Antitrust Policy Regulation Antitrust antimonopoly laws Sherman Act

Antitrust Policy & Regulation

Antitrust (anti-monopoly) laws Sherman Act of 1890 2. Clayton Act of 1914 3. Federal Trade Commission Act 1. -- Monopolists tend to produce less and charge more. -- Regulatory Agencies control economic behavior (Dept of Justice, Fed Trade Comm) -- Sherman Act outlawed collusive price fixing and monopolies. -- Strengthened the Sherman Act. -- FTC, with Justice Dept. , to investigate unfair competitive practices.

Sherman Antitrust Act n n 1890 – used in early n Outlaws monopolies 1900’s First government law to limit monopolies Gave federal gov’t power to investigate trusts and companies suspected of violating the Act “Antitrust” really means “competition law”

Trusts DEF: A combination of firms or corporations formed by a legal agreement q Especially in order to reduce competition q Standard Trust – came after Standard Oil

Clayton Antitrust Act 1914 n Strengthened Sherman Act n Prohibit “anticompetitive practices” n – Mergers/Acquisitions that lessen competition – One person being a director of competing companies

B. Cases 1. Standard Oil case (1911) – broke-up. 2. U. S. Steel case (1920) – ‘rule of reason’ by Supreme Court that unreasonably restrain trade. John D. Rockefeller controlled nearly all trade for oil and gas. The Supreme Court used the Sherman Act to break up Standard Oil into 34 companies.

Other cases…

In an out-of-court settlement, AT&T divested itself into 22 regional phone-operating companies in 1982. n AT&T’s deal to buy T-Mobile USA for $39 billion is shaping up to be a heated regulatory battle. It would create the nation’s largest cellular carrier. Lawmakers are already denouncing the deal, saying it will reduce competition in an already consolidated industry. n

Countries with Antitrust Laws shown in red

C. Mergers 1. Horizontal 2. Vertical 3. Conglomerate -- Horizontal: merger of two competitors that sell similar products in the same geographic market. Examples are Chase & Chemical Bank, Exxon & Mobile. -- Vertical: firms at different stages of production process. Examples are Pepsi. Co with Pizza Hut, Taco Bell, and KFC. -- Conglomerate: not horizontal or vertical, different firms in different geographic areas.

Effectiveness of Antitrust Laws Types of Mergers Automobiles Blue Jeans Conglomerate Merger Autos Glass B A T U C V E D W X Horizontal Merger -- Most Vertical mergers are approved by regulators. F Y Z Blue Jeans Denim Fabric Vertical Merger

Top 10 M&A deals worldwide by value (in mil. USD) from 2000 to 2010: Year Purchased Ran k Transaction value (in mil. USD) 1 2000 Fusion: America Online Inc. (AOL)[23][24] Time Warner 164, 747 2 2000 Glaxo Wellcome Plc. Smith. Kline Beecham Plc. 75, 961 3 2004 Royal Dutch Petroleum Co. Shell Transport & Trading Co 74, 559 4 2006 AT&T Inc. [25][26] Bell. South Corporation 72, 671 5 2001 Comcast Corporation AT&T Broadband & Internet Svcs 72, 041 6 2009 Pfizer Inc. Wyeth 68, 000 7 2000 Spin-off: Nortel Networks Corporation 8 2002 Pfizer Inc. Pharmacia Corporation 59, 515 9 2004 JP Morgan Chase & Co[27] Bank One Corp 58, 761 10 2009 Technofist Inc. Goldspark IT Solution PVT LTD, Inc 11 2008 Inbev Inc. Anheuser-Busch Companies, Inc 59, 974 N/A 52, 000