United States antitrust law
Criticism
There are two main kinds of monopolies: de jure monopolies, which are those that are protected from competition by government actions and de facto monopolies, which are not protected by law from competition and are simply the only supplier of a good or service. Advocates of laissez-faire capitalism advocate that the only type of monopoly that should be broken up is what they call a coercive monopoly, that is the persistent, exclusive control of a vitally needed resource, good, or service such that the community is at the mercy of the controller, and where there are no suppliers of the same or substitute goods to which the consumer can turn. In such a monopoly, the monopolist is able to make pricing and production decisions without an eye on competitive market forces and is able to curtail production to price-gouge consumers. Laissez-faire advocates argue that such a monopoly can only come about through the use of physical coercion or fraudulent means by the corporation or by government intervention and that there is no case of a coercive monopoly ever existing that was not the result of government policies.
Free market economist Milton Friedman states that he initially agreed with the underlying principles of antitrust laws (breaking up monopolies and oligopolies and promoting more competition), but that he came to the conclusion that they do more harm than good.<12>
Critics also argue that the empirical evidence shows that "predatory pricing" does not work in practice and is better defeated by a truly free market than by anti-trust laws (see Criticism of the theory of predatory pricing).
Thomas Sowell argues that, even if a superior business drives out a competitor, it does not follow that competition has ended:
In short, the financial demise of a competitor is not the same as getting rid of competition. The courts have long paid lip service to the distinction that economists make between competition—a set of economic conditions—and existing competitors, though it is hard to see how much difference that has made in judicial decisions. Too often, it seems, if you have hurt competitors, then you have hurt competition, as far as the judges are concerned.<13>
Alan Greenspan argues that the very existence of antitrust laws discourages businessmen from some activities that might be socially useful out of fear that their business actions will be determined illegal and dismantled by government. In his essay entitled Antitrust, he says: "No one will ever know what new products, processes, machines, and cost-saving mergers failed to come into existence, killed by the Sherman Act before they were born. No one can ever compute the price that all of us have paid for that Act which, by inducing less effective use of capital, has kept our standard of living lower than would otherwise have been possible." Those, like Greenspan, who oppose antitrust tend not to support competition as an end in itself but for its results—low prices. As long as a monopoly is not a coercive monopoly where a firm is securely insulated from potential competition, it is argued that the firm must keep prices low in order to discourage competition from arising. Hence, legal action is uncalled for and wrongly harms the firm and consumers.<14>
Thomas DiLorenzo, an adherent of the Austrian school of economics, found that the "trusts" of the late 19th century were dropping their prices faster than the rest of the economy, and he holds that they were not monopolists at all.<15>
http://en.wikipedia.org/wiki/United_States_antitrust_lawCan the Clayton Act be used on AIG?
Provisions
The Clayton Act made both substantive and procedural modifications to federal antitrust law. Substantively, the act seeks to capture anticompetitive practices in their incipiency by prohibiting particular types of conduct, not deemed in the best interest of a competitive market. There are 4 sections of the bill that proposed substantive changes in the antitrust laws by way of supplementing the Sherman Act of 1890. In those sections, the Act thoroughly discusses the following four principles of economic trade and business:
price discrimination between different purchasers if such a discrimination substantially lessens competition or tends to create a monopoly in any line of commerce (Act Section 2, codified at 15 U.S.C. § 13; if not for this particular concept, the Government would have to intervene in the fixing of prices which was to be avoided because of its comparison to a socialism state;
sales on the condition that (A) the buyer or lessee not deal with the competitors of the seller or lessor ("exclusive dealings") or (B) the buyer also purchase another different product ("tying") but only when these acts substantially lessen competition (Act Section 3, codified at 15 U.S.C. § 14);
mergers and acquisitions where the effect may substantially lessen competition (Act Section 7, codified at 15 U.S.C. § 18);
any person from being a director of two or more competing corporations (Act Section 8; codified at 15 U.S.C. § 19).
It is noteworthy how the substantive provisions differ from the Sherman act. Unilateral price discrimination is clearly outside the reach s. 1 of the Sherman act, which only extended to "concerted activities" (agreements). However, the other provisions seem somewhat redundant. Exclusive dealing, tying, and mergers are all agreements, and theoretically, within the reach of Sherman-1. Likewise, mergers that create monopolies would be actionable under Sherman-2.
However, the substantive provisions of the act are significant. First, Section 7 of the Clayton Act allows greater regulation of mergers than just Sherman-2, since it doesn't require a merger-to-monopoly before there is a violation; it allows the Federal Trade Commission and Department of Justice to regulate all mergers, and gives the government discretion whether to approve a merger or not, which is still a widely approved action by the government today. It employs the Herfindahl-Hirschman Index (HHI") test for market concentration, to see if the merger if a positive one.
Section 7 is probably the most notable one as it elaborates on specific and crucial concepts of the Clayton Act; "holding company" defined as a "common and favorite method of promoting monopoly"<1>, but more precisely as "a company whose primary purpose is to hold stocks of other companies"<2> which the government saw as an abomination and a mere corporated form of the 'old fashioned' trust.
Another important factor to consider is the amendment passed in Congress on Section 7 of the Clayton Act in 1950. This original position of the US government on mergers and acquisitions was strengthened by the Celler-Kefauver amendments of 1950, so as to cover asset as well as stock acquisitions.
Section 8 of the Act refers to the prohibition of one person of serving as director of two or more corporations.
Because the act singles out exclusive dealing and tying arrangements, one may assume they would be subject to heightened scrutiny, perhaps they would even be illegal per se. That is not the case. When exclusive dealings or tying arrangements are challenged under Clayton-3 (or Sherman-1), they are treated as rule of reason cases.
Under the 'rule of reason', the conduct is only illegal, and the plaintiff can only prevail, upon proving to the court that the defendants are doing substantial economic harm. Despite what the statute may suggest, the regime makes sense. The reason for the per se rule in Sherman-1 price fixing cases is the overwhelming likelihood that price fixing is harmful. It is a recognizable fact that exclusive dealings and tying arrangements are quite common, and potentially beneficial to consumers, and the economy. Therefore, the Court has seen fit not to apply a per se rule to Clayton-3 conduct.
http://en.wikipedia.org/wiki/Clayton_Antitrust_ActOnce again we get back to Ronald Reagan, Alan Greenspan and the Chicago School of Economics. It's THEIR FAULT!
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