While the Chicago school and the Neo-Brandeisians prefer different levels of antitrust enforcement, both believe that antitrust regulation is an effective tool for managing competitive market processes. In this, both are in error, for a number of reasons. First, competition is a spectrum, not an on/off switch.
Moreover, many antitrust policies are based on faulty arguments that bear little relation to how real-world markets work. And throughout its history, U.S. antitrust law has created considerable uncertainty for businesses, as federal antitrust enforcers have tried different regulatory approaches over the last 130 years.
Fourth, antitrust regulation creates rent- seeking opportunities for companies seeking favors from government to harm competitors. As a result, antitrust regulation, as actually practiced, has done far more to stifle competition than to protect it or promote it.
Antitrust regulators can penalize a company for predatory pricing if it charges lower prices than its competitors. The thinking goes that a company can sell goods at a loss to gain market share, causing competitors to exit the market or even go bankrupt. Then the predator can raise its prices and enjoy monopoly profits.
Early populism. Antitrust regulation as we know it began in the late 19th century as part of a larger populist movement against big business and concentrated power. It resulted first in the Sherman Act of 1890, which made illegal restraints of trade or attempts to monopolize an industry. It was refined and strengthened by the Clayton Act of 1914 and the Federal Trade Commission (FTC) Act of 1914, both signed into law by President Woodrow Wilson. The Clayton Act provided guidelines for merger policy, among other things, while the FTC Act created a new agency to share antitrust jurisdiction with the Justice Department. Section 5 of the FTC Act also amended the Sherman Act’s vague “restraint of trade” standard by adding language on “unfair or deceptive acts or practices,” though it still left it largely up to agencies and courts to define those terms.
If Google did not fear losing revenue to competitors, it would feel no need to spend such resources to improve its offerings. This paper shows that the approach to antitrust law now prevalent in both the United States and the European Union is misguided and can lead to considerable economic harm.
Horizontal mergers are between companies competing in the same market. Vertical mergers are between companies up and down the supply chain. General Motors and Ford merging with each other would be a horizontal merger, while one of them merging with one of its suppliers would be a vertical deal. Horizontal mergers reduce the number of competitors in a market, and increase their average size. Both of these are red flags for regulators searching for possible restraints of trade or attempts at monopolization.
Exclusive dealing still exists because regulators wisely decline to enforce the letter of the law.
A classic example is a law firm. When two or more lawyers join together in a law firm, they agree in advance to charge certain rates and not to compete with each other for clients, yet no antitrust regulator would file a case against such a firm.
The most recent major case was the Justice Department’s case against Microsoft. It involved a personal computer market that Microsoft played a large part in popularizing in the first place.51 The Justice Department began the first of multiple investigations Microsoft in 1992 and extracted a settlement in 1994.
The Sherman Act of 1890 makes illegal “every contract, combination, or conspiracy in restraint of trade,” and declares that, “every person who shall monopolize, or attempt to monopolize, or conspire to monopolize shall be deemed guilty of a felony.”.