ECON 202 The Evolution of the Anti-Trust Policy in the United States

The Evolution of the Anti-Trust Policy in the United States

Introduction

The term 'anti-trust’ arose in the late 19th century due to the practice of the government of the United States where it was busting the trust funds and companies to ensure that they did not grow so big. Anti-trust, therefore, refers to a broad number of policies in the United States that affect competition (Ullrich, 2005). These policies promote competition and the practice of fair business practices so that one company does not have an unfair advantage over others.

Historical Evolution of the Anti-Trust Policy in the Country

The first Anti-trust law in the United States was the Sherman Act. The Sherman Act was promulgated in 1890 (Beker Institute, 2005). Following the end of the American civil war, trusts in different fields (Federal Trade Commission, 2008). Trusts emerged in railroads, in coffee, tea and cotton farming. Concerns emerged among the general population that these trusts were engaging in unfair conduct and were not properly regulated. It is on this background that the Sherman Act was enacted. In 1914, the Clayton Act was enacted. The act's purpose was to outline the specific activities that hinder competition and to outlaw the companies from participating in these activities.

Arguments arose that the executive branch of government was granted too many powers due to the Sherman Act. Congress of the United States established the Federal Trade Commission Act that resulted in the birth of the Federal Commission of the United States. The commission enforced penalties against companies that had flouted the competition rules. Other functions included protecting the consumers against the unfair competition and business practices of conglomerates.

Some of the important cases under the Sherman Act included the Exxon Corporation Versus the Governor of Maryland. The Exxon Corporation sued the state government as they protested implementing a policy that would require all of them to follow uniform price strategies (Exxon Corporation v. Governor of Maryland. n.d.). They favored a much more national policy that would have promoted competitive business practices. They saw the state's actions as interfering in the business practices of an industry determined by the free market forces.

The second case is the New Motor Vehicle Board of California versus the Northern California car dealers association in which the bone of contention was that the board required the car dealers to seek permission from it before they would engage in practices of entering into the new dealership (Cornell Legal Information Institute, n.d.). The association also argued that the Sherman Act mandated them to seek protection from the board if there is unfair intra-brand competition.

Types of business mergers that exist

The anti-trust policy allows the following types of business combinations: mergers and acquisitions. Mergers exist in different forms. These are horizontal mergers that occur within the same industry product extension mergers (specifically for the companies that trade or deal in similar products) (Minority Business Development Agency, 2012). There is also market extension mergers that occur between one company and another where the other firm is looking at ways of expanding its market base.

General Trend in Market Concentration in the past twenty years

Over the last twenty years, there has been an increase in negative concentration. The productivity growth has been weak. It has not been as strong as it could be (Philipon, 2019). There has also been a decline in investment capacities of companies that in the past would have acted as company investors. Negative concentration leads to less profitability in mergers and acquisitions.

Measurement of the Market Concentration

Market concentration is measured using an index known as the Herfindahl-Hirschman Index (Department of Justice, 2015). The index is calculated through the addition of the square root of the market share of each of the companies in the industry.

Consumer Welfare Standard

The consumer welfare standard for anti-trust is used in directing the courts to focus on the effects of the challenged businesses on the consumers rather than looking at the expected or alleged effect on the specific competitors (Bowman, 2021). In this standard, the questions answered are how a consumer gets affected by a lack of proper competition.

Conclusion

Anti-trust policies are used in the promotion of competition and fair business practices. It focuses on ensuring that both the consumers and the business have a fair chance at business. No organization is getting involved in unbecoming business conduct of dominating over other firms.

References

Beker Institute. (2005). the Sherman Antitrust Act (1890) Section 1. Trusts, etc., in restraint of trade illegal; penalty Section 2. Monopolizing trade a felony; penalty. http://neconomides.stern.nyu.edu/networks/ShermanClaytonFTC_Acts.pdf

Bowman, S. (2021). Consumer Welfare Standard. International Center for Law & Economics. https://laweconcenter.org/resource/tldr-consumer-welfare-standard/

Cornell Legal Information Institute. (n.d.). NEW MOTOR VEHICLE BOARD OF the State of CALIFORNIA et al., Appellants, v. ORRIN W. FOX CO. et al. NORTHERN CALIFORNIA MOTOR CAR DEALERS ASSOCIATION et al., Appellants, v. ORRIN W. FOX CO. et al. LII / Legal Information Institute. Retrieved February 28, 2022, from https://www.law.cornell.edu/supremecourt/text/439/96

Department of Justice. (2015, June 25). Herfindahl-Hirschman Index. Justice.gov. https://www.justice.gov/atr/herfindahl-hirschman-index

Exxon Corporation v. Governor of Maryland. (n.d.). Oyez. Retrieved February 28, 2022, from

https://www.oyez.org/cases/1977/77-10

Federal Trade Commission. (2008). FTC Fact Sheet: Antitrust Laws: A Brief History. https://www.consumer.ftc.gov/sites/default/files/games/off-site/youarehere/pages/pdf/FTC-Competition_Antitrust-Laws.pdf

Minority Business Development Agency. (2012, April 20). 5 Types of Company Mergers. Minority Business Development Agency. https://archive.mbda.gov/news/blog/2012/04/5-types-company-mergers.html

Philipon, T. (2019). The Economics and Politics of Market Concentration. NBER. https://www.nber.org/reporter/2019number4/economics-and-politics-market-concentration

Ullrich, H. (2005). Anti-Unfair Competition Law and Anti-Trust Law: A Continental Conundrum? SSRN Electronic Journal. https://doi.org/10.2139/ssrn.837086