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Competition Policy - Lesson1

The document provides a brief history of competition policy and anti-trust law in the United States and Europe. It discusses the origins of anti-trust laws in the US in response to the formation of trusts that led to high prices and hurt consumers and small businesses. Over time, enforcement of anti-trust laws fluctuated, becoming less strict during economic downturns but more active in other periods. Competition laws and their enforcement have been shaped by political, economic and historical contexts.

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Atul Verma
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68 views

Competition Policy - Lesson1

The document provides a brief history of competition policy and anti-trust law in the United States and Europe. It discusses the origins of anti-trust laws in the US in response to the formation of trusts that led to high prices and hurt consumers and small businesses. Over time, enforcement of anti-trust laws fluctuated, becoming less strict during economic downturns but more active in other periods. Competition laws and their enforcement have been shaped by political, economic and historical contexts.

Uploaded by

Atul Verma
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Competition Policy: brief

history

Lesson 1
Anti-trust law in the US
 Origins of the Sherman Act: formation of trusts
 Formation of a large single market due to
transportation & communicationeconomies of
scale and scope + innovationsexpansion in
the size of firms
 Separation between ownership-control
 Liberalization of incorporation lawswaves of
mergers
 Fall in trasportation and communication
resulted also in a rise competitionlow and
unstable prices (low costs for scale/scope ec.)
 Large investmentsattempt to operate at full
capacity to cover fixed costs resulted also in
price decrease
 Firms answered to price war with PRICE
AGREEMENTS to keep margins
 Consumers and small firms were hurt by high
prices political force of farmers and small
bussiness lead to ANTI-TRUST laws in many US
states
 Little effects at a federal level in 1890
enough consensus for the SHERMAN ACT
Sherman Act
 Section 1 prohibits contracts which restrain trade
prison and fines for violators
 Section 2 prohibits monopolisation (prison up to 3 years)
 In the first decade enforcement was not strict
 1897: Supreme Court decision on a cartel of 18 railways
fixing the transport faresillegal
 Prohibition of price agreements: strong principle, still
valid, few exceptions
 Prohibitions in vertical relationships:resale-price
maintenance
 Standard oiltrust by Rockfellermonopolisation
practices (predatory prices and acquisition of minor
firms) + Terminal railroad (essential facility case)
Sherman Act II
 Sherman act cover price fixing, market sharing
agreements and monopolization, not mergers
 Firms wishing to coordinate price had the option of
merging into a single firmsharp increse in the number
of mergers
 The Clayton Act of 1914 extended antitrust to cover
mergers reducing competition
 The Clayton act also forbids other practices like price
discrimination
 Creation of the Federal trade Commission – independent
agency - that shares with the Department of Justice
enforcement of antitrust laws
History…Politics…
 During the great depression less enforcement
of antitrust laws: more price control, more
regulation
 Ex. Coal Mine industry reduction of demand,
to avoid losses 137 producers formed a
company to control prices and allocate
output reasonable protection of the market
against destruction
 Competition laws and enforcement should be
understood in the political-economic-historic
context
More activism
 Until the mid-70s: more activism
 International salt (1947) esatblished a rule
prohibiting TIE-In SALES (a producer sells a
product only if the consumer buy another one)
 Courts ruled against “exclusive territorial
clauses” (only one distributor can operate in
each area)
 Alcoa case (alluminium): the mere fact that
Alcoa had 90% market shares and was building
new capacity was enough to prove
“monopolisation”
Chicago and Reagan
 Chicago school criticized antitrust activism and
stessed the efficiency rationale behind vertical
restraints and mergers
 Joint effect of the Chicago views and the loss of
competitveness of US firm abroad changed the
enforcement attitude of antitrust
 This trend became a major change during the
Reagan Administrationmarket forces should
be let free to select more efficient firms
 In 1977 there was a peak of 1611 antitrust
cases, in 1989 only 638
Competition laws in the EU-
Germany
 National and supra-national jurisdiction
 Most European Countries had competition laws very
recently (reproducing the features of the treaty of Rome)
 Germany: initially cartel were seen as an instrument to
control instability created by cut-throat competition and
price-wars Cartel were even enforced in Courts
 In 1923 an anti-cartel law was introduced as a reaction
to hyperinflation
 Firms cooperation and mergers was seen as a way to
make them stronger and create “national champions”
 After world War II the Allied imposed antitrust laws in
Germany & Japan to break concentration of economic
powerGermany passed a competition law in 1957
Competition laws in the EU- The UK
 After world War II competition was seen as a
remedy to unemploymentCompetition law of
1998 brought the Uk in line with the EU
 Until the 1998 the UK lacked a system of
penalties and tools of enforcement (Uk
authorities were not entitled to search
firms’headquarters and seize documents)
Competition law in the European
Communities
 Supra-national competition law in the EU orginates from
the “Treaty of Paris” European Coal & Steel Community
 Prohibition of trade barriers, discriminatory practices and
other restrictions able to distort competition
 Aims: 1.equal access to basic resources 2. free
competition increasingly seen as the best way to assure
efficient markets (due to the success of the US economy
relying on antitrust law)
 Competition rules under the Treaty of Paris wanted to
avoid discrimination on national grounds
Competition Policy in the EU
 Today the main objectives of Competition policy enforced
by the EC (under the Treaty of Rome) are probably
economic efficiency and European market Integration
 Social reasons are also consideredexemption to “Crisis
cartels”agreeements where firms engage in reciprocal
permanent reductions of overcapacity minimize the
social cost of unemployment: the social cost may be too
high since many firms might exit the industry producing
job losses
 Importance give to SME”de minimis rule” little harm
can be done by firms of limited size compared to the size
of the marketorigins from the crisis of the heavy
industry in the 70’rely on SME for industrial growth

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