Commission Act formed an administrative body, the Federal Trade Commission, to design antitrust policy. Today the Federal Trade Commission and the Antitrust Division of the Justice Department are jointly responsible for the enforcement of antitrust laws in the United States. In a 1993 article B. Dan Wood and James Anderson provided a discussion of the competencies and activities of the government agencies that regulate antitrust.
ANTITRUST REGULATION IN EUROPE AND INTERNATIONALLY
The foundation of antitrust regulation in the European Union is outlined in Articles 81 and 82 of the European Community Treaty. Article 81 outlawed agreements such as price-fixing and market sharing, and Article 82 made illegal the practice of predatory pricing aimed at eliminating competitors from the market. Although similar in spirit to antitrust policy in the United States, competition policy in the European Union is intended to advance economic integration among its members.
There has been increasing cooperation among countries in acting against international cartels. The efforts of law enforcement authorities are coordinated through the International Competition Network, an international body whose goal is convergence in the enforcement of antitrust regulation laws. In the first decade of the twenty-first century more than a hundred countries adopted antitrust laws.
Leniency programs are legal incentive schemes that offer the members of a cartel amnesty from prosecution if they report a conspiracy and cooperate with the investigation. The purposes of these programs include detection and successful prosecution of cartel members as well as desta-bilization of cartels and deterrence of their formation. The United States established a leniency program in 1993; the European Union adopted a revised leniency program in 2002. Countries such as Brazil, Canada, the Czech Republic, Germany, Ireland, Korea, Sweden, and the United Kingdom have used leniency programs as part of their antitrust enforcement efforts. Economists and game theorists increasingly are involved in the design of leniency schemes.
SEE ALSO Antitrust; Competition; Competition, Marxist; Competition, Perfect; Deregulation; Discrimination, Price; Monopoly; Regulation; Returns, Increasing; Returns to Scale
Baker, Jonathan B. 2003. The Case for Antitrust Enforcement. Journal of Economic Perspectives 17 (4): 27-50.
Kovacic, William E., and Carl Shapiro. 2000. Antitrust Policy: A Century of Economic and Legal Thinking. Journal of Economic Perspectives 14: 43-60.
Wood, B. Dan, and James E. Anderson. 1993. The Politics of U.S. Antitrust Regulation. American Journal of Political Science 37 (1): 1-39.
Damian S. Damianov