Antitrust is the new economy- Richard A. Posner

Way back in 19th century there were several big giant businesses which were known as trusts. These trusts used to control the whole section of the economy like railroads, sugar, coal, steel etc. Two of the most famous trusts at that time were the U.S. Steel and Standard Oil.

They were monopolies which controlled the supply of their products to maintain the price. The trust first appeared in US railroads where the capital requirement of railroad construction precluded competition services in then scarcely settled territories. This trust allowed the railroads to discriminate on rates imposed and services provided to consumers and businesses and to destroy the potential competitor.[i]

Due to the formation of these controlled several markets, the vast number of citizens become sufficiently aware and publicly concerned about the negative impact of these trusts. So, between 1888 and 1890, thirteen states and the federal government enacted antitrust legislation criminalizing combinations among competitors intended to control the prices in the marketplace.[ii]

In 1898, Then President of United States William McKinley launched the trust-busting era when he appointed several senators to the U.S. Industrial Commission. Later, the Industrial Commission's report to President Theodore Roosevelt laid the foundation for attacks on trusts and malefactors of great wealth.[iii]

The Sherman Act[iv] is the United States' oldest antitrust law. It was passed in 1890. It made it illegal for the competitors to make an agreement with each other that would limit competition for them.

This Act also made it illegal for a business to be a monopoly if the company is cheating or not competing fairly. In 1914, the Clayton Act was passed to further tap on the antitrust practices such as merger to control the prices and production. The Clayton Act tried to protect the consumers by stopping mergers or acquisitions that are likely to stifle competition.

Along with the Clayton Act, the Congress also created a new federal agency to watch out for unfair business practices and gave Federal Trade Commission the authority to investigate and stop unfair methods of competition and deceptive practices by enacting Federal Trade Commission (FTC) Act. Today FTC's Bureau of Competition and Department of Justice's Antitrust Division enforces these three-core federal antitrust laws.[v]

However, the approach towards the antitrust law in united states and the whole world has seen a major shift from initially being an approach that checks the economic structure to approach which is now more concerned about the consumer welfare. The latter approach was brought and popularized by the Chicago school.

Structural Based Approach Of Antitrust Law:

The approach of economic structuralism was based on the idea that concentrated market structures promote anti-competitive forms of conduct.[vi] It was of the view that a market which is dominated by a small number of large companies is likely to be less competitive than a large number of small- and medium-sized companies.

This was basically due to two reasons:

1. monopolistic and oligopolistic market structure enables the dominant actor to better co-ordinate and easily facilitate anti-competitive practices like price-fixing, market division, and tacit collusion;
    
2. Monopolistic and oligopolistic market always acts as a roadblock for new market entrant;
    
3. Consumer loses the bargaining power which enables the monopolistic market players to hike prices and degrade service and quality while maintaining profits.

This understanding was the foundation of antitrust policy and thoughts throughout the 1960s. Courts in the United States subscribing to these views started to block mergers which would have eventually led to the anticompetitive practice in the market. In some instances, the Hon'ble Courts also started to block the horizontal mergers as well as the vertical mergers. Horizontal mergers were those where the two directly competing market players would merger to form a single large entity to enjoy a larger share in the market.

On the other hand, the vertical mergers were those where companies that were operating at different tiers of the supply or production chain would merger to foreclose competition.[vii] The main concern of this approach was not just the size but also the conflict of the interest- like whether allowing a dominant shoe manufacturer to extend into shoe retailing would create an incentive for the manufacturer to disadvantage or discriminate against competing retailers.[viii]

Structural Based Approach Of Antitrust Law:
During the 1970s and 1980s, a new approach gained momentum which was called the Chicago School Approach. They completely rejected the view of a structuralist. In the words of Richard Posner, the essence of the Chicago School lies in viewing the antitrust problems through the lens of Price Theory.[ix]

The foundation of this view was the belief in the efficiency of markets, propelled by profit-maximizing actors. Economics actors that are working within the market seek to maximize profits by combining inputs most efficiently. A failure to act in this will lead to punishment by the competitive forces of the market.[x]

Economic structuralists believed that industrial structure predisposes firms to act towards a certain kind of behaviour that would then steer the market outcome. While the Chicago School presumed that the market outcomes like firm size, industry structure, and concentration levels reflect the interplay between the standalone market forces and technical demands of production.[xi]

Problem From The Shift:
The first major problem from this shift was the significant narrowing of the concept of entry barriers. The entry barrier is the initial cost that every firm needs to bear who seeks entry in the industry but this cost is not carried by the firms already established in the industry. Advantages like capital requirements and scales don't reflect entry barrier according to Chicago School as according to them these are just objective technical demands of production and distribution.[xii] It considered that regardless of the size and the levels of concentration all firms have a threat of potential competition. Hence the market powers are always short-lived.

The second major consequence from the shift was that consumer prices became the dominant metric for assessing competition. Even Robert Bork, the former Solicitor General in the Reagan administration in his book Antitrust Paradox asserted that the sole normative objective of antitrust should be to maximize consumer welfare, which is best pursued by increasing the economic efficiency.

IN 1979, the Supreme Court started following Bork's work and declared that:

Congress designed the Sherman Act as a consumer welfare prescription.[xiii] With the coming of the Reagan Administration, there was a radical departure from the guidelines of 1968 which established that the primary goal of the merger enforcement was to preserve and promote market structures conducive to competition.[xiv] While the 1982 guidelines mentioned that the mergers should not be permitted to create or enhance market power', where market power was defined as the ability of one or more firms profitably to maintain prices above competitive levels.[xv]

Conclusion:
Nowadays, showing antitrust injury requires that one has to show harm to consumer welfare generally in the form of price increases and output restrictions. Though it is also true that the antitrust authorities have not entirely ignored non-price effects.

For example, the 2010 Horizontal Merger Guidelines acknowledged that enhanced market power can manifest non-price harms.[xvi] Even Obama Administration also had opposition to the largest mergers on its watch -Comcast/TimeWarner based on the concerns about the market access but not the prices.[xvii]

But it is still correct to say that the concern for non-price effects rarely animates or drives investigations or enforcement actions.[xviii] Economic factors that are easier to measure such as the impact of price, output or productive efficiency have become disproportionately important.[xix]

End-Notes:

1. Competition law - Wikipedia, , https://en.wikipedia.org/wiki/Competition_law (last visited Jun 10, 2020
2. Collins, W.D., 2012. Trusts and the origins of antitrust legislation. Fordham L. Rev., 81, p.2279.
3. Presidents of the United States - President William McKinley - TheUSAonline.com, , https://www.theusaonline.com/presidents/william-mckinley.htm (last visited Jun 11, 2020).
4. Our Documents - Transcript of Sherman Anti-Trust Act (1890), , https://www.ourdocuments.gov/doc.php?flash=false&doc=51&page=transcript (last visited Jun 11, 2020).
5. (No Title), , https://www.consumer.ftc.gov/sites/default/files/games/off-site/youarehere/pages/pdf/FTC-Competition_Antitrust-Laws.pdf (last visited Jun 11, 2020).
6. Horace M Gray, CARL KAYSEN and DONALD F. TURNER. Antitrust Policy: An Economic and Legal Analysis. Pp. xxiii, 345. Cam bridge, Mass.: Harvard University Press, 1959. \$7.50, 330 Ann. Am. Acad. Pol. Soc. Sci. 199 (1960), https://doi.org/10.1177/000271626033000183.
7. Brown Shoe Co., Inc. v. United States, 370 U.S. 294 (1962)
8. Id.
9. Richard A Posner, The Chicago School of antitrust analysis, 127 Univ. PA. Law Rev. 925–948 (1979)
10. Marc Allen Eisner, Antitrust and the triumph of economics: institutions, expertise, and policy change (1991).
11. Paul H Brietzke, Robert Bork, The Antitrust Paradox: A Policy at War with Itself, 13 Valparaiso Univ. Law Rev. 403–421 (2011).
12. Marc Allen Eisner, Antitrust and the triumph of economics: institutions, expertise, and policy change (1991).
13. Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979)
14. 1968 Merger Guidelines, U.S. DEP'T JUST. 1 (1968), http://www.justice.gov/sites/default/files /atr/legacy/2007/07/11/11247.pdf
15. 1982 Merger Guidelines, U.S. DEP'T JUST. 2 (1982), http://www.justice.gov/sites/default/files /atr/legacy/2007/07/11/11248.pdf
16. Horizontal Merger Guidelines, U.S. DEP'T JUST. & FTC (Aug. 19, 2010), http://www.ftc.gov /sites/default/files/attachments/merger-review/100819hmg.pdf
17. Emily Steel, Under Regulators' Scrutiny, Comcast and Time Warner Cable End Deal, N.Y. TIMES (Apr. 24, 2015), http://www.nytimes.com/2015/04/25/business/media/comcast -time-warner-cable-deal.html
18. Marcin Mleczko, Maurice E. Stucke, Allen P. Grunes, Big Data and Competition Policy, Oxford University Press, 2016, ss. 368, 7 internetowy Kwart. Antymonop. i Regul. 163–165 (2018).
19. Id.