Competition law seeks to promote and maintain healthy rivalry in the market. It achieves this through regulation of anti-competitive practices among business organizations (Whinston, 2006). In most cases, the legislation is enforced by various agencies and regimes. In the United States competition legislations are mainly known as antitrust law.
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The main objective of this study is to carry out a comprehensive analysis of the competition law in the U.S. The paper explores various aspects of the legislation, including its history and applications in the country. In addition, the implementation of antitrust law in the U.S. and its impacts on business is analyzed. Finally, a conclusive review of the law is provided.
The American Antitrust Law
The Competition Act in the US: A Historical Background
The origins of the current competition policy dates back to the 19th century. It was formulated towards the end of this era. According to Whinston (2006), the second of the half of the 19th century was characterized by major developments that significantly transformed the manufacturing industries in the U.S. Chief among these events included the tremendous expansion of the transportation and communication sectors.
The introduction of railway networks, telephone services, and telegraph lines had a significant impact on the U.S market. As a result of these developments, a large single market was established. The new market provided incentives to the business firms, leading to increased production. The commercial establishments were able to optimally exploit the emerging economies of scale and scope (Etro, 2007).
The period also saw momentous technological innovations in the chemical, energy, and metallurgy industries. The developments led to the introduction of highly advanced managerial methods and capital markets (Etro, 2007). Organizations operating in this sector were presented with many opportunities to expand. Legal innovations were also recorded (Etro, 2007). They included the liberalization of state corporation laws. The event made it possible to engage in business acquisitions. Just like in the case of technological innovations, liberalization increased opportunities for expansion (Besen & Levinson, 2012).
The end of the 19th century witnessed fluctuation of prices of different commodities (Besen & Levinson, 2012). The instability in prices was brought about by several economic crises and varying macroeconomic factors. The fall in the costs associated with communication and transportation had led to increased competition in the economy. The reason Si that local firms had to compete with rivals from far off places in the U.S or abroad (Whinston, 2006). The interplay of these factors led to unstable prices.
Due to the increased competition, price wars, and market instability, firms resorted to business practices that proved detrimental to other sectors of the economy. For instance, some commercial agencies engaged in price settings to maintain high prices and profit margins. Other developments included the establishment of cartels and trusts. Business organizations operating in the railroad and oil sectors were especially known for such practices. They were able to fix prices in the market to bolster their profit margins (Whinston, 2006).
The final consumers were hurt by the high prices resulting from the practices enumerated above. Producers were not spared either. For instance, farmers and small industrial establishments relied heavily on inputs from the cartelized sectors (Whinston, 2006). In addition to selling their outputs at low prices, they were charged highly for inputs. On their part, small firms had to deal with unfair practices from their larger competitors. The unregulated rivalry almost drove these small scale operators out of business (Whinston, 2006).
According to Posner (2001), the small business operators and farmers had a significant political clout. In addition, they enjoyed public sympathy capable of facilitating creation of antitrust laws in the U.S. However, such laws could not be applied to agreements made between firms operating in different states. By 1890, a consensus on the development of a federal antitrust law had been achieved (Posner, 2001).
The Sherman Act of 1890 was one of the earliest antitrust laws in the U.S (Whinston, 2006). The legislation sought to restrict unfair competitive practices by large firms. Such practices included cooperating with rivals to fix prices, outputs, and market shares. Such activities were initially undertaken through pools and later via trusts (Posner, 2001).
Over the years, the Sherman Act has been succeeded by more antitrust laws to cover areas not initially covered. The Clayton Act and the Federal Trade Commission Act are significant antitrust legislations in the history of the U.S competition policies. It is noted that the Sherman Act only covered price fixing, market sharing agreements, and monopolization practices (Posner, 2001). The law did not apply to mergers.
Implementation of the U.S Competition and Antitrust Policy
Posner (2001) argues that the U.S. antitrust law has evolved around two concepts of competition. At times, the elements are in conflict with one another. The first concept has to do with individual liberty. It highlights the idea of freedom from government interventions. The concept entails fair competitive environment, which is free from excessive economic powers (Posner, 2001).
A number of economic models have been formulated to support the anti-trust legislation. The models have been adopted by the government. Section 1 of the act defined illegal contracts as those developed in form of trusts. In addition, contracts dealing with conspiracies or restraining trade within the various states and between nations were deemed illegal (Posner, 2001).
Section 2 of the legislation prohibited monopolies or any other form of conspiracy aimed at establishing such businesses (Posner, 2001). The judiciary in the country has been using this law to regulate the activities of businesses. In extension, the legislation is used to regulate the market as a whole. According to Whinston (2006), the courts applied the Sherman Act of 1890 without any consistent economic analysis, up until 1914 when the Clayton Act was introduced (Motta, 2004).
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According to Motta (2004), the rule of reason was applied by courts in enforcing competition laws in the U.S. beginning from 1915 going forward. However, Whinston (2006) postulates that this duration was characterized little or no enactment of antitrust law in the U.S. The structure-conduct-performance construct or framework developed by the Harvard School was however utilized by courts in enacting competition law in the U.S. form1936 to 1972 (Posner, 2001).
The enforcement of antitrust laws in the U.S. from 1972 to 1991 was founded on efficiency explanations. The foundations emanated from paradigms from writings of judges such as the antitrust paradox book, and Chicago school frameworks (Posner, 2001). The game theory has since been in application in most anti-trust cases since 1992 (Manne & Marcellus, 2005).
Competition law policy and enforcement institutions
The U.S has very strong and well established antitrust and competition law enforcement institutions. According to Manne and Marcellus (2005), the country has various enforcement methods. They include maintenance and coordination. However, consistency in enforcement is becoming a challenge. The U.S has two national-level competition policy enforcement institutions. The two exhibit differing models of institutional frameworks. The first agency is the U.S Antitrust Division of the Department of Justice (Posner, 2001). The institution is part of the executive arm of government.
The U.S Antitrust Division is located in the Department of Justice. It is noted under a department specifically mandated with economic policy. The reason for this is that it is founded on the origins of Sherman’s Act, which is a criminal statute (Posner, 2001). The institution hence advances a tradition of prosecution, coupled with policy analysis. The other competition law policy enforcement institution in the U.S is the Federal Trade Commission [FTC] (Posner, 2001). FTC is an independent body located between the legislature’s political and geographical jurisdictions. Posner (2001) further poses that FTC was established with an aim of bringing greater technical expertise in the competition policy.
However, the basic mandate of FTC was established on common law of unfair competition (Posner, 2001). Consequently, the agency is also charged with the role and process of law enforcement. Up to date, the U.S. does not have a competition agency, which has powers for direct economic regulation, since the proposal of establishing one was rejected in 1914.
The U.S, as a result, has two competition law enforcement agencies. Each of the agencies is staffed with combination of economists and lawyers, who combine prosecutorial skills and policy expertise with political accountability (Chen, 2003). The personnel in the two agencies implements competition related policies through application of general principles for every case and particular situation. Historically, the two agencies have had no conflicts arising from the redundancies, since their responsibilities have been divided in a manner that avoids duplication (Posner, 2001).
Evaluation of the Competition Law
The U.S Antitrust Division has exhibited a tradition of separate decision making, which has no influence from, or consultations from the higher political authorities. Under the law, the division publishes and solicits public comments regarding proposed consent decrees (Prosser, 2005). The Antitrust Division cannot however issue binding orders based on its authority, however, it must make its cases to federal judges who are independent (Posner, 2001).
FTC on the other hand establishes its independence through Commissioner’s fixed terms of tenure, and their being not subject to removal (Posner, 2001). FTC also publishes its decisions regarding various antitrust issues, in order to initiate various kinds of action. In both competition law enforcement institutions, final decisions arise from the Commission and ultimately from the court (Prosser, 2005).
Enforcement of the U.S Competition Law
According to Posner (2001), both FTC and the Antitrust Division have sufficient powers for taking independent action. In addition, these powers allow them to gather information necessary in reaching reasoned decisions, as well as ensuring effectiveness of these decisions. Both agencies also implement enforcement programs independently, as well as take actions and decisions without necessarily having to obtain formal authorization from other government arms (Posner, 2001).
The U.S. Antitrust Division and FTC consult informally, and with other regulatory agencies which have mandate or interests in given industries or companies (Prosser, 2005). In addition, these agencies have the powers of demanding or requesting for documents and testimonies for cases relating to antitrust policies (Prosser, 2005).
The antitrust Division is primarily responsible for enforcement of the Sherman and Clayton Acts. According to Posner (2001), the Antitrust Division usually appears before federal court as a prosecutor or party plaintiff, filing conventional indictments or complaints (Whish, 2003). The process might lead to trial before a jury or a judge, as well as an independent opinion by an independent federal judge (Posner, 2001).
FTC on the other hand issues complaints on its own internal process, an action that can lead to hearings similar to judicial trials (Posner, 2001). The trials are however held before Administrative Law Judge and a Commission employee having a protected tenure status to some extent. Decisions or opinions by FTC are usually on appeal, from initial decisions by the Administrative Law Judges (Prosser, 2005).
According to Posner (2001), availability of judicial reviews signals the ultimate checks on the enforcement policies and processes of FTC and Antitrust Division. Initial substantive decisions finding liabilities either from juries or trial judges or by FTC in adjudicative matters have the option of being appealed in Federal Courts of Appeal (Whish, 2003). Independent appellate judges having authority to hear cases even from private cases or other regulatory programs control consistency in interpretation as well as application of competition law. In addition, they also have great influence with regard to relationship of competition principles and other regulatory programs (Whish, 2003).
According to Rochet and Jean (2003), judicial reviews have tended to facilitate continuity of competition policies. In addition, over the last 20 years, the influence of judges exhibiting an economic perspective has significantly strengthened economics-oriented antitrust policy in the U.S (Prosser, 2005).
The option of private enforcement of U.S. competition law also exists. Apparently, individuals or corporations injured through violations of antitrust laws are allowed to sue (Prosser, 2005). In case of success if they sue, these entities are entitled to triple the amount of damages suffered, plus the attorney’s and court fees. Ultimately, the U.S. Competition law can be enforced by the state. According to Posner (2001), state enforcement officials are tasked with presenting antitrust cases to the state. The officials do this for damages or injunctive relief on behalf of the residents in the particular state.
The U.S Competition Law and its Impact on Business and Society: A Review of Efficacy
The contemporary new economy is characterized by increasingly dynamic global and innovative markets. The markets require new ways of approaching various economic issues such as that of competition, through dynamic policies. Hence, the U.S. antitrust policies have been evolving in a manner that has had significant impact on businesses, the market, and society as a whole (Whish, 2003).
The U.S. competition law enforcement agencies have been particularly active in promoting and facilitating competitive methods in the market. According to Whinston (2006), the advocacy of these institutions has immensely contributed first in very essential deregulation success in the U.S business society. For instance, the agencies have successfully controlled deregulation processes in airlines, communications, and energy sector, broadcasting, and trucking among others (Whinston, 2006).
The successes are based on various theories upon which the U.S. competition law has been founded over the years. For instance, under the classical theory perspective, the doctrine of laissez-faire has been applied in antitrust policies (Chen, 2003). Under this doctrine, antitrust is regarded as unnecessary, as competition is regarded a long-term diverse process which organizations use to compete and dominate markets. In some of the market sectors, firms might successfully dominate. The domination should however be on the basis of their innovativeness or superior skills; which is the case in U.S markets (Chen, 2003).
The U.S competition law has evolved over the various theories or perspectives. For instance, the classical perspective on competition regarded certain business practices and agreements as unreasonable restraints (Whinston, 2006). The restraints impended individual liberty of business people in carrying out their livelihoods. Consequently, the various agencies and the courts have been very effective in judging restraints in the market as either permissible or not, depending on the varying business environment (Chen, 2003).
According to Posner (2001), competition policy institutions in the U.S. have extensively applied their advocacy and enforcement powers in promoting reforms in the market. For instance, the policies have enabled elimination of economic regulations restricting entry into the transport industry. An example is the entry into the airlines industry, among other industries in the transportation sector.
Antitrust policies in the U.S. have also facilitated elimination of economic regulations which restricted exit from sectors such as the rail industry. Other regulations controlling pricing of natural gas, telecommunications, and electric power have also been addressed (Besen & Levinson, 2012). Such policies have in the past limited the output from the airlines, and also prevented conventional commercial practices. The economic regulations also hindered some forms of business organizations in the professional and healthcare services sectors (Whinston, 2006).
The U.S antitrust policy such as the Clayton Act has been very effective in forbidding unfair market practices such as discrimination in prices. Price discriminations in the past for instance have been significant in lessening competition, as well as interlocking directorates between the competing firms (Whinston, 2006). The policies have also enabled recovery of treble damages, in antitrust suits. In addition, victims of unlawful commercial conduct have been afforded the opportunity of being compensated appropriately by the offenders.
The scope of the U.S competition law has been on avoiding distortions of competition, which might vary negatively affecting consumers (Besen & Levinson, 2012). For instance, it is difficult today to find collusive arrangements with adverse effects on consumers. Such arrangements include price fixing, market leader’s abuse of dominance, among others.
The market leaders’ theory is among the recent paradigms applied in antitrust policies, especially in relation to emergence of large multinational corporations. The theory clarifies roles of market leaders, as well as market entry conditions framework, exceeding that from post-Chicago approached (Etro, 2007). Market leaders’ theory paradigm has been very effective in regulating large firms common in the U.S. market such as Microsoft from suppressing market entry by smaller firms.
Ultimately, the U.S. is an example of a free thriving market, despite a few setbacks in the economy resulting from recent economic depression. According to Posner (2001), the U.S business market is one of the best global establishments with regards to protecting the interest of all stakeholders, especially the consumers. The success is attributed to the various models that have been adopted in enforcement of competition law, ranging from the classical perspective, to post-Chicago school approaches.
U.S Competition Law: Analysis
According to Motta (2004) the U.S. competition policy and the associated institutions have been very effective in reforming economic regulations and protecting business stakeholders. The reforms implemented by these agencies have been particularly effective in stimulating competition in the nation.
Motta (2004) further advances that general regulatory policy has been facilitated through commitment to competition at the federal level. In addition, regulatory programs have been primarily made subject to statutory directions, hence promoting and protecting competition at the same time (Chen, 2003). There are cases where regulations are seen to impair competition. In such instances, legal and policy foundations for reform are established.
According to Posner (2001), the other strength of US competition policy is that it is strongly linked to the interests of consumers. Maintenance of this link is embodied in the wide jurisdiction apparent of the FTC. The redundancy of the otherwise peculiar federal law enforcement structures attests or justifies protection of consumer interests (Posner, 2001).
The U.S antitrust policies and their enforcement have not been without shortcomings. According to Besen and Levinson (2012), competitive reforms in the U.S are considered as having wide array of supporters, hence the extensive diffusion in implementation. In addition, much of the economic policy is founded on competition, numerous regulators, as well as other organizations professing to implement the competition policy. The ultimate result has been differing conceptions sometimes, in r elation to implementation and enforcement of the competition law.
Two equivalent national enforcement agencies are essentially responsible for the general competition law in the U.S. In addition, there are fifty officials who have been tasked with similar and overlapping roles. Unlimited number of private antitrust policy enforcers is also in existence, all subject to hundreds of federal enforcement judges. The judges are ultimately mandated with ensuring coherence in the policy but they are not, since in most instances they are not competition policy experts (Posner, 2001).
According to Whinston (2006), not all antitrust policy enforcements or reforms have been successful. Usually, a number of the legislated exemptions have been based on responses to special interests which have been organized in advance. Consequently, a number of assignments on regulatory responsibility appear framed in a manner to preserve non-competitive situations, or even allow mergers which are potentially non-competitive (Whinston, 2006).
Competition agencies participation in the reform of non-economic regulations in the U.S. has not been adequately systematic (Chen, 2003). Consequently, any major reform efforts are complicated. The complication arises from the potential of state action or immunity, leading to permission of local regulatory programs to contradict efforts of national competition policy (Posner, 2001).
Conclusion and Recommendations for Future Policy Makers
Antitrust or competition laws are an essential component of every successful or success aspiring economy. In the U.S, economic regulation reformation process has significantly slowed, since majority of the work has been done. However, the dynamics of the contemporary business society require that competition policies are consistently and constantly evaluated, to ensure their relevance. Apparently, this need is being necessitated by the rapidly changing methods of doing business and associated technologies, as well as globalization (Whish, 2003).
Future competition policy makers have the duty of keeping up with the market changes. In addition, aspects of competition policies at the global level should be considered (Motta, 2004). Apparently, the business world is going global, whereas most competition policies are on enforceable either at the federal, state, or local levels.
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